Diesel Prices Are Soaring. Here’s Why the Cost of Almost Everything Could Rise Next.

Diesel prices are surging as geopolitical conflicts squeeze global fuel supplies and expose a shortage of refining capacity, creating new inflation risks for U.S. consumers, farmers and businesses that depend on trucking and transportation.

The increase is the energy shock analysts had been warning about, even as crude oil prices have shown a relatively restrained response to the war with Iran, according to Axios. The disconnect is important because diesel is embedded in the cost of producing and moving goods across the economy, from crops harvested on American farms to food delivered to grocery stores and restaurants.

"The market is out to lunch, looking at crude oil prices," Jeff Currie, a former commodities analyst with Goldman Sachs and Carlyle, told Axios. Diesel futures have climbed to roughly $100 above crude oil prices, an unusually wide gap that reflects a global shortage of refinery capacity rather than simply a lack of crude.

"Diesel is the cost base of everything. Every container, every tractor, every locomotive, every mine truck - you get the idea," Currie wrote on X last week. He warned that the effects are only beginning to spread. "That pass-through will reach into trucking, food and producer prices, and it is barely getting started."

One major factor has been Ukraine's drone campaign against Russian oil refineries. The attacks have disrupted Russia's production of refined petroleum products, contributing to domestic shortages and prompting Moscow to restrict exports.

Russia's role in the market makes those disruptions especially consequential. The country has historically been one of the world's largest diesel exporters, meaning reduced Russian supplies can quickly tighten the international market.

At the same time, the closure of the Strait of Hormuz amid the Iran war has disrupted shipments of refined petroleum products from Gulf producers, adding another constraint to an already strained global fuel system.

Diesel represents approximately 3% to 5% of production costs for major U.S. crops including wheat, soybeans and corn, Axios reported. Farmers depend on the fuel to operate tractors, combines and other machinery, meaning higher diesel costs can increase the expense of planting, harvesting and transporting crops.

Those increases can ripple through the food supply. Corn and soybeans, for example, are widely used as livestock feed and ingredients in processed foods, extending the potential impact beyond their direct retail prices.

Trucking represents another major pressure point. Diesel remains the dominant fuel for the heavy-duty trucks that transport much of America's food, consumer products, and industrial goods. When fuel prices rise, transportation companies often attempt to recoup those costs through fuel surcharges and higher shipping rates.

Evidence of that pass-through is already emerging. Axios said that Performance Food Group, which distributes food and related products to restaurants and convenience stores, recently told analysts that higher diesel prices added about $16 million in costs during its latest quarter.

The company said its "team worked to manage the increase in diesel prices through our surcharge program." Those surcharges can ultimately move through the supply chain, potentially reaching restaurants, retailers and consumers as higher prices.

That makes diesel a potential complication for the broader inflation outlook. While consumers closely follow gasoline prices because they encounter them directly at the pump, diesel can have a more indirect and widespread impact because it is incorporated into the cost of producing and transporting so many goods.