IEA warns diesel supply crunch to extend into 2027

It's all about diesel. It's the fuel known as the backbone of the global economy, powering everything from freight transport and manufacturing to agriculture and construction. These supply chains are delicate, meaning price changes and volatility can have knock-on effects across many sectors and industries.

The problem: While the average cost of gasoline in the U.S. has climbed 45% to $4.33 per gallon since the Iran war began on Feb. 28, diesel costs have skyrocketed further. The average cost of diesel in the U.S. is now $6.29 per gallon, more than 70% higher over the same period. War-related outages and shipping disruptions through the Strait of Hormuz have sharply cut seaborne diesel exports, while already low diesel inventories have been depleted, challenging an economy that still needs to keep running.

Steps were taken recently to address the situation. The Trump administration lifted sanctions on Russian diesel and implemented a new tax break for on-road use of dyed diesel, but those measures have so far failed to bring down prices. U.S. diesel futures surged by another 5% on Tuesday, as Houthi strikes continued on Saudi infrastructure and Hormuz oil flows fell sharply. Other policies like a U.S. diesel export ban have also been considered, but it has so far been ruled out amid warnings that it could backfire.

No relief yet: "Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation," the IEA warned in its latest Oil Market Report, adding that market tightness is set to extend into 2027. "Falling inventories, soaring cracks, and steepening levels of backwardation have signaled the need for additional supplies."