The World’s Diesel Problem Runs Deeper Than the Iran War

The shortage of diesel and jet fuel has been an issue since at least 2020, and it is not solely due to the closure of the Strait of Hormuz. This article will explain the background of the shortage, its impact on international relations, and potential solutions. It is unlikely that a short-term solution will be available, but there may be a long-term workaround.

To address the issue, the economy needs to use diesel and jet fuel less frequently. Additionally, research is necessary to lower the cost of extracting heavy oil and bitumen. Increasing the supply of these fuels through additional heavy oil could help. One key factor that may need to change is the price difference between diesel and gasoline. This price gap should be even greater than it has been in recent years due to the difficulty of extracting, refining, processing, and transporting heavy oil.

The interconnected nature of the economy means that inexpensive energy products are crucial to its functioning. Rising energy costs can lead to higher food prices, as diesel is used in both food production and transportation. Higher gas prices can also strain budgets. Politicians often respond to these increases by raising interest rates to lower oil prices, but this approach has unintended consequences for borrowers and homebuyers.

Consumers desire low prices for diesel and jet fuel, while oil producers need higher prices to encourage investment in new wells. Higher diesel and jet fuel prices can make other goods and services more expensive, impacting various industries. Despite higher prices for diesel and jet fuel in the fall, the increased costs are primarily due to transport and insurance expenses. These prices need to remain high, or even increase further, to incentivize long-term production.

The type of oil needed for diesel and jet fuel production is often more expensive to extract, refine, and transport than lighter oil. Heavy and sour oils tend to be more expensive due to their sulfur content, which makes them corrosive and requires additional processing. The issue lies in passing on these higher production costs to consumers, as doing so would also raise the price of food, which uses diesel extensively in production and transportation.

Over time, the oil mix has become lighter, with lighter crude oils being more prevalent. This shift in oil composition may contribute to the shortfall in diesel and jet fuel production.