IEA: Russian Diesel Won’t Ease Global Supply Crunch Until 2027
The global diesel market will remain tight well into 2027, the International Energy Agency (IEA) has warned, as conflicts in Ukraine and the Middle East continue to disrupt supply chains and keep prices at record highs.
The IEA’s latest analysis paints a grim picture for the middle distillates market, with diesel and gasoil supplies falling by 1.7 million barrels per day amid attacks on refineries in the Gulf Cooperation Council (GCC) states and Ukraine’s sustained strikes on Russian energy infrastructure. While demand has also declined, by 0.75 million bpd in the third quarter, the supply shortfall has driven prices to unprecedented levels, with diesel hitting $220 per barrel in the U.S. and Europe last month.
The disruption at the Strait of Hormuz, a critical chokepoint for global oil shipments, has compounded the crisis. Attacks on refineries in the GCC and Ukraine’s campaign against Russian energy facilities have slashed export volumes, while increased output from the U.S. Gulf Coast and China has only partially offset the losses. The IEA estimates that combined diesel export losses from the Middle East and Russia reached 1.3 million bpd in September, equivalent to 4.5% of global demand this year.
Brent Crude
“The gasoil market balance will remain tight well into 2027 and is dependent on a recovery of product supply from the Middle East,” the IEA stated in its report. “Failing this, further demand reductions and the heavy economic costs these will entail may be needed to balance markets.”
The economic strain is already being felt. In the U.S., diesel retail prices are 75% higher than this time last year, while the cost per gallon hit a record $6.52 last month. The ripple effects are widespread, as diesel fuels trucking, construction, agriculture, and industrial operations. “Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation,” the IEA noted.
Refiners Face Tough Choices as Margins Shrink: Diesel
The crisis has also exposed the fragility of global refining economics. High oil prices and soaring tanker charter costs are squeezing margins for refiners in Asia and Europe, pushing some to consider run cuts, reducing production to avoid losses. The IEA warns that if margins deteriorate further, more refiners could follow suit, tightening the market even further.
Global gasoil stocks have already fallen by 5% since the conflicts escalated, leaving little buffer to absorb further shocks. The IEA’s outlook for the first half of 2027 remains pessimistic, with relief only expected in the latter part of the year if Middle Eastern supply recovers. “As the remaining buffers in the system continue to erode, in the absence of a resolution to the conflicts in the Middle East, oil markets may experience more turmoil in the months ahead,” the agency cautioned.
Russia’s role in the crisis is particularly contentious. While the White House has signaled an intention to bring more Russian diesel to market, the country’s refineries are too damaged by Ukrainian strikes to fill the supply gap in the near term. “It’s a miniscule volume, a drop in the bucket,” Priddy said, given the U.S.
The IEA’s warning comes as its members prepare to meet this week to discuss releasing more oil from emergency reserves, with 331 million barrels already distributed. Yet even if refinery operations ramp up later this year, the IEA believes it will not be enough to offset the losses seen in diesel, gasoil, and jet fuel markets.
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