- 12 minutes ago
For decades, crude oil has been the world's most closely watched commodity. But in today's fragmented global economy, the real bottleneck may be diesel.
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00:00Diesel prices are skyrocketing. While normies like you and me have maybe been looking at
00:05the cost at the gasoline pump or maybe even checking online for the price of a barrel of
00:10crude oil, the energy experts have been sweating the price of diesel. It's been a perfect storm
00:17for diesel prices this year. Not only has Ukraine been hammering Russian refineries with drone
00:22attacks, but the U.S. and Israeli war on Iran has meant counterattacks from Iran and Iranian
00:28proxies on Persian Gulf refineries. Now, Russia has extended its diesel export ban, and Trump and
00:34the U.S. are maybe thinking about their own version. And this is all a major headache, not just for
00:40your
00:40cousin that drives a big truck, but also for freight handlers, farmers, and much more, because it's
00:46diesel that makes the world go round. Welcome to The Dip, your podcast about money, power, and
00:51consequences. I'm Cassandra. To help me figure out not only what this means for the world at large,
00:59but for economies that are massive diesel importers like Europe and massive diesel exporters like
01:04India, I'm joined by two amazing guests. From London, I'm joined by Jorge Leon. He's currently
01:09with Reistad Energy, where he serves as the head of geopolitical analysis. But he's been in the energy
01:14business for well over 15 years and previously worked at both BP and OPEC. Jorge, thank you for
01:19joining us. My pleasure. Thanks for the invite. And from New Delhi, Narendra Tunisia is on the line,
01:27global energy expert and the chairman of the Independent Energy Policy Institute. Narendra,
01:32thank you for joining us as well. Thanks for having me. Narendra, let's start with you. How are high
01:38diesel prices showing up in New Delhi right now? Oh, that's a very interesting question. In fact,
01:45if I go to a gas station close to my house, I pay a 96 rupees for one liter. That's
01:52roughly one dollar,
01:54you know, for one liter. So which is not so bad. So therefore, I mean, we are reading all these
02:00reports
02:01from different parts of the world on diesel, this kind of global diesel crisis. But as far as Indian
02:05consumer is concerned, so far, she or he feels quite insulated, thanks to the government policy. But more
02:12than that, because India is a major refining power, if not a major refining superpower. So I think
02:19that's also going to India's advantage. So Indian consumer feels kind of, is not really feeling any
02:25pinch, not feeling any kind of heat. And you find you can buy diesel any part of the world,
02:29any part of the country. You could go north, south, east, west. We are a vast country.
02:33There is no shortage of diesel. Diesel is available. And the price also, by and large,
02:37as I would say, if you compare it with diesel prices in other parts of the world, quite affordable.
02:42Jorge, is it the same in London? Or are drivers starting to feel the pinch?
02:47No, no, we're starting to feel the pain all over Europe. In the UK, for example,
02:53the average diesel price has just increased above $2, two pounds per liter. That's the highest level
03:01ever, even higher than when early 2022, when we had the Russia-Ukraine war, the start of the
03:08Russia-Ukraine war. So now we are at the highest level ever. So we are feeling the pain for sure.
03:15Jorge, walk me through the difference here, because I think some people might be confused on,
03:18you know, crude oil versus diesel versus what they put in their own vehicles, if it's gasoline,
03:22for example. What's the difference? What are we talking about here?
03:25Right. So the primary product, let's say, it's crude. Crude is the primary source of all these
03:32products. So essentially, how the system works, you take crude, and crude goes into a refinery.
03:39The refinery converts the crude into different products, products like gasoline, like diesel,
03:45like jet, fuel, and so on. And those individual products have their own pricing. But of course,
03:51there tends to be some sort of a relationship or a correlation, if you want, between the price of
03:57crude, the input price, and the price of the final products. Normally, those go hand in hand,
04:04except in certain situations, such as the current one, where we have a big increase in diesel prices,
04:11while the price of crude, even though it's elevated, is around $100 per barrel, but it's not as elevated as
04:18the historical relationship between diesel prices and crude prices would suggest.
04:24Narendra, I'm seeing some pretty scary headlines when we're looking at the global markets here.
04:30Is diesel apocalypse too strong of a term, or am I kind of a bit too panicked?
