Diesel Prices Hit Record High as Fuel Crunch Shows No Sign of Easing

Diesel prices have reached an all-time high as the wars in Iran and Ukraine continue to pressure refinery production and disrupt supply chains.

AAA reported on Friday that diesel now costs $5.85 a gallon, up about 23 cents over the past week. Compared with the same period last year, the price is more than $2.13 higher per gallon. The 57 percent year-on-year increase has largely coincided with the start of the war in Iran in February, which had an immediate impact on oil prices.

The conflict has led to repeated attacks on oil-refining infrastructure across the Middle East, after Iran launched strikes against neighbouring countries in response to attacks by the United States and Israel. Shipping through the Strait of Hormuz, a route that previously carried 20 percent of the world's oil supply, has also been largely disrupted.

The Atlantic Council, a nonpartisan think tank, has published a report detailing the diesel fuel crunch and its potential impact, warning that sectors such as agriculture and trucking will be particularly hard hit.

"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," the report states.

Because diesel is so closely tied to agriculture and transportation, the report predicts that rural state economies in the United States will be directly affected. It specifically points to North Dakota, Wyoming, Alaska, New Mexico, Mississippi and West Virginia.

However, the report says all parts of the country will be affected in some way by higher diesel prices.

"While Alaska and other rural states are particularly impacted by rising diesel costs, all states will feel a blow. Total distillate fuel oil usage closely tracks population size, as Texas, California, and New York are the largest consumers. While some will feel a diesel crisis more than others, very few Americans will be insulated due to its impact on inflation," the report notes.

The ongoing war between Russia and Ukraine is adding to the diesel shortage. NBC News reported that Russia has extended its ban on diesel exports through the end of this month. Russia has historically been one of the world's largest diesel exporters, but it has faced retaliatory drone strikes from Ukraine in recent months.

The Atlantic Council report says there appears to be little prospect of price relief in the near future given global conditions.

"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," the report states. "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."

Originally published on IBTimes