Europe Rethinks Refinery Phase-Down as Fuel Security Bites

European refineries supply roughly 70% of the continent's jet fuel and 85% of its diesel — and that share is now the number driving a policy reversal in Brussels, where the European Commission has launched its first High-Level Dialogue with the oil refining sector to rethink two decades of capacity phase-down.

What has Europe lost?

Over the past 20 years, Europe has shut down about a quarter of its oil refineries, cutting processing capacity by roughly 10%. EU policymakers anticipated that the green transition would steadily shrink domestic demand for gasoline and diesel, making the capacity redundant. Much of the attrition was not voluntary. Under the EU Emissions Trading System (ETS), refineries face a declining cap on carbon emissions and receive fewer free allowances over time, sharply raising operating costs. The Industrial Emissions Directive (IED) adds mandates for expensive retrofits and continuous compliance spending, squeezing refining margins further.

The result: the continent now leans harder on imported refined products, and that exposure has a price tag. The current energy shock has added more than €100 billion (about $111 billion) to Europe's import bills, exposing the cost of dismantling fossil-fuel infrastructure before clean alternatives could handle a worst-case scenario.

How acute is the pressure?

European natural gas prices shot past €100 per megawatt-hour on Friday — the highest level since Russia invaded Ukraine in 2022 — as Middle East disruptions choked off LNG supplies through the Strait of Hormuz and traders priced in fears of a renewed hot war after the U.S. midterm elections. Brent has hit $117 as a tanker caught fire in the Strait of Hormuz.

EU Energy Commissioner Dan Jørgensen has termed the geopolitical instability and the prolonged diesel squeeze a "wake-up call" for the bloc. Europe's renewables share — roughly half the power mix, versus about 26% in the U.S. — has not insulated transport fuels from the crunch.

Who is pushing back?

Central European nations — Poland, Czechia, and Slovakia — have pressed the European Commission for a long-term protective strategy for the sector. Their asks are specific:

• Protection from carbon leakage under the ETS
• Access to EU funds for facility upgrades
• ETS rules that adequately factor in international competition
• Eased administrative and financial conditions that currently hinder upgrades

Their argument: strict climate rules risk leaving the bloc dependent on foreign fuel imports.

What does the new dialogue change?

On Wednesday, the Commission launched the High-Level Dialogue, co-chaired by Jørgensen (Energy and Housing) and Andrius Kubilius (Defence and Space). The forum mapped short-term responses to supply disruptions from the Middle East conflicts and addressed industrial competitiveness and defense readiness.

Kubilius emphasized that fuel supplies are crucial for military mobility and overall defense readiness. Under NATO's force readiness models, the alliance must be able to deploy and fully supply 100,000 troops within the first 10 days of a crisis — a large, sudden demand for tactical fuel that crude oil imports cannot replace if processing infrastructure is missing.

Under the AccelerateEU framework, the EU will revise current regulations so strategic fuel stocks are easily accessible for military operations in exceptional circumstances. Kubilius also called for:

• More resilient fuel infrastructure across the bloc
• Expansion of the Cold War-era Central Europe Pipeline System to improve supply lines to the eastern flank

The Commission additionally announced plans for a joint roadmap with industry on the sector's transformation, including investment in alternative fuels such as biofuels and e-fuels.

The watch item

The pivot creates friction between defense requirements and the 2050 climate-neutrality track. For refining practitioners, the concrete signals to track are three: the revised AccelerateEU rules on strategic fuel stock access, any ETS amendment responding to the Central European demands, and funding decisions on the Central Europe Pipeline System expansion.

Each would mark a step away from managed decline toward retained capacity — the outcome Brussels is now quietly weighing.