Rallying Harder Than Crude Oil! Middle East Conflict Disrupts Diesel Market, Could Slow Global Economy

Cailian Press, March 11 (Editor: Bian Chun) Traders and analysts say that as the Middle East conflict intensifies the supply pressure on crude oil and diesel, the soaring prices of this industrial fuel are threatening global economic activity.

In recent years, diesel supply has remained tight due to factors such as the attack on Russian refineries in Ukraine and Western sanctions on Russian exports. The conflict between the US and Iran has further heightened concerns over diesel supply—Iran has blocked the Strait of Hormuz, through which about 10% to 20% of global maritime diesel supplies are transported.

“Structurally, diesel is the most affected oil product by this conflict,” said Shohruh Zukhritdinov, founder of Nitrol Trading, a Dubai-based oil and commodities trading company. “Diesel supports freight, agriculture, mining, and industrial activities, making it the most sensitive oil product to macroeconomic changes in the system.”

Energy economist Philip Verleger estimates that the diesel supply loss related to the Strait of Hormuz disruption is about 3 to 4 million barrels per day, accounting for roughly 5% to 12% of global consumption. He added that due to the blockage of Middle Eastern refineries’ exports, diesel supply could decrease by an additional 500,000 barrels per day.

“Iran’s blockade of the Strait of Hormuz cuts off exports of Middle Eastern crude oil rich in distillates, jet fuel, and diesel. There’s a term in chess that describes the current situation: check,” Verleger said. He pointed out that Iran’s move has seized the “lifeline” of the global economy, and Western countries must respond immediately with no retreat.

Verleger stated that since the outbreak of the Middle East conflict, diesel prices have risen far more than crude oil and gasoline, and if the Strait of Hormuz remains closed long-term, retail diesel prices could double.

From February 27 to March 10, US diesel futures prices increased by over $28 per barrel, while US crude oil futures rose by more than $16 per barrel.

Similar price trends have also appeared in Asian markets, with trading centers in Singapore and European markets in Amsterdam–Rotterdam–Antwerp.

Global Economy at Risk

The surge in diesel prices could impact the global economy. Sparta Commodities analyst James Noel-Beswick said that if the situation persists, rising diesel and jet fuel prices will lead to demand destruction and slow economic activity.

“Transport costs for nearly all goods are rising, which will soon be reflected in food and consumer product prices. If diesel prices stay high, the biggest risk is a second round of cost-push inflation,” said Dean Lyulkin, CEO of Cardiff, a US small business lending firm.

The spike in diesel prices could immediately affect food prices, as it may force US farmers to slow planting during the growing season.

“The ongoing fuel price shocks caused by diesel could essentially lead to stagflation risks, as they push up the costs of freight and food production while squeezing consumers,” said Shaia Hosseinzadeh, founder of OnyxPoint Global Management.

(Cailian Press, Bian Chun)