04:36Well, you see, the problem is that there is plenty of oil available. That's not an issue. It's the
04:42economics of oil. This is basically bothering the global economy, the prices are gone up.
04:46But let's say headline price today, for instance, just for the sake of discussion,
04:50if the headline price is $105 per barrel for Brent. But in India, the landed price is in the region
04:57of
04:57$130 per barrel, because the shipping rates have gone up, insurance costs have gone up.
05:02And increasingly, we used to import bulk of our crude oil, let's say, from the Persian Gulf area.
05:07But that region being in the wars, we are now importing for far-flung geographies like the United
05:12States, Canada, Norway, and Angola, and Brazil, and Guyana, and so on and so forth, which means
05:17that, you know, longer shipping times. From Persian Gulf to India used to take for a ship
05:22six to seven days for a tanker to reach Indian refineries. But from the United States, it can
05:28take anything between 50 days to 60 days. The same story is when it comes to Latin America.
05:34So therefore, that has basically become a major pain for our refiners. However, since we have a large
05:41number of refineries, we have got some very modern refineries, we have about 23 or 24 refineries,
05:46we are constructing four more. I think the situation in India is more or less comfortable.
05:51Globally, when you look at it, my worry is that, you know, my worry is that Europe is today paying
05:57the price. Europe is paying the price for being kind of naive in the sense that, you know, for 20
06:04years
06:04they've been saying oil is bad, oil is dirty. But the fact that they shut down majority of their
06:08refineries, so they are dependent on the geographies, you know. And India, for instance, last month,
06:13we exported, I think about in the region, about 300,000 barrels of diesel to Europe every day.
06:20Every day to Europe. And so therefore, they are also importing for another country. But my sense is
06:26that Europe today is paying the price for being naive and rather, rather unrealistic the last 15
06:35years particularly, and today they are paying the price for it. Jorge, respond to this idea that
06:40Europe's trying to have its cake and eat it too, you know, no refineries here, but still being a
06:44massive diesel importer. Has Europe been naive in trying to have it both ways?
06:52I think I sort of tend to agree with Narendra in the fact that Europe has put much more emphasis
07:00on energy transition as opposed to energy security. And the big data here is that refining capacity in
07:08Europe has come down by 25% in 20 years. Back in 2006, Europe had around 17 million barrels per
07:15day
07:15of refining capacity. Right now, we only have 12 million barrels per day of refining capacity
07:20because we've been closing refineries. And that made sense at the time when the world was less
07:28geopolitically fragmented, right? Where there was a lot of globalization, there was a lot of trade.
07:34No one really was expecting the world to become the more volatile place that we are living in.
07:40And also because European domestic demand has been coming down since 2006, 2008 strongly because of
07:50the electrification and also because of the push for renewables, for electrifying the transportation
07:56sector, for example. So it sort of made sense from the policymaker point of view in a world where
08:01there was less energy risk, let's say, to try to put more emphasis on the energy transition. Now,
08:08it turns out that we have two main wars in the last four or five years, the 2022 war, Russia,
08:15Ukraine,
08:15and now the U.S.-Iran war. And that means that energy security is now becoming much more
08:21important at the moment. So the decisions that were taken years ago are now affecting the European
08:27energy security landscape. And again, the fact that we don't have enough refining capacity,
08:32the fact that we have not diversified our supply as India has clearly done, means that we're now in a
08:40really bad situation compared to other regions across the world. So yes, in that sense, Europe is paying
08:47the price because it was prioritizing energy transition. But right now, the priority for any
08:55energy policymaker is obviously energy security. Now, the four biggest diesel exporters in the world
09:03are the U.S., Russia, Saudi Arabia, and India. And I want to talk about some of the factors for
09:09each of
09:09these countries because I think they all play in here. Jorge, I want to start with Russia. How big of
09:13a
09:13factor is the Ukraine-Russian war? Because it's been going on for four years if you start in 2022,
09:18but there was aggression before that as well. For sure, for sure. But there has been a step up,
09:25a significant step up in the Ukrainian drone attacks into Russian refineries. Very, very significant
09:33increase in the last six to seven, eight months. And to give you a sense, Russia used to export
09:41around a million barrels per day of diesel every day. So this was one of the main, as you correctly
09:46mentioned, one of the main diesel exporters. Right now, they're not able to export at all
09:51because of the refinery attacks. Another data point that I want to give you, right now,
09:57Russia is refining around four million barrels per day. Normally, during this time of the year,
10:05they should have been processing around 5.5 million barrels per day. So they had to reduce
10:10drastically their refinery runs because of the attacks. So for sure, the situation for Russia,
10:16as one of the main diesel exporters around the world, is quite dire. They cannot export and they
10:22have imposed this diesel export ban in order to protect their domestic consumers. So there's not
10:30much that can be done in the short term to try to improve the situation for the Russian diesel exports.
