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July 13, 2026 — 11:59am
As if the new outbreak of the conflict in the Middle East weren’t a sufficient threat to the global energy market, last week Russia banned exports of diesel and caused the price of diesel to soar.
In Europe, the premium that benchmark diesel futures held over the crude oil price jumped to more than $US60 a barrel, its highest level in more than 15 years. Before the US and Israel attacks on Iran, that spread was just above $US20 a barrel.
In the US, diesel futures rose nearly 12 per cent to $US154.71 a barrel, the most in four years, to their highest level in more than a month.
Until relatively recently, Russia was the world’s number two exporter of diesel. Ukraine’s targeting of its oil refineries – it has struck almost all the country’s major refineries – has taken out about a quarter of Russia’s refining capacity. That’s had a dramatic impact on Russia’s production of diesel which, even before last week’s export ban, was running at less than half the level of a year earlier.
Russia now produces only about two-thirds of the fuels it needs to meet its domestic demand.
Rationing of petrol and diesel in most of its regions has Russians queuing for up to 24 hours, or even longer, for gasoline and diesel in amounts that are capped at quite meagre levels, and at prices nearly 20 per cent above their pre-war levels. Moscow has also ended exports that were running at about 700,000 to 800,000 barrels a day before Ukraine’s attacks forced them to be cut last month to about 260,000 barrels a day, and has said it will now start importing fuel.
Russia has ordered its first shipment of gasoline, from India, which may well have been from oil that it sold to India.
The ban on exports shows how successful Ukraine’s drone strikes have been in crimping Russia’s oil-related revenues and bringing the impact of the war to Russian consumers and industry, but it will also have global implications.
Russia’s diesel exports have traditionally gone to Turkey, Brazil and North Africa. Their removal from the market – and Russia’s addition as a buyer – will force more competition from those countries for the reduced global supply.
Refined product prices hadn’t fallen by as much as crude oil prices after the fragile ceasefire in the Middle East was agreed last month. That’s partly because, along with the reduction in Russian exports, some Middle Eastern refineries were damaged by the war.
It’s also the case that, with refineries that were impacted by the closure of the Strait of Hormuz, effects on global oil supply prioritising jet fuel production, stocks of diesel and other refined products have been run down even as demand for gasoline and diesel – supported by measures taken by governments to buffer the price shocks – has held up.
With the conflict in the Middle East flaring up again as Iran strikes vessels in the strait, and Russia’s transformation from exporter to importer, the prospect of a renewed energy shock has strengthened.
The International Energy Agency says that, while oil prices had (before the recent exchange of strikes in the Persian Gulf) fallen back to pre-war levels, prices for diesel and gasoline had remained about 30 per cent above their pre-war levels.
A wave of crude oil had hit the market, but refinery activity and product supplies had been slower to respond, it said, with refinery margins widening to four-year highs and industry stocks – already depleted by the war – being drawn down at faster than normal rates, it said.
Without Russian diesel, there may well be a shortfall of diesel production relative to demand, which would have unpleasant implications, not just for motorists, but for the transporting of products within economies, for industry, for agriculture and mining and, in many parts of the world, for heating.
Donald Trump may have hailed the return of oil prices to pre-war levels (before the latest flare-up) and foreshadowed a big drop in US gasoline prices, but it’s refineries that consume crude oil, not consumers, or truck drivers or farmers.
What the squeeze on refined products signals is that the impact of the wars in the Middle East and Ukraine on energy costs and inflation is likely to linger.
It can take months, if not years, for damaged refineries, which are extraordinarily complex plants, to be remedied, along with the months that would be required to restore industry stocks to more normal levels.
That would require flows of crude through the Strait of Hormuz to be at or above their levels before the US and Israeli assault in February closed the strait.
Those flows were recovering strongly, as were oil prices, before the latest exchanges of drones and missiles caused the volume of vessels transiting the strait to plunge again to negligible levels.
The oil price, which had dropped to just over $US70 a barrel after the ceasefire was agreed, has jumped back up to more than $US78 a barrel.
The outlook for diesel, gasoline and other refined products would be even more dire if China, which banned exports of refined products until it cleared them to restart after the ceasefire, were to halt them again.
It is threatening enough. US oil companies have profited mightily from the war in the Middle East – there are forecasts of June quarter profit increases of more than 300 per cent for the US oil majors – but they’ve also run their stocks down to levels not seen in more than two decades to take advantage of that opportunity.
That’s not just a US challenge. Stocks of refined products globally are at threateningly low levels.
If, as Trump has said, the ceasefire is “over”, those stocks aren’t going to be replenished easily, speedily or cheaply and refined product prices will be even more impacted than crude prices.
There’s not much that policymakers can do about the global shortfall of supplies of refined products relative to demand if it persists.
Central banks will have to maintain, or even increase, their policy rates for longer than they might have hoped while worrying about raising rates into weakening economies. Governments will be under pressure to maintain or increase fuel price subsidies.
With the US mid-term elections drawing ever closer, of course, there is a prospect that Trump, will have to accept that his war and the poorly negotiated ceasefire have given Iran a level of control over the strait, and a determination to maintain it, that it didn’t have before the war and may never have attempted to gain had the US and Israel not attacked it.
He’ll have to weigh up the humiliation of ending the war while leaving Iran dictating the terms of passage through the strait with the cost to Republican control of Congress if gasoline, diesel and fertiliser prices remain elevated or, as is possible given the thinness of global refined product stocks, spike sharply again.
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