Israel left with no refineries operating, surging fuel deficit after Iranian strikes

Israel faces major fuel supply challenges if it fails to quickly repair drone damage to its Haifa plant, which has left the country without any operating refineries for at least a matter of weeks.

Outages at Haifa and a second refinery, Ashdod, which is currently under maintenance, will flip Israel into becoming a net oil product importer for its fuel. At a critical juncture for the country's military campaign, surging imports for supplies like jet fuel will test the limits of domestic port infrastructure, analysts say.

Israel's largest refinery, Haifa, has so far been the largest piece of oil infrastructure to be struck by missiles. On June 16, refinery owner Bazan reported that the entire plant was offline after a nearby power plant was hit, following previous damage to its pipeline infrastructure.

The attack coincided with planned maintenance at the smaller 110,000 b/d refinery in Ashdod, which is set to restart in two weeks, an energy ministry source told Platts, part of S&P Global Commodity Insights.

Israel's Minister of Energy and Infrastructure, Eli Cohen, assured the press June 18 that the Haifa refinery could reopen "in a few weeks." A ministry statement June 19 indicated that the country is capable of meeting its domestic fuel needs through additional refining facilities and imports.

However a spokesperson for Bazan Group said that a damage assessment is ongoing and there is still no estimated timeline to restore activity at the plant.

When the refinery was hit, Haifa was processing below its usual rates at roughly 150,000 b/d, reflecting a gradual ramp-up from maintenance conducted earlier this year, according to intelligence from Bazan.

The plant typically runs at around 85% of its 197,000 b/d capacity, serving roughly 60% of diesel and 50% of gasoline consumed in the domestic transport market.

Import surge

Damage to the Haifa site has therefore temporarily stripped Israel of its relative self-sufficiency in fuel as the conflict has intensified.

Already, ship-tracking data has signaled a surge in import activity for key oil products, including jet, diesel and gasoline. Mediterranean traders said that Bazan was seeking 60,000 mt of jet and diesel fuel and may need to consider reselling its crude oil to avoid inventory pileups.

Bazan was not available for comment.

While the Haifa complex remains offline, Israel could be forced to increase its gasoline imports from 10,000 b/d to roughly 50,000 b/d and boost diesel shipments to its ports from 10,000 b/d to 60,000 b/d, S&P Global Commodity Insights analysts estimate.

After Iranian airstrikes halted production at the country's Karish and Leviathan gas fields, diesel demand could also jump as more supplies are used to fuel generators and keep the grid running.

The refinery outages have also forced the country to import its first jet fuel in months, as it has worked to sustain supplies for its military.

Before the conflict, Israel imported around one jet cargo every three to four months, Kpler data shows, most recently in April. Commodity Insights analysts estimate that downtime at Haifa could prompt Israel's seaborne imports to jump from next to nothing to around 10,000 b/d.

However, as focus has turned to strategic military stocks, the government appears to be looking to its Western allies as a potential backstop for reserves. The UK confirmed June 14 that it was sending air-to-air refuelers to the Middle East "for contingency support," while the US is reported to have also moved refueling aircraft to Europe.

Infrastructure limits

With one or both refineries down, surging imports could put pressure on port infrastructure and pipeline logistics.

Ports in Ashkelon, Ashdod and Haifa provide access points for oil tankers, but terminals could face challenges with congestion and limited berthing space, analysts say.

A note from S&P Global Ratings posted on the Tel Aviv stock exchange June 18 said that the Ashdod site could struggle to support imports to compensate for the shutdown at Haifa, creating supply risks even with just one refinery down.

According to Kpler records, spurts of oil product imports to Ashdod have typically hovered around 25,000 b/d when activity picks up. Volumes have never exceeded an 87,000 b/d spike in December 2023.

Additionally, the single crude pipeline running from Ashkelon to Haifa only runs in one direction, leaving the wider region without pipeline infrastructure to support product deliveries while the site is down.

As it works to urgently restore production, the Israeli government has said it has sufficient stocks to cover its energy needs, according to its June 19 statement.

Representatives for regional storage operators, including Paz, PEI and EAPC, were not available for comment on inventory volumes.