10:36Narendra, why is Russia still even such a big factor here? Because, you know, anyone who's been
10:42following this war, one of the things that's a big factor here is what feels like a million
10:47sanctions on Russian fossil fuel. Why is Russian oil or Russian diesel still such a big factor here?
10:54Well, because Russia is blessed with massive reserves of oil and gas. Russia is an oil and gas
11:01superpower just like Saudi Arabia or the United States. However, you know, we have seen and if
11:06you look at the numbers, the cold numbers before the Ukraine war and Western Europe was heavily
11:12dependent on Russia for oil and gas both. In fact, Western economy was stable, particularly Germany
11:19was doing well thanks to the cheap energy coming from Russia. However, after that, you know, we saw that,
11:25you know, there were sanctions in a way oil was oil and gas both were weaponized by Western Europe
11:30in particular and later, of course, by the United States as well. But the fact remains that, you know,
11:35Western Europe is heavily dependent. Earlier they were dependent on Russia for oil and gas. Today,
11:41they are dependent on the United States of America. So that's what I said. The Western Europe in
11:45particular has been very, very naive. I mean, and the result is look at Russia today. Russia. I mean,
11:52we have been, we are now exporting diesel to Russia. We are exporting. They bought from us. And if you
11:57look at very carefully, I'm taking my views from New Delhi, which is far away from, you know, from
12:02Western Europe. But that's how we look at it. I think weaponizing, weaponizing energy, weaponizing oil,
12:08weaponizing gas is not a very smart idea. And therefore, it's not only the Western Europe, the entire world is
12:14paying the price today. As I said, we are heavily dependent on imports for crude oil. And we are also
12:20paying a
12:20very, very heavy price. If you, my own back of the envelope calculation is left to demand and supply
12:26crude oil should not be more than $70 per barrel. But for India landed prices in the region of about
12:32$125, $128 per barrel. This is all geopolitical premium, both Persian Gulf and Ukraine. Now the
12:39world is paying the price and there are 4 billion energy poor on the planet. Most of them in Asia,
12:44Africa, Africa, Latin America, they are paying the price. So that's why they said that Western Europe
12:49and the United States also, but Western Europe in particular, they fail to provide the leadership
12:54to this industry, oil and gas industry. And at the same time, for their own consumers, for their own
13:00people, the kind of policies they follow, they've been rather naive.
13:04Yeah, I want to talk more about one really good example, the United States, as you've already
13:08briefly mentioned, Narendra, that has this tension between, you know, how much does a barrel of oil
13:14actually cost plus, you know, what we could call the geopolitical delivery surcharge that's added on
13:21top because the United States is actually the biggest exporter of diesel. But now we're seeing
13:26especially on social media, prices are really high and, you know, freight, freight truck drivers are
13:31especially feeling it if you've seen some of those videos online. Jorge, why are prices still so expensive
13:38in the US if there is so much diesel as being refined there?
13:42I think the question here is that this is a global market. And the US is a major diesel exporter,
13:50for sure. Refining plants there in the US are pushing really, really hard to try to meet that
13:59massive surge in external demand, because we've lost the Middle East supply of diesel and the Russian
14:05supply of diesel. But at the end of the day, this is a global market, right? So an increase in
14:11lack
14:12of supply somewhere in the system is reflected in prices all over all over the world. And in
14:17particularly in the US, which is one of us, as you correctly mentioned, the main diesel export. So
14:23domestic refiners in the US face the decision to export that diesel at a very, very high margin with
14:32very high cracks, or use it internally. And at the moment, the US is long on diesel. So it makes
14:39sense
14:39for those refineries to export part of the production elsewhere in the world because of that
14:45higher prices. So I go back to the idea that this is a global market, same as crude, same as
14:51gasoline.
