Oil prices have refused to go below $100 per barrel so far in this month with Brent Oil rising 4.9% during the last week. While the conflict in the Middle East continues to put heavy strain on global oil prices, the renewal of hostilities between Russia and Ukraine has added further pressure in oil prices. The combined effects of destruction in energy infrastructure and disruption in shipping routes have heightened concerns over the availability of crude oil and refined petroleum, particularly diesel. This leaves the outlook for oil prices heavily dependent on specific ground-level developments in the two regions, with any further escalation potentially sustaining prices above current levels.
Situation in the Middle East
The ongoing conflict involving the US, Israel and Iran continues to disrupt global energy supplies, with the Strait of Hormuz remaining a major source of uncertainty. The latest escalation came over the weekend when Iran’s Islamic Revolutionary Guard Corps reported that two oil tankers, each carrying around two million barrels of crude, caught fire after hitting naval mines in the Strait. These incidents come during an increase in attacks on commercial vessels, with the average volume of crude oil moving through the Gulf reportedly falling to around 8.5 million barrels per day last week, from more than 20 million barrels per day the week before.
The situation remains especially concerning given that the Strait previously handled approximately one-fifth of global oil and liquefied natural gas trade. While the US and Iran continue to exchange proposals through intermediaries, negotiations remain stalled over the reopening of the Strait. Washington is also maintaining a naval blockade of Iranian oil exports, further complicating efforts to restore normal energy flows. For now, the market remains highly sensitive to developments in the region. Any further attacks on vessels or prolonged disruptions to shipping could sustain the risk premium in oil prices, even if additional supplies become available elsewhere.
The Russia-Ukraine war adds fuel to the fire
Beyond the Middle East, renewed attacks on Russian energy infrastructure have added another layer of uncertainty to an already tight oil market. Ukraine has resumed strikes on Russian oil refineries after the proposed energy ceasefire failed to prevent further Russian attacks on Ukrainian energy facilities. On 15 October, Russia reported a Ukrainian drone attack on its Ryazan refinery, while Ukraine’s President Volodymyr Zelenskyy said Kyiv would resume targeting Russian oil infrastructure.
The situation escalated further over the weekend, when Ukraine launched one of its largest drone offensives of the war, targeting energy infrastructure in and around St Petersburg. Russian authorities reported fires at the St Petersburg oil terminal and the Ruchi oil depot, alongside damage to other facilities. These attacks raise concerns over Russia’s ability to maintain oil exports and supply refined petroleum products to international markets.
The significance extends beyond crude production. Damage to refineries can reduce the availability of diesel and other refined products even when crude oil remains available. With global diesel markets already under pressure, further disruptions to Russian refining capacity could tighten supplies and increase costs for transport and industrial users.
Meanwhile, the US has been attempting to limit attacks on energy infrastructure as part of its proposed energy ceasefire. However, President Trump has criticized Ukraine’s renewed strikes, while Kyiv argues that Russia has continued attacking its energy sector. Although diplomatic contacts continue and US intelligence cooperation with Ukraine has resumed, there is little evidence of a durable agreement to protect energy infrastructure.
Washington eases pressure on Moscow as Europe holds its ground
In a significant policy shift, US President Donald Trump has waived key sanctions and tariffs under the recently enacted Graham Act, which was intended to increase economic pressure on Russia over its war in Ukraine. The administration has defended the move as being in US national interests, while arguing that greater Russian fuel exports could help ease domestic energy prices. Washington has also announced a deal to import Russian diesel, with volumes expected to increase over time.
Europe, however, appears reluctant to follow Washington’s approach. The European Union has maintained its sanctions against Russia and continues to tighten enforcement against circumvention. On 15 October, the EU imposed additional measures against individuals and entities involved in evading sanctions linked to Russian oil and financial transactions. European leaders are also considering further financial support for Ukraine as uncertainty over US policy grows.
What does it mean for Sri Lanka?
For Sri Lanka, the renewed increase in oil prices poses a challenge for both the external sector and domestic price stability. The country spent approximately USD 4.07 billion on fuel imports during January–August 2026, representing a 61.6% increase compared with the same period last year. Fuel imports alone therefore remain a significant source of foreign exchange outflows.
A prolonged period of elevated oil prices could widen the import bill further, placing additional pressure on the trade balance and the country’s foreign exchange requirements. Higher international diesel prices could also raise transportation, logistics and production costs, gradually feeding into domestic inflation. The possibility of increased Russian fuel exports offers some hope of easing international prices, but this benefit remains uncertain. Any additional supply could be offset by continued disruption in the Strait of Hormuz or further damage to Russian refining infrastructure.