Energy Market Volatility and Geopolitical Shocks: Implications for Oil Refinery Investments

The energy landscape from 2023 to 2025 has been defined by a volatile interplay of geopolitical shocks and strategic sector reallocation. As regional conflicts target critical infrastructure and global alliances shift, oil refinery investments have become increasingly precarious. This analysis examines how geopolitical risks are reshaping capital flows, infrastructure resilience strategies, and the long-term viability of traditional refining operations.

Geopolitical Shocks and Infrastructure Vulnerability

Recent conflicts have exposed the fragility of oil refinery infrastructure. Ukraine's sustained offensive against Russian refineries, supported by advanced drone technology and homegrown cruise missiles, has crippled Russia's ability to produce high-value refined products. By July 2025, refineries' outstanding loans had surged to $14 billion, while domestic fuel shortages emerged in regions like Vladivostok, as documented in the Global energy transition under geopolitical risks. This campaign underscores how modern warfare can weaponize energy infrastructure, directly impacting global supply chains and market stability.

Simultaneously, Middle East tensions have amplified volatility. In June 2025, Israeli airstrikes on Iranian nuclear infrastructure triggered a 14% spike in Brent crude prices, from $69 to $79 per barrel, as fears of Strait of Hormuz disruptions gripped markets, according to KPMG's Top geopolitical risks 2025. Such events highlight the cascading effects of regional instability on energy pricing and investor confidence.

Strategic Sector Reallocation: From Refineries to Resilience

Investors are recalibrating portfolios to mitigate geopolitical risks. A key trend is the divestment from conflict zones and the reallocation of capital toward infrastructure resilience and petrochemicals. For instance, Petroineos Refining Ltd. permanently shut down its 150,000-b/d Grangemouth refinery in Scotland by mid-2025, repurposing the site into a fuels import terminal, as reported in the OGJ piece on divestments and closures. Similarly, ExxonMobil sold its 133,000-b/d Fos-sur-Mer refinery in France to a consortium led by Trafigura, aligning with its net-zero strategy, according to the same OGJ coverage.

These moves reflect broader industry shifts. Over 70% of energy transition respondents in KPMG's 2025 outlook reported accelerating investments in renewable assets despite high interest rates, and the petrochemical sector remains a critical anchor for oil demand, accounting for one in six barrels by 2030, according to the Global energy transition under geopolitical risks study. This duality-transitioning toward renewables while maintaining fossil fuel reliance-has created a fragmented investment landscape.

Infrastructure Resilience: A New Priority

Midstream infrastructure projects are gaining traction as a hedge against volatility. In the Permian Basin, new pipelines and LNG export terminals aim to alleviate natural gas bottlenecks and meet surging demand from data centers, which are projected to consume 9% of U.S. electricity by 2030, as KPMG's energy outlook notes. Such projects are critical for maintaining energy security amid geopolitical fragmentation, particularly as U.S. threats of tariffs on Russian oil and Mercosur's potential dissolution introduce further uncertainty.

Resilience strategies are also emerging in Belt and Road Initiative (BRI) countries, where geopolitical risks deter clean energy investments. Studies show that regional cooperation and environmental policies can offset these risks, attracting capital to infrastructure projects, as discussed in Geopolitical risks and resilience strategies. For example, China's dominance in solar and wind manufacturing has spurred cross-border partnerships, even as U.S. efforts to bolster domestic fossil fuel production intensify, according to KPMG's analysis.

Future Outlook: Navigating Uncertainty

The oil market is forecast to remain well-supplied through 2030, but uncertainties persist, according to Global refinery closure outlook to 2035. OPEC's gradual supply increases could depress prices, while the pace of the energy transition remains uneven. For investors, the key lies in balancing exposure to traditional refining (particularly in Asia, where demand is growing) with high-return infrastructure projects and petrochemicals, as noted in the Global energy transition under geopolitical risks assessment.

However, risks linger. National Oil Companies (NOCs) acquiring divested assets in Africa and Latin America often lack the resources or ESG commitments of international firms, raising concerns about long-term sustainability, as highlighted by Wood Mackenzie. Meanwhile, the U.S.-China rivalry over rare earth minerals and renewable supply chains could further fragment markets, a trend chronicled in OGJ coverage of industry divestments and net-zero strategies.

Conclusion

Geopolitical shocks have irrevocably altered the energy investment paradigm. While oil refineries face existential threats from conflict and transition, resilience infrastructure and petrochemicals offer pathways to stability. Investors must adopt a dual strategy: hedging against volatility through diversified infrastructure and leveraging the petrochemical sector's enduring demand. As emphasized in Geopolitical risks and resilience strategies, stronger policy frameworks and cross-border collaboration will be essential to mitigate energy insecurity and climate risks.