Key facts
- Diesel prices have hit record highs due to conflicts in Ukraine and Iran.
- The nationwide average diesel price has increased by 60% since late February.
- Key refineries have been taken offline or destroyed in Eastern Europe and the Middle East.
- Russia, a major diesel exporter, imposed an export ban in July due to refinery damage from Ukrainian attacks.
- US refineries are operating at full capacity with domestic inventories at their lowest level since 1982.
- The rising cost of diesel is expected to contribute to broader inflation across the economy.
Diesel prices have surged to record highs, driven by a combination of geopolitical conflicts and supply chain disruptions. The nationwide average price has climbed to $5.98 per gallon as of September 10, a 60% increase since late February when the United States and Israel began their war with Iran. This surge is significantly impacting the broader economy, with costs embedded in everything from food to shipped goods.
Analysts point to multiple factors contributing to the crisis. The war in Ukraine has led to damage to Russian refineries from Ukrainian drone attacks, prompting Russia to impose a diesel export ban in July. Russia is typically the world's second-largest diesel exporter after the U.S. Simultaneously, the conflict in the Middle East has largely closed the Strait of Hormuz, a critical shipping route for 10% of seaborne diesel. These events have combined to reduce global supply at a time when U.S. refineries are operating at full capacity and domestic inventories are at their lowest level since 1982.
The impact of higher diesel prices is far-reaching. Diane Swonk, chief economist at KPMG, noted that the cost of diesel affects nearly all aspects of the economy, from agriculture to transportation. Joseph Brusuelas, chief economist at RSM, warned that consumers should brace for sustained inflation as contracts are repriced and fuel surcharges are implemented. Farmers, already facing high fertilizer costs, are particularly vulnerable, with some expressing concerns about their ability to stay in business. The rising cost of diesel is also expected to lead to unprecedented heating bills for households relying on heating oil, which is essentially diesel fuel.