Global fuel inventories are currently at an unprecedented level of strain, with many countries implementing fuel export controls. A major Asian country has imposed a one-month fuel export ban, Russia's diesel export restrictions have been in place for months, and the United States has even pressured Europe to release its fuel reserves through a diesel export ban. The core focus of this energy crisis has shifted to refined petroleum products, with countries prioritizing their own energy supplies, and energy nationalism rapidly escalating in the energy sector. Diesel, as a fundamental fuel supporting the global economy, is experiencing a continued price shock due to supply-demand imbalances, reshaping the priorities of global energy policies. Even European countries, which have long pursued decarbonization policies, are forced to re-evaluate the balance between energy security and carbon neutrality goals.

Many countries have introduced export controls, and energy nationalism is dominating the energy market.

The global energy landscape is undergoing a significant shift, with resource-rich governments taking an increasingly proactive stance in energy project negotiations. While past energy competition focused on securing the best commercial terms, the core demand has now shifted to ensuring domestic fuel supplies. Diesel plays an irreplaceable role in global economies, making it a primary category for ensuring energy supply. Many countries have adopted export restrictions to prioritize their domestic markets; a major Asian country imposed a one-month ban on all fuel exports, and Russia's diesel export ban has been in effect for several months. The United States has also expressed concerns about restricting diesel exports to pressure Europe to release its fuel reserves. However, the US situation is somewhat unique; its diesel production exceeds domestic consumption, and there is no supply shortage. Its primary concern is that global market pricing will drive up domestic diesel retail prices.

Geopolitical disturbances impact refining capacity, driving diesel crack spreads to record highs.

As early as April, analysts warned that the impact of the conflict in the Middle East would damage the supply of refined oil products far more than that of crude oil. Six months later, this risk has become fully apparent. In September, the diesel crack spread briefly exceeded $100 per barrel, setting a historical record, before slightly declining. Global refining capacity is insufficient to compensate for the supply gap in refined oil products from the Middle East. Ukrainian President Volodymyr Zelensky stated that the Ukrainian army would intensify its attacks on Russian refining facilities. A series of events pushed diesel prices to new highs, with domestic diesel prices in the United States soaring, and the market began discussing a diesel export ban to stabilize domestic supply. After the United States pressured the European Union to release a total of 100 million barrels of crude oil, diesel, and gasoline reserves over a four-month period, with the release concentrated in the first 20 days, the United States ultimately abandoned the idea of an export ban. US President Trump stated that the ban was never intended to be implemented in the first place. Subsequently, the diesel crack spread fell, and oil prices declined slightly. As of Tuesday, the national average price of diesel in the United States was $6.3151 per gallon.

European refining capacity is shrinking, and the supply shortage of refined oil products is difficult to address quickly.

Europe's situation is far more difficult than that of the United States, with the EU heavily reliant on fuel imports. Although the EU has many existing refineries, overall capacity has shrunk significantly compared to 15 years ago, and domestic refining capacity cannot cover all regional demand, leading to a continued increase in dependence on crude oil and refined product imports. Even with the resumption of shipping in the Strait of Hormuz and the emergence of optimistic reports on crude oil circulation, improvements in crude oil supply are unlikely to benefit the European market. Releasing reserves can temporarily alleviate market pressure, but the related benefits have likely already been priced in by the market. The market also anticipates that it will be difficult to release reserves on a large scale again, thus keeping oil prices high. Countries like Bulgaria, whose domestic refining capacity is sufficient for their needs, may be required to increase exports. Bulgaria recently lifted its diesel export ban implemented last year, and its only refinery has spare capacity. If demand from other EU member states surges, its export policy may be adjusted again.

Energy security has become a priority, while decarbonization targets have taken a back seat.

Fuel export bans by major Asian powers, Russia's continued extension of diesel export restrictions, and Ukraine's ongoing attacks on refining facilities have made it difficult for the Middle East's refined oil supply to recover in the short term. Tanker traffic in the Strait of Hormuz is mostly focused on crude oil and liquefied petroleum gas. Key local refining facilities remain under maintenance after the attacks, making the United States a major global supplier of refined oil products, while the US itself is actively controlling domestic fuel prices. The energy crisis brought about by the Middle East conflict clearly demonstrates that energy security has once again become a primary concern for all countries, even those in Europe leading decarbonization policies. While these countries still claim carbon neutrality is an important goal, it is no longer their top priority; ensuring sufficient fuel supply for their domestic markets has become their most crucial task.

Conclusion

Given the current state of the global energy market, geopolitical conflicts impacting refining capacity, coupled with export controls imposed by multiple countries, have led to a persistent tight supply of diesel globally. Releasing reserves can only provide a short-term buffer and cannot fundamentally resolve the structural gap. The rise of resource nationalism, with countries prioritizing domestic fuel supplies and energy security replacing decarbonization as the primary policy consideration, will continue to affect diesel prices, impacting global inflation and the real economy, as the situation evolves in the Strait of Hormuz, the progress of repairs to damaged refining facilities, and changes in national export policies remain crucial.