{"id":869288,"date":"2026-08-24T04:28:11","date_gmt":"2026-08-24T04:28:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/869288\/"},"modified":"2026-08-24T04:28:11","modified_gmt":"2026-08-24T04:28:11","slug":"diesel-crisis-threatens-to-outlast-the-middle-east-war","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/869288\/","title":{"rendered":"Diesel Crisis Threatens to Outlast the Middle East War"},"content":{"rendered":"

The outlook for the Middle East war remains grim, the U.S. just threatened<\/a> Iran with the \u201ctoughest sanctions in history,\u201d and the world is running out of stored fuels. To make matters worse, refining capacity is down considerably, and even if the outlook for the war suddenly changed and the U.S. and Iran made peace, the fuel squeeze will last for months\u2014and so will its adverse effects on the global economy.<\/p>\n

Watching crude oil prices, one would think everything is under control. Both Brent crude<\/a> and West Texas Intermediate<\/a> are below $100 per barrel, even if they are both up by around $20 per barrel from pre-war levels. Still, the price rise in crude oil is much more moderate than the inflation in fuel prices. Diesel in Europe, for instance, is up by 70% from pre-war levels, as reported<\/a> by Reuters\u2019 Ron Bousso this week.<\/p>\n

A separate Reuters report<\/a> showed that diesel now costs more in Europe than jet fuel. This is the first time in over a year that the price difference between the two fuels is in favor of diesel, the publication noted, citing data from LSEG. The diesel crack spread in the United States hit triple digits<\/a> earlier this week, for the first time ever. The premium over crude prices jumped to as high as $102 per barrel on Monday, before easing slightly to about $100 a barrel on Tuesday. Related: China\u2019s Teapots Look Beyond Iranian Oil amid U.S. Blockade<\/a><\/p>\n

Refinery margins are running at record highs across the world as the energy crisis unfolds. The first aspect of this crisis is the tighter supply of crude from the Middle East, which should be obvious enough since the media has been covering the topic on a daily basis for over six months. Yet there has also been refinery damage in the Middle East. In fact, per the International Energy Agency, as much as a fifth of that refining capacity, totaling some 9.6 million barrels daily, has been knocked out by hostilities.<\/p>\n

In addition to the Middle East crisis, the relentless drone strike barrage by Ukrainian forces against Russian refineries has led to fuel shortages and a ban on exports to secure more domestic supply. As a result, the world\u2019s second-largest diesel exporter is closed for business, leaving the market for the \u201cworkhorse\u201d fuel of the economy even tighter\u2014and there are not enough refineries outside the Middle East and Russia to handle demand.<\/p>\n

That demand, however, remains substantial, so the United States, which has been insulated from the more direct effects of the two hot wars, has been ramping up fuel exports, with those hitting an all-time weekly average high of 1.9 million barrels daily. However, these exports have been driven this high not only by higher-than-usual refinery utilization rates. These rates have been supplemented by inventory draws, and that may become a problem.<\/p>\n

\u201cThose flows are drawing down already tight U.S. inventories, the only major hub open for business, creating a global competition for fuel that is pushing diesel cracks back toward record seasonal highs,\u201d Bank of America analysts warned in a note earlier this week, as quoted<\/a> by the Wall Street Journal. The situation is especially serious in diesel because, as Goldman Sachs analysts warned also this month, stocks of the fuel globally were already tight before the war in the Middle East began.<\/p>\n

What this means is that inflation risks have surged and that they may well remain elevated for years, with global refinery runs in the second quarter of the year at 5.1 million barrels daily below last year\u2019s levels, according to IEA data cited by Reuters\u2019 Bousso. Yet demand for fuels fell by some 4 million barrels daily, which left a gap of over 1 million barrels daily\u2014and let us not forget that the demand destruction was not voluntary. It was forced, and it was forced by soaring prices. In other words, demand destruction would not be very effective as protection against inflation.<\/p>\n

According to Bousso, the real energy crunch is only just starting. One could argue it started in March, but it took more time to become evident because it was a creeping crisis rather than a flashy, sudden event. That it will get worse still is hard to argue. \u201cEurope has a tremendous diesel problem,\u201d Eugene Lindell, head of refined products at consultancy FGE NexantECA, told<\/a> Bloomberg earlier this month. \u201cIt will get ugly in the sense that you will probably see extremely high flat prices.\u201d<\/p>\n

It will not get ugly only in Europe. The whole world uses diesel, and a lot of it\u2014and as the weather gets colder in the northern hemisphere, demand for diesel rises, both for transport and for heating. Inflation is already on the rise: a 3.4% consumer price jump for the U.S. and eurozone prices up 2.9%, both on the back of higher energy costs, tell a short but compelling story about energy security. That may just be the beginning of the ripple effect of the wars on the world.<\/p>\n

By Irina Slav for Oilprice.com<\/p>\n

More Top Reads From Oilprice.com<\/p>\n

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