Traders and analysts warn that surging diesel prices threaten to stifle global economic activity, as the war in the Middle East impacts fuel supplies critical for industry and the specific types of crude oil best suited for its production.
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Diesel has faced supply shortages for years due to disruptions from Ukrainian strikes on Russian refineries and Western sanctions on Moscow's exports. The escalating conflict involving Israel, the United States, and Iran is now fueling supply fears, as Tehran disrupts maritime traffic in the Strait of Hormuz, through which 10% to 20% of the world's seaborne diesel supply passes.
"Diesel is the product most structurally exposed to this conflict," said Shohrukh Zokhiriddinov, founder of Dubai-based Nitroil Trading. "Diesel powers transport, agriculture, mining, and industrial activities, making it the most macro-sensitive part of the system."
Energy economist Philip Verleger estimated that diesel supply losses linked to disruptions in the Strait of Hormuz could range between 3 to 4 million barrels per day (bpd), or roughly 5% to 12% of total global consumption. He added that another 500,000 bpd would be lost due to export bans from Middle Eastern refineries.
"By closing the Strait (of Hormuz), Iran has cut off Middle Eastern exports of distillate-rich crude oil, jet fuel, and diesel. There is a term in chess for this: Checkmate," Verleger remarked.
Consequently, diesel prices have risen much faster than oil and gasoline since the war began. Verleger believes retail prices could nearly double if the Strait of Hormuz remains closed for an extended period. U.S. diesel futures surged by more than $28 per barrel between February 27 and March 10, compared to a $16 increase in U.S. crude oil futures.
Impact on Economic Activity
The shock of rising diesel prices is likely to reverberate through the global economy. James Noel-Beswick, an analyst at Sparta Commodities, stated that sustained high prices for diesel and jet fuel would lead to demand destruction and a slowdown in economic activity.
Dean Leulkin, CEO of Cardiff—a U.S. firm specializing in small business lending—said: "Transportation costs for nearly all goods have risen, which will inevitably show up in food and consumer prices soon. If diesel prices remain high, the greatest risk is a second wave of cost-push inflation."
The impact may be immediate on food prices, as farmers might be forced to slow planting in the U.S. just as the season begins. Shaya Hosseinzadeh, founder of Onyx Point Global Management, noted: "A sustained fuel price shock driven by diesel could be stagflationary in nature, as it raises the cost of moving goods and producing food while squeezing consumers."
Diesel Prices Surge Globally
In Asia, a major importer of Middle Eastern fuel, margins for 10ppm sulfur diesel hovered around $33 per barrel—nearly $12 higher than pre-war levels—after hitting a three-and-a-half-year high of $48 on March 4.
In Europe, data from Quantum Commodity Intelligence showed that Ultra-Low Sulfur Diesel (ULSD) prices in the Amsterdam-Rotterdam-Antwerp (ARA) hub jumped nearly 55% since February 27 to approximately $1,165 per ton.
Alex Hodes, Market Strategy Manager at StoneX, explained that Europe is heavily tied to Middle Eastern imports as it seeks to end its dependence on Russian supplies. Tom Kloza, chief consultant at Gulf Oil, added: "Historically, diesel sells for maybe a $20 to $25 premium over crude oil, but these days we are seeing margins between $30 and $65 per barrel, and even higher."
Source: Reuters
