Jet fuel is following diesel’s price jump as the Hormuz supply shock hits the skies
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Claudia Assis
Global energy markets are facing a prolonged crisis as diesel and jet fuel shortages, driven by geopolitical conflicts, persist until 2027. This supply squeeze is fueling inflationary pressures that will likely keep European prices elevated for years.
The Global Energy Crunch: A Prolonged Crisis
The global energy landscape is currently navigating a precarious period defined by severe supply constraints and the lingering effects of geopolitical instability. As refineries struggle to meet the dual demand for diesel and jet fuel, the aviation and logistics sectors are experiencing significant operational strain. This "Hormuz supply shock" has exacerbated an already tight market, driving prices higher and creating a ripple effect that touches every corner of the global economy.
The Mechanics of the Diesel Shortage
At the heart of the current crisis is a historic depletion of diesel stockpiles. Recent data indicates that U.S. retail diesel prices have surpassed $6 per gallon, a milestone that underscores the severity of the situation. With U.S. stockpiles falling to levels not seen since 1982, the Energy Information Administration (EIA) projects that distillate fuel oil stocks will remain below five-year averages through 2026 and into 2027. This scarcity is fundamentally linked to the ongoing conflicts in Ukraine and tensions surrounding Iran, which have disrupted traditional supply chains and strained refinery capacity.
Inflationary Persistence in the Eurozone
Beyond the immediate logistical challenges, the energy crisis is fundamentally altering the trajectory of global monetary policy. European Central Bank (ECB) chief economist Philip Lane has indicated that the "second wave" of energy price increases will keep inflation elevated for significantly longer than previously anticipated. The ECB now expects Eurozone inflation to approach its 2% target only by the middle of 2027, as energy costs permeate the broader consumer basket.
The Risk of Price Spillovers
While the current inflationary environment has been largely contained to energy sectors, there is growing concern regarding secondary effects. Experts warn that the failure to stabilize energy prices could lead to a "spillover" into other essential goods, most notably food prices. If the cost of diesel—which is the primary fuel for agricultural machinery and food distribution networks—remains high, the resulting cost-push inflation could force central banks to maintain restrictive interest rate environments for a prolonged duration.
Future Trends and Economic Outlook
Looking toward the future, the energy market remains tethered to the volatility of global conflicts. With retail diesel prices projected to average $5.55 a gallon in late 2026 before easing to $4.40 in 2027, the road to normalization is long. The inability of global refineries to ramp up production quickly enough to meet demand suggests that energy security will remain a top priority for policymakers. This extended period of high costs will likely force industries to accelerate transitions toward alternative fuels and greater energy efficiency to mitigate the impact of future supply shocks.
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