Europe's defence spending props up shrinking refining sector, says VAROPreem CEO 

(Corrects price of European diesel contract in paragraph 9)

LONDON, Oct 1 (Reuters) - Europe's shrinking oil refining sector is benefiting from rising demand for the fuel needed to support government defence plans, the CEO of one of the continent's biggest refiners said.

European Union member states' defence spending rose for the 11th year running in 2025 to €418 billion ($472 billion), marking a 75% increase since 2021, with further gains forecast for this year, data from the European Council shows.

"Every conversation I'm having with European governments today is all about how do you maintain resilience, how do you maintain continuity of supply? I would say that period between 2015 and 2022 the entire focus was how could you shut refineries down," VAROPreem CEO Dev Sanyal told Reuters on Thursday.

"European governments realise that there's a need for more fuel. There's (also) a need for more energy because of the competitive advantage Europe wants to achieve on AI," he added.

Since 2009, 30 of around 100 refineries operating in Europe have been closed or converted and at least seven converted into biorefineries, severely curbing the capacity to produce diesel, gasoline or jet fuel in the European Union, Britain, Norway and Switzerland, a report by trade group FuelsEurope said.

"Now, with defence spending, you realise that whether you have F-35s (US-made fighter jets), you have Leopard tanks, they don't run on biogas," said the CEO of Swiss-headquartered VAROPreem, which has a capacity of around 530,000 barrels per day with refineries in Sweden, Switzerland and Germany.

Refining capacity in EU countries, Britain, Turkey, Ukraine and Switzerland stood at 14.4 million bpd last year, down from 17.5 million bpd in 2009, according to the Statistical Review of World Energy most recently published by the Energy Institute.

Diesel prices have rocketed since the Iran war choked off vital shipping lanes and following sustained attacks on Russian refining infrastructure.

The benchmark European diesel futures contract has hit highs above $1,500 a metric ton since the Iran war began, levels last seen in the aftermath of Russia's invasion of Ukraine in 2022.

Meanwhile, US retail diesel prices hit a record $6.50 per gallon this month, with US pressure on Europe to release diesel stockpiles rising, sources said.

($1 = 0.8851 euros)

(Reporting by Shadia Nasralla, Ahmad Ghaddar, Dmitry Zhdannikov, Seher Dareen; Editing by Alexander Smith)