The price of diesel, the primary fuel that drives the global economy, rose to its highest levels ever on Friday, as the US war with Iran continued to send shockwaves through the global energy supply chain.
The sharp rise in diesel prices late this summer put additional inflationary pressures on businesses and consumers who had already been suffering from high prices for years. Analysts warn of a severe shortage of diesel supplies in parts of the East Coast of the United States.
According to data from the American Automobile Association (AAA), the average price of diesel rose to $5.8500, surpassing the previous record of $5.816, set in June 2022 following the Russian invasion of Ukraine earlier that year.
While gasoline receives most attention because of its impact on consumers and its psychological dimensions, diesel is an important fuel around the world. It powers the trucks, tractors, trains, boats and construction vehicles that form the backbone of the modern economy.
“Gasoline is the fuel that is attractive and visible to people,” said Bob McNally, founder and president of Rapidan Energy Group. “Diesel is the silent, essential engine of work. It is the lifeblood of the economy.”
High diesel prices increase the financial cost facing companies in various sectors, including agriculture, e-commerce, manufacturing and construction. These companies are likely to pass on at least part of these additional costs to consumers by raising prices.
Diesel prices have jumped by more than 60% since the beginning of this year, making it on track to record the largest annual increase ever, according to a CNN review of American Automobile Association (AAA) data since 2000. The previous record was set in 2021, after the Covid-19 pandemic, when diesel prices rose by 39%.
High diesel prices have cost American consumers about $44 billion - the equivalent of about $340 per household - since the outbreak of war with Iran in late February, according to cost-tracking data from Brown University's Climate Solutions Lab.
Although some oil shipments were able to leave the Middle East with the help of US Navy escorts, this crude oil must be transformed into gasoline, diesel, and jet fuel.
This process has been disrupted by the shutdown of 3 of the 4 major global refining centers: the Middle East (due to conflict damage), Russia (due to damage to refineries as a result of the war with Ukraine and export bans), and China (due to export restrictions).
Tom Kloza, senior energy advisor at Gulf Oil, warned in a post on “X” that the United States faces a “potential diesel crisis” driven by a decline in commercial inventories to record levels not seen in the country in modern times. He pointed out that the “zero point” of this potential crisis will likely be in the states: West Virginia, Virginia, North Carolina, South Carolina, Georgia, and Florida.
This is because diesel inventories in the South Atlantic region (from West Virginia to Florida) fell by 40% year over year, reaching their lowest level since federal records began at the end of 1990.
“We have minimal commercial inventories in this part of the country, and there are occasional product runs out at distribution stations in this region,” said Andy Lipow, president of Lipow Oil Associates.
Diesel prices witnessed a significant jump, exceeding two dollars per gallon, during the past year in most American states, led by California, Arizona, New Mexico, Virginia, Texas, and North Carolina, according to data from the American Automobile Association (AAA).
