Global Diesel Crunch Set to Last Well Into 2027

Diesel supplies are expected to remain tight because several major sources of production have been damaged or reduced. Middle Eastern refineries were hit by Iranian strikes, while Ukrainian strikes disrupted Russian refineries and exports. Crude flows have recovered, but refined fuel output has not.

The problem may worsen during the second quarter of 2027. Many refineries deferred overdue maintenance this year to maximize production during the crisis. They will therefore need to shut or reduce operations later, just as diesel and other middle-distillate demand rises after the northern hemisphere winter.

The IEA said the diesel and gasoil balance could stay tight well into 2027. Morgan Stanley expects unusually high planned maintenance in the second quarter. If Middle Eastern product supply does not recover, markets may require further demand cuts, bringing heavy economic costs.

Refined petroleum products are fuels and other outputs made when refineries process crude oil. They include gasoline, diesel, jet fuel, and light or middle distillates. Crude is the raw material, while refined products are the usable fuels consumed by vehicles, aircraft, industry, and households.

The article shows why the markets can separate. Asia’s crude imports reached 26.39 million barrels per day in October, nearly back to their pre-war average. Yet its light and middle distillate imports were still 10% below pre-war levels. Refinery damage and lower refinery runs reduced the ability to turn crude into fuels.

Shipping also matters. Product transfers through the Strait of Hormuz became more dangerous, especially for highly inflammable fuels. So crude could reach Asia through other suppliers and routes, while gasoline and diesel remained scarce. Refinery capacity and product logistics, not crude availability alone, determine fuel supply.

The global diesel and gasoil export decline has been substantial. The IEA reported that seaborne exports averaged 4.7 million barrels per day during the first nine months of 2026. That was 10% below the same period a year earlier.

In absolute terms, the reduction was 700,000 barrels per day. The fall followed reduced refinery output after the Middle East crisis began, alongside the loss of Russian diesel exports. These figures measure seaborne gasoil and diesel exports, not all crude or all refined products.

The smaller export flow has tightened regional markets. Asia’s refined-product imports were still below pre-war levels even after total fuel imports rose in September. The IEA warned that the balance could remain tight well into 2027, depending on whether Middle Eastern product supply recovers.

The supply shock came from both production and transportation. Iranian strikes left some Middle Eastern refineries offline, reducing the region’s ability to make gasoline and diesel. Ukrainian strikes on Russian refineries created a separate fuel crunch and reduced Russian diesel exports.

Shipping through the Strait of Hormuz added another constraint. Ship-to-ship transfers of highly inflammable fuels became much more dangerous, so refined-product flows through the waterway fell. Asia’s Hormuz-linked crude imports recovered to 7.4 million barrels per day in October, but product movements remained weaker than before the war.

These disruptions compounded each other. Less refinery output meant fewer diesel cargoes, while less shipping capacity made available fuel harder to move. Other suppliers, including the Americas and Africa, increased some flows, but Asia’s refined-product imports were still 10% below pre-war levels.

When diesel is scarce, refiners can earn more from each barrel, so refining margins rise. Wholesale and retail fuel prices also increase because buyers compete for fewer cargoes. The article says both margins and retail prices reached record highs in the third quarter.

The mechanism is visible in the current disruption. Middle Eastern refinery outages and missing Russian exports reduced diesel supply, while demand for middle distillates increased heading into the northern hemisphere winter. Extra crude could not quickly replace lost refining capacity, so the most distressed barrel remained diesel.

The effects can spread beyond fuel markets. The IEA warned that, without a recovery in Middle Eastern product supply, further demand reductions may be needed to balance markets. It also warned that those reductions could impose heavy economic costs. Tight conditions may continue into 2027 as deferred refinery maintenance arrives.

Asia has found partial replacements, not a complete solution. Total fuel imports rose as supplies from the Americas and Africa increased. China could also loosen regional balances, but its November diesel and jet export volumes were still unclear, and approvals and actual loadings needed greater clarity.

Alternative routes helped crude more clearly than diesel. Saudi Arabia’s Red Sea port of Yanbu supplied more crude, while Asian refiners increased crude imports from Russia and the Americas. Hormuz-linked crude imports also rose from 1.6 million barrels per day in April to 7.4 million in October. These flows cannot instantly restore damaged refining capacity.

The result is continued dependence on recovery in Middle Eastern product supply. Asia’s refined-product imports remained 10% below pre-war levels, and Middle Eastern imports were 18.4% below. Analysts therefore expect tight diesel balances to persist into 2027.

A refinery heats crude and separates it into different hydrocarbon streams. It then further processes those streams to make products such as gasoline, diesel, jet fuel, and other fuels. This general refining process explains why crude oil and finished-fuel markets can move differently.

The article provides a clear example. Asia’s crude imports reached 26.39 million barrels per day in October, near their pre-war average. Yet light and middle distillate imports remained 10% below pre-war levels. Refineries outside the Middle East and Russia could not offset the lost capacity, even with more crude available.

Extra crude therefore cannot instantly become diesel. A refinery must have available units, workers, maintenance capacity, and safe routes for moving products. In this crisis, refinery outages and dangerous ship-to-ship fuel transfers limited finished supplies. Crude imports recovered, but diesel remained the most constrained barrel.