Since the Strait of Hormuz closure in February, much attention has centered on rising gasoline prices. But concerns around the price of diesel are growing as the spread between diesel and crude prices in the United States surpasses $100. Strangled Middle Eastern oil exports, compounded by declines in global refinery capacities, are deepening the diesel supply crunch. Some states and communities will bear the costs more than others.
Why diesel matters
According to the US Energy Information Administration, distillate fuel oil, the petroleum category that includes both diesel and heating oil, is used predominantly for transportation, accounting for more than 75 percent of consumption within the category. Diesel’s volumetric energy density, compression ratio, and handling safety make it relatively more attractive than gasoline for big rig trucks, tractors, combines, and other heavy-duty vehicles.
Indeed, diesel is tightly integrated in trucking supply chains and the US agricultural industry in particular. Both segments are facing challenges amid elevated prices. As harvest season unfolds, farmers are warning that they will be squeezed by rising diesel costs. Similarly, the American Trucking Associations (ATA) announced that trucking activity for the month of July was 0.5 percentage points below the same month in the previous year, with overall demand lackluster outside of a few areas, including data center construction. With transportation prices higher, inflation pass-through is likely.
Beyond transportation, diesel is critical for US industry, which accounts for roughly 14 percent of distillate fuel oil demand. Diesel’s high energy density makes it well suited for heavy-duty construction equipment and machinery that powers most farm operations.
The geography of US diesel price impacts
Rural areas are being walloped by rising diesel prices via both agriculture and transportation. Not only do rural areas rely on agriculture, but trucking is a major employer: there are nearly 3.5 million professional truck drivers in the United States. Moreover, about 48 percent of truck vehicle miles traveled occur in rural areas.
In addition to the agricultural and transportation sectors, industrial sectors that are heavily reliant on mineral extraction and related commodities are also experiencing serious fuel price pressures. Wyoming, North Dakota, and Alaska are particularly vulnerable. These three states had the highest per-capita distillate fuel oil consumption in 2024.
No relief in sight
While the war in Iran seems to shift on a day-by-day and even minute-by-minute basis, oil market supply-and-demand fundamentals have been remarkably stable since March. Despite a small recovery in shipments during the short-lived ceasefire, exports from the Gulf remain well below pre-war levels, global oil inventories are falling, and global refinery capacity is damaged due to wars in the Middle East and Ukraine. Unless and until the war in Iran is resolved, and Middle Eastern crude and refined products exports approach pre-war levels, diesel prices will continue to march higher.
Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative. He also edits the China-Russia Report, an independent newsletter.
Theo Aldrighi is a young global professional at the Atlantic Council’s Global Energy Center.
This article represents their own personal opinion.
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