The average price of diesel fuel in the United States has climbed to a record high of $5.85 per gallon, driven by disruptions to global fuel supplies caused by the six-month war with Iran. This price marks an all-time peak for the commodity, which is crucial for freight and delivery networks across various industries.
The increased cost of diesel translates directly to higher transportation expenses for a wide range of goods. Businesses are experiencing rising operational costs, with some already passing these expenses on to consumers through additional fees on online orders and mailed packages. Shoppers may encounter increasing price hikes on store shelves as these costs permeate the supply chain.
These economic pressures are expected to have political ramifications, as voters are likely to prioritize economic issues in the upcoming November midterm elections. The impact is particularly noticeable in the grocery sector, affecting the transportation of perishable items like produce and meat, as well as the use of diesel-powered farm equipment. While the full effect of these costs can take time to be reflected, experts warn that prices could continue to rise if diesel remains expensive.
Prior to the U.S. and Israel's military actions against Iran in late February, the national average for diesel was approximately $3.76 per gallon, according to AAA. Prices began to escalate as crude oil, the primary component of diesel and gasoline, saw its cost surge due to supply chain interruptions and production cutbacks in the Middle East, particularly with significant tanker traffic being bottlenecked in the Strait of Hormuz.
While prices saw some moderation earlier in the summer amid hopes for de-escalation, they have resumed an upward trend as tensions between the U.S. and Iran have reignited. Brent crude, the international benchmark, was trading above $95 a barrel, a significant increase from around $70 before the conflict. Fuel prices at the pump typically follow this trend closely.
The United States last experienced such elevated fuel prices in June 2022, when diesel averaged close to $5.82 per gallon, following the onset of the war in Ukraine and subsequent international sanctions against Russia. However, when adjusted for inflation, historical diesel prices have been higher. For instance, before the 2008 financial crisis, diesel peaked at about $4.74 per gallon, which equates to approximately $7.20 in today's dollars. The 2022 record of nearly $5.82 would be about $6.56 when accounting for inflation.
Diesel has historically been more expensive than gasoline, with its price increasing at a faster rate during recent energy crises. This is attributed to factors such as more limited supply, less demand flexibility, and diesel's integral role in global commerce. Unlike gasoline, for which consumers can reduce usage by driving less, there are fewer immediate substitutes for industries reliant on diesel for production and transportation.
The food supply chain is particularly dependent on diesel fuel, powering farm equipment, fishing boats, and the logistics networks that transport food to retailers. Fuel costs represent an estimated 15% to 30% of the total cost of food, according to the Independent Grocers Alliance. Higher diesel costs often lead to increased food prices, though the impact may not be immediate.
Refrigerated items are often among the first to see price increases due to transportation costs, according to David Ortega, a professor of food economics and policy at Michigan State University. In July, overall U.S. grocery prices rose by 2.7% year-over-year, with seafood prices up 7% and fresh fruit prices up 4.9%. Ortega noted that other factors can influence food prices, citing lettuce as an example where higher transportation costs were offset by a drop in demand due to a health outbreak.
Consumers may face greater financial strain if diesel prices remain elevated. "Early on, much of the cost increase gets absorbed along the supply chain through existing freight contracts and retailer margins," Ortega explained. "But as contracts reprice and fuel surcharges take hold, more of that cost makes its way to the grocery store."
Logistics companies have also implemented surcharges. In April, Amazon introduced a temporary 3.5% fuel and logistics surcharge for some third-party sellers. United Parcel Service, FedEx, and the U.S. Postal Service have also added fees on certain packages, citing rising operational fuel costs.
Ajesh Kapoor, CEO of trucking technology company SemiCab, stated that while the trucking industry can adapt to rising diesel prices, there are limits to this flexibility. "Diesel price has a very, very direct impact on everything that moves on pretty much any mode," Kapoor said.
The consequences extend beyond consumer goods, affecting public transit buses and trains that run on diesel, as well as diesel generators used for backup power. Experts caution that the impact could be particularly severe in African and Asian countries that rely heavily on Middle Eastern imports and have already been affected by energy shocks during the conflict.
Neil Atkinson, an energy analyst, noted that refined oil products like diesel are becoming more expensive as supplies are stretched thin. "This is gradually becoming a major crisis because A) the prices themselves are very high — but the physical stocks of these products are dwindling," he said, pointing to the strain on the global refining system. "This cannot go on forever."