Why Russia, Hormuz and Tight Refineries Are Driving a Global Diesel Crunch

Earlier reporting estimated that refinery outages tied to the Iran and Ukraine conflicts had reached nearly 9% of global refining capacity, including as much as 3.52 million b/d of capacity shut by the Iran conflict as of May 7. A separate industry estimate put the combined refinery capacity affected by the two wars at about 5 million b/d.

These figures describe capacity, not necessarily an equal loss of finished fuel. But they show why disruptions at refineries can be more damaging than a temporary change in crude production: crude must still be processed into the specific products consumers and businesses need.

Why refiners cannot simply make more diesel

Gasoline, diesel and jet fuel are produced together in refinery processes. A refinery can adjust its output mix within limits, but it cannot indefinitely maximize diesel without affecting gasoline, jet fuel, crude costs or operating economics.

That creates competition among products. If jet-fuel demand rises or gasoline margins become more attractive, the market cannot assume every available barrel of crude will become diesel. The IEA said diesel, jet fuel and gasoline cracks surged in July as seasonal demand met supply shortfalls and depleted stocks, pushing Atlantic Basin refining margins to all-time highs.

Record margins are therefore a warning sign, not evidence that supply is comfortable. They show that buyers are paying more to secure products from scarce processing capacity.

Near-97% U.S. utilization leaves little spare capacity

U.S. refiners have been operating close to their practical limits. The Energy Information Administration’s weekly data cited by Energy News Beat showed utilization at 96.1% for the week ending July 17, following 96.2% the previous week, with crude processing at 17.1 million barrels per day.

Running at that level can support supply, but it leaves less room to compensate for another outage, maintenance problem or import disruption. High utilization also does not guarantee that the output mix will match the market’s needs. A refinery running hard still has to produce a combination of gasoline, diesel and other products.

The United States can draw on its own refineries and imports, but global prices still influence domestic markets. When overseas buyers are willing to pay more for scarce diesel cargoes, U.S. suppliers face stronger incentives to export, tightening the connection between international disruption and American pump prices.

What the squeeze means for U.S. prices and consumers

The EIA’s August forecast raised average 2026 U.S. wholesale diesel to $3.37 per gallon, 8.5% above its previous forecast, while expecting U.S. refinery crude demand to remain around 17 million b/d through August.

A separate report citing the EIA put the 2026 average retail-diesel forecast at $4.85 per gallon, up from $4.61 in the previous outlook. That is a forecast rather than a price ceiling: the outcome will depend on refinery repairs, shipping access, inventories and whether the conflicts intensify or ease.

Diesel affects more than drivers. It is used across trucking, construction, farming and industrial activity. Higher wholesale prices can therefore feed into freight rates and the delivered cost of goods, while also raising operating costs for agricultural equipment and other diesel-dependent machinery.

Winter heating and farm demand face a thin buffer

The timing is particularly important for distillate markets. Diesel and heating oil draw on related middle-distillate supply, so low inventories leave less protection if winter demand rises sharply. Harvesting and farm machinery can also increase diesel demand before the coldest part of the season, adding pressure to the same product pool used by trucking and heating customers.

The EIA has forecast U.S. distillate inventories to remain below the 2021–25 average. Gasoline and diesel inventories were also reported near multiyear lows in July.

Low inventories do not guarantee a shortage, but they reduce the system’s ability to absorb another disruption without a rapid price response.

Why relief may take time

Near-term relief depends on more than crude reaching the market. Damaged refineries need repairs, replacement cargoes must be sourced and shipping routes may need to be changed. Those adjustments take time, particularly when several exporting regions are affected simultaneously.

That is why high U.S. utilization may not be enough to reverse the squeeze quickly. Domestic refiners are already processing large volumes, while gasoline and diesel stocks remain limited and global competitors are also seeking replacement supplies.

The key risk is a compounding shock: additional Ukrainian attacks on Russian refineries, renewed disruption around Hormuz or a failure to sustain an Iran ceasefire could reduce production, obstruct transportation and encourage buyers to build precautionary inventories at the same time. Under that scenario, diesel would likely remain the most vulnerable refined product, with consequences for freight, farming and winter heating.