Middle East War Drives Diesel Costs Higher, Threatens Economic Slowdown

Rising diesel fuel costs linked to Middle East conflicts are creating concerns about potential economic slowdown globally. The disruptions to shipping routes and refinery operations are driving up prices for the fuel that powers trucks, farms, and industrial operations.

NEW YORK, March 10 – Rising costs for diesel fuel connected to ongoing Middle East warfare are creating concerns about potential worldwide economic slowdown, as conflicts disrupt both fuel supplies and the crude oil needed for production, according to industry experts and market analysts.

The industrial fuel has faced supply constraints for several years following Ukrainian strikes on Russian refining facilities and Western economic penalties against Moscow’s exports. Current Israel-U.S. conflicts with Iran have intensified supply concerns as Tehran continues interfering with maritime traffic through the Strait of Hormuz, a waterway carrying 10% to 20% of worldwide seaborne diesel shipments.

“Diesel is the most exposed product to this conflict structurally,” stated Shohruh Zukhritdinov, founder of Dubai-based Nitrol Trading. “Diesel underpins freight, agriculture, mining and industrial activity, making it the most macro-sensitive barrel in the system.”

Energy economist Philip Verleger calculated that supply disruptions from Strait of Hormuz interference amount to approximately 3 to 4 million barrels daily, representing roughly 5% to 12% of worldwide consumption. He noted that an additional 500,000 barrels per day will be unavailable due to blocked Middle Eastern refinery exports.

“By shutting the Strait (of Hormuz) Iran has cut the exports of distillate-rich Middle Eastern crude, jet fuel, and diesel. There is a term for this in chess: CHECK,” Verleger explained.

Consequently, diesel costs have climbed much more rapidly since Middle East hostilities began compared to oil and gasoline, and retail prices could approximately double if the Strait of Hormuz remains blocked for extended periods, Verleger indicated.

U.S. diesel futures increased more than $28 per barrel between February 27 and March 10, while U.S. crude oil futures rose over $16 per barrel during the same timeframe.

Comparable increases occurred in Singapore’s Asian trading center and Europe’s Amsterdam-Rotterdam-Antwerp hub, creating elevated diesel profit margins worldwide.

The diesel price surge will likely impact global economic activity. Extended diesel and jet fuel cost increases will reduce demand and slow economic growth, according to Sparta Commodities analyst James Noel-Beswick.

“Transport costs for almost everything are up, which will inevitably show up in food and consumer prices soon enough. If diesel prices stay elevated, the biggest risk is a second wave of cost-push inflation,” explained Dean Lyulkin, chief executive officer of U.S.-based small business lender Cardiff.

Increased diesel costs could immediately affect food prices by forcing American farmers to reduce plantings just as growing season begins.

“A sustained diesel-led fuel shock can be inherently stagflationary because it raises the cost of moving goods and producing food and commodities while squeezing consumers,” said Shaia Hosseinzadeh, founder of OnyxPoint Global Management.

Throughout Asia, among primary Middle Eastern fuel importers, profit margins for 10ppm sulfur diesel reached approximately $33 per barrel, about $12 higher than pre-war levels, after hitting a three-and-half-year peak of $48 per barrel on March 4.

In Europe, another major Middle Eastern refined product importer, ultra-low sulfur diesel barge spot prices at the Amsterdam-Rotterdam-Antwerp trading hub jumped nearly 55% since February 27 to around $1,165 per metric ton, according to Quantum Commodities Intelligence data.

Europe, among the largest diesel pricing drivers as a top importer, has become particularly dependent on Middle Eastern imports while reducing Russian supply dependence, noted Alex Hodes, director of market strategy at StoneX.

“Historically, (diesel) sells for perhaps $20-$25/bbl above crude, but these days we’ve seen margins of $30-$65/bbl and even higher,” said Tom Kloza, senior adviser to fuel supplier Gulf Oil.

“The stellar margins for this fuel can essentially pay all of the bills for U.S. and foreign refiners.”