Diesel fuel prices have surged across the United States, threatening to increase consumer prices and intensify inflation as the country struggles with global energy disruptions.
The national average reached $6.33 a gallon on Oct. 16, according to AAA, compared with about $3.48 at the beginning of the year. This is an 82% increase.
A major factor is the U.S. war with Iran, which has disrupted oil shipments through the Strait of Hormuz. Tanker shortages, higher shipping rates and soaring war-risk insurance premiums have added to transportation costs.
Russia's continuing war against Ukraine has further strained supplies. Ukrainian drone attacks have damaged Russian refineries, reducing diesel production and exports.
Another factor is the widening diesel crack spread — the difference between the price of crude oil and the wholesale price of diesel. The unusually large spread reflects shortages of refining capacity and tight supplies of finished fuel.
President Donald Trump has responded by temporarily allowing red-dyed diesel, normally reserved for off-road equipment, to be used in highway vehicles without federal tax penalties through December.
Trump also announced an agreement with Russian President Vladimir Putin to release additional Russian diesel onto world markets, accompanied by temporary sanctions relief.
The administration says these measures will increase supplies and reduce costs. Critics warn the Russian agreement could undermine sanctions intended to pressure Moscow over its invasion of Ukraine. Russia is also allied with Iran and has been supplying the Iranian military with detailed information about the location of American troops in the region where they have been targeted with deadly drone strikes.
Economists say expensive diesel raises the cost of trucking, farming, construction and delivering merchandise.
Those expenses eventually reach consumers through higher prices for groceries and other goods, adding pressure to inflation, which reached 3.7% annually in September.
Guest:
Ed Hirs teaches energy economics courses to undergraduate and graduate students within the department of economics at the University of Houston. He is also appointed as an inaugural University of Houston Energy Fellow.
He has authored and co-authored published opinion pieces on energy markets and corporate governance. He founded and co-chairs an annual energy conference at Yale University. He is frequently consulted by national and international media. Hirs’ articles and quotes have circled the globe with the impact of bringing apolitical, energy economic analysis—without the hyperbole of political agendas—to the forefront of discussion.
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