The geopolitical situation in the Persian Gulf remains tense, compounded by ongoing damage to oil refining facilities from the Russia-Ukraine conflict. With the peak global fuel consumption season approaching in the coming months, the diesel supply-demand gap is becoming increasingly prominent, and a global fuel supply risk is gradually emerging. As a core energy source in industry, agriculture, and logistics, a tight diesel supply will not only drive up energy prices but will also be transmitted along the supply chain to consumer goods and services, posing a severe challenge to major energy-importing economies, especially Europe.

Diesel supply pressures are already evident in many parts of the world.

The impact of diesel shortages is already being felt in some regions, with palm oil producing areas in Southeast Asia experiencing insufficient supply and rapidly rising prices. US diesel exports hit a record high in the first week of August, averaging 1.9 million barrels per day. As the world's second-largest diesel exporter, Russia, affected by attacks on its refining facilities, is facing domestic supply pressure and has already imposed a diesel export ban, further tightening global supply. As a major fuel importer, the EU faces a further deterioration in its external procurement environment. Brazil and Turkey, previously major buyers of Russian diesel, have become market competitors. Supply from key Middle Eastern refining hubs has been severely disrupted, forcing Europe to compete with multiple countries for diesel resources exported from the US. The EU's own refining infrastructure is also weakening. Constrained by emissions reduction policies, 30 refineries were shut down between 2009 and 2024, with more capacity to be withdrawn in 2025, significantly reducing its ability to cope with external shocks. Eugene Lindell, head of refined products at FGE NexantECA, stated, "Europe is facing a very difficult diesel problem, and the situation will worsen further, with diesel spot prices potentially surging." This price increase will be transmitted along the supply chain and will ultimately translate into real political pressure. Joe DeLaura, senior energy strategist at Rabobank, said, "Currently, the disruption to exports from Persian Gulf refineries is causing diesel supply shortages. Crude oil is merely a raw material; diesel is the cornerstone of the entire industrial economy. Agriculture, construction, mining, and commodity distribution systems are all highly dependent on diesel."

US diesel exports have depleted inventory, making it difficult for Europe to rely on US supplies in the long term.

To support high export volumes, US refining capacity has reached its limit, forcing the country to rely on existing inventory to maintain supply. US diesel inventories have fallen to their lowest level since 1996, and with the peak demand season and equipment maintenance cycles approaching, there is a clear ceiling on future export capacity. European diesel prices have risen 40% since mid-June, while crude oil prices have only increased by 5% during the same period. EU diesel inventories have shrunk by 30% since March, and coupled with import restrictions on related oil products, European importers are forced to rely more heavily on US sources. Zameer Yusof, head of clean petroleum products at Kpler, stated, "Gulf refineries cannot continuously supply diesel to Northwest Europe indefinitely; they need to prioritize their domestic market needs." Meanwhile, Asia itself faces fuel supply challenges and will not significantly divert diesel resources to Europe. June Goh, an oil analyst at Sparta Capital, said, "The gap left by damaged Middle Eastern refining capacity has not yet been repaired, and Russia's related capacity is also lacking. The crisis in Europe will not erupt immediately, but the risks are accumulating."

European natural gas faces potential winter risks.

Following past energy shocks, the European natural gas market remains shrouded in uncertainty. While short-term supply is manageable, the supply risks associated with winter have not been truly eliminated. Current EU natural gas inventory levels are significantly lower than the historical seasonal average for this time of year, and a shortage is already evident compared to data from the same period in recent years. Europe is highly dependent on imports for natural gas, with liquefied natural gas (LNG) being a crucial source. However, global competition for LNG supply is intensifying. With global energy demand recovering and some production capacity undergoing maintenance, international LNG prices are likely to rise rather than fall. European buyers are hoping for low-priced supplies, but this is unlikely in reality. Meanwhile, industrial and residential heating demand will surge with the arrival of winter. If a cold winter occurs, gas demand will rise rapidly, and the low inventory levels will be insufficient to buffer demand fluctuations, potentially leading to supply shortages in some regions.

Conclusion

The diesel crisis has already sounded the alarm for Europe's energy sector, and the added risk of natural gas will further amplify inflationary pressures. Rising energy costs will impact industrial production and residential heating, not only suppressing economic recovery but also putting pressure on people's livelihoods. Currently, Europe has not developed effective pre-emptive measures, and the market needs to continuously monitor inventory changes, LNG arrivals, and winter temperatures to determine whether the crisis will materialize.