Diesel hits record high as Ukraine and Iran wars knock out refineries, fueling inflation worries
The price of diesel fuel has reached a record high due to the ongoing conflicts in Ukraine and Iran, which have resulted in a significant reduction in global refining capacity. This development has triggered a supply crunch, pushing diesel prices to an average of $5.85 per gallon nationwide in the United States, representing a nearly 60% increase compared to the same period last year when diesel cost $3.71 per gallon. In California, diesel prices are even higher, averaging $7.70 per gallon, almost $2 per gallon more than the national average.
Diesel Price Surge and Inflation Concerns
The surge in diesel prices has significant implications for inflation, as diesel is a critical component of the economy. According to John Kilduff, partner at Again Capital, diesel prices directly impact inflation, stating, “You can do all the virtual shopping you want, it’s all going to come to your house on a truck that ran on diesel fuel so there’s no way around it.” This sentiment is echoed by Bob McNally, founder of Rapidan Energy, who notes that diesel is more embedded in the economy than gasoline prices, as it is used in transportation, heating fuel, agriculture, and industrial applications.
Global Supply Crunch
The ongoing conflicts in Ukraine and Iran have resulted in a substantial reduction in global refining capacity. Ukraine’s attacks on Russian refineries have forced Moscow to ban diesel exports, while Iran’s attacks on tankers in the Strait of Hormuz and regional energy infrastructure have taken refineries offline in the Middle East. According to Valero chief operating officer Gary Simmons, the wars have shut down refineries with approximately 5 million barrels per day of capacity, as stated during the U.S. refiner’s July 30 earnings call.
Refining Fundamentals and Disruptions
Refining fundamentals are extremely tight and continue to worsen due to the issues in Russia and the Middle East, as noted by Brian Mandell, executive vice president for marketing at Phillips 66, during the refiner’s August 5 earnings call. Andy Lipow, president of Lipow Oil Associates, estimates that about 8 percent of the diesel needed to supply global demand of 28 million barrels per day is currently disrupted. Specifically, Russia’s diesel export ban affects around 800,000 barrels per day of supply, while the disruptions in the Strait of Hormuz have impacted approximately 1.2 million barrels per day. Additionally, Iran’s Houthi allies have knocked out Saudi Arabia’s Jizan refinery, which produces around 200,000 barrels per day.
Economic Impact of Diesel Price Increase
The increase in diesel prices acts as a “stealth tax,” according to Lipow. The higher fuel cost is passed on to consumers in the form of higher prices for goods and services delivered by truck and rail. As diesel prices continue to rise, the ripple effect is expected to spread throughout the economy, influencing a wide range of industries and ultimately affecting everyday consumers.
Source: CNBC · 2026-09-04