High diesel gas prices continue to hamper the nation on Thursday despite President Donald Trump’s recent executive order to suspend “diesel fuel tax payment obligations” to help mitigate the expensive current costs for diesel fuel. The national average price for a gallon of diesel has soared in recent months, hurting many truckers, farmers, and other sectors vital to the nation’s economy. Many have blamed the military conflict between the United States and Iran for high diesel fuel costs. While certainly a contributing factor, it is dishonest to omit the role that the Russia-Ukraine war has played in the high diesel prices.
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The current national average price for a gallon of diesel fuel on Wednesday was $6.28, according to AAA. This is an increase from even a month ago, when diesel fuel was $5.90 per gallon. It’s even more substantial than a year ago, when the national average price was just $3.68 per gallon. Additionally, the national average price has increased by more than $2.50 per gallon since the military conflict with Iran began in February. It has slightly decreased over the last week, dropping from $6.41 per gallon a week ago, but even with the recent drop, the national average price for a gallon of diesel fuel is still at a record high. In California, a gallon of diesel costs $8.35 per gallon, an exceedingly high price point that is unprecedented.
As mentioned above, despite the main narrative surrounding high diesel fuel costs, the surge in pricing goes beyond the Iran war. Blockades in the Strait of Hormuz and damage to oil refineries in the region have increased costs due to interruptions to oil tanker transportation and refineries’ inability to process the conversion of raw oil into diesel fuel. However, military action from the Russia-Ukraine war, specifically the Ukrainian assault on Russian oil refineries, is a significant factor. This has caused Russia to significantly decrease its oil exports and increase its imports, which has widely contributed to the surge in prices.
However, this is often glossed over or outright ignored by legacy media reporting on high diesel fuel costs. In doing so, the people are not hearing the entire truth about an issue that negatively affects their finances.
Kenneth Gillingham, professor of environmental and energy economics at Yale University, explained how the Russia-Ukraine war plays a vital role in the record-high diesel fuel costs. He noted the significance of the Ukrainian drone strikes on Russia in late September when explaining the current high diesel prices.
“The increase in diesel prices is indeed in part due to the conflicts in the Middle East, and the recent jump most directly relates to further disruptions in the Bab el Mandeb strait, as well as some further disruptions from drone strikes,” Gillingham told the Washington Examiner. “The tightening of the refined products markets has been exacerbated by the drone strikes in Russia as well.”
“Diesel prices are increasing in part due to the war in Ukraine for a few reasons,” he added. “One is that crude oil exploration and extraction have been hindered, tightening the overall crude oil market relative to what it would have been. But that’s a longer-run factor. The short-run factor is that Ukraine has been getting some traction in its campaign to damage Russian refineries. This has flipped Russia from being an exporter of diesel fuel to an importer.”
Russia is the world’s second-largest diesel exporter after the U.S. The damage by Ukrainian drones on Russian refineries has forced refineries to “operate offline.” In September, damage from Ukraine’s drone strikes was so severe that three of Russia’s largest oil refineries, Kirishi, NORSI, and Volgograd, were either shut down entirely or operating at just 25% of full operations. As a result, Russia extended its ban on diesel exports through Oct. 31, causing global diesel supplies to “tighten” and forcing countries to seek alternative arrangements to obtain diesel fuel.
Ukraine has the right to defend itself against Russian aggression, and attacking the petrostate’s energy resources is a savvy move. Nor should there be calls for Ukraine to stop striking Russia’s oil refineries solely because of the jolt in the global diesel market. Instead, Russia should abandon its military conquest of Ukraine.
Nevertheless, the longer Ukraine keeps hitting Russian oil refineries, the longer diesel will remain unaffordable. The same goes for the Iranian conflict. When discussing the current high-stakes tension involving diesel prices, Gillingham noted the relevance of both conflicts in the diesel economic turmoil.
“Both events in the Middle East and Russia caused the spike in diesel prices,” Gillingham told the Washington Examiner. “When the market is already very tight with nearly all refineries working completely at capacity around the world (97% utilization rate in the U.S.!). It doesn’t take too much in the way of disruptions to cause prices to spike.”
Gillingham explained that this was interesting due to the fact that some refineries are actually running well below capacity, especially in Southeast Asia. He noted that this was occurring largely because those refineries are unable to “get enough crude oil.”
“It would not be correct to say that the drone strikes in Ukraine are the primary reason for the diesel price spikes here in the U.S.,” Gillingham noted. “But they are an important contributor. Note the level of disruptions in the Middle East is about three times larger than from Russia. But without the drone strikes in Russia, the tumult in the Middle East would not be nearly as problematic.”
Gillingham also explained the role the U.S. plays in the global diesel market, noting that any worldwide disruption will affect diesel prices in the country. This is because of the role the U.S. plays in being a global exporter of diesel fuel. It is essentially a diesel ripple effect.
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“Conflicts that happen anywhere in the world can affect diesel prices in the U.S. because it is a global market,” Gillingham said. “The U.S. exports diesel and thus global market prices guide U.S. prices, with some local factors of course too.”
I inquired about why the Russian-Ukrainian conflict was largely omitted from the national discourse surrounding expensive diesel fuel prices. Gillingham did not have a clear-cut answer, providing only a hypothesis as to why.
“I can only speculate as to why people come up with a different assessment,” said Gillingham. “Maybe it is just that the magnitude of the disruptions in the Middle East are larger, or the timing of the shutdown of the Bab el Mandeb Strait with the jump?”
“I’m not sure,” he said. “I am confident in my assessment, though that both matter.”