14:51And therefore, the higher prices are being felt all over the place, not just in the US, but all over
14:59the world. You know, Jorge, I'm wondering how long we can expect this to stay a global market. You
15:06know, Russia's had an export ban for I believe, since the summer, and they've extended that through
15:11October. I'm not sure if the Trump administration is actually considering an export ban right now,
15:17or if you know, President Trump might invent a term like a reverse tariff or something to make it cost
15:21more to send diesel out of the country. Could something like an export ban from the United States
15:27be on the cards? Oh, for sure. And this was high on the news a couple of weeks ago,
15:33where there was there was the idea that the Trump administration was thinking about about it.
15:40You know, and and in theory could happen. Now, it's it's a bit perverse the the side effects that
15:46you could have with an export ban in the US. So the first impact would be there will be more
15:54diesel
15:54in the country than domestic demand. Therefore, prices of diesel will come down in the US. That's
16:01that's for sure. So that's the first order effect. So in that sense, it will be, you know, it will
16:07be
16:07effective measure to bring down the price of diesel in the US. But there's a very important second and
16:15third order effects that you need to take into account. The fact that there is more diesel produced
16:21in the US than consumed means that at some point, the difference is going to be stored. And at some
16:27point, there's not going to be enough storage to store that that excess diesel. And what refiners will
16:33do, they will need to reduce runs. And if they reduce runs, they reduce the amount of oil products
16:40that are produced, not just diesel, but also gasoline, jet fuel, NAFTA, and so on. So you might end up
16:47in a
16:47situation where diesel comes down. But actually, the rest, the price of the rest of the products,
16:53particularly gasoline, which is really important for the US rural transportation sector, might
16:58actually start coming up. So yes, that's on the cards. But be careful what you wish for, because
17:04the side effects could be actually quite, quite harmful for the for the US economy in that sense.
17:10The US has put all this pressure on the G7 recently to release emergency stockpiles of
17:16oil and diesel. But like we've already been talking about Europe are net importers. So I
17:21can't help but wonder because the G7, let's remember, includes Germany, France and Italy. So I can't help
17:26but wonder, are leaders from these countries giving up some energy security for their own citizens in
17:32order to keep this important ally, the US and President Trump happy?
17:37Well, the honest answer is International Energy Agency listens more to the United States than to
17:43any other country, though they are also the members. And so I think they came under pressure
17:48and West European leaders came under pressure. They agreed to whatever President Trump, for
17:53instance, you know, wanted to. I think that's not a really, very smart energy security strategy.
17:58And however, as I said, the real issue is a, of course, the refining capacity, the, the, you know,
18:06attacks on refineries, particularly in Europe and also in Saudi Arabia. Saudi Arabia is a major
18:10exporter of diesel, as you know. However, the refineries are under attack from Houthis and from
18:15Iranians. And also at the same time, whatever, if they have some capacity, they're not able to really
18:20ship it across to markets that need their products. So therefore, the situation, I think, unless and until
18:27we see some kind of breakthrough, you know, in the Persian Gulf situation, I think situation is likely
18:35to continue like that. So my own sense is, I'm a born optimist. My own sense is that, you know,
18:41that probably by the middle of November, we might see some light at the end of the tunnel and there
18:46might be some kind of diplomatic breakthrough and we might have some kind of a true, call it peace or
18:52whatever in the Persian Gulf area before Christmas. However, that does mean that, you know,
18:57the diesel crisis will be over instantly, that might take some time, but the market sentiments
19:02will improve. Narendra, you've pointed to November as potentially
19:09a time that we could see a bit of a resolution to the Strait of Hormuz. I want to go
19:12to that part
19:13of the world. What's the state right now? Because I have a feeling that some people who aren't directly
19:18affected by the war might have tuned out a little bit. Is the Strait open, 100% open,
19:23halfway open? What are you seeing, Narendra? Well, my sense is that, you know,
19:31the Strait is not, I mean, there are two narratives. The narrative is being sold or rather pushed by the
19:36United States is that everything is back to normal. The ships are going back and forth and it's kind of,
19:42the movement is back to almost 85 to 90% normal for, you know, for crude and for products and
19:49even for
19:50LNG. That's the kind of claim being made. However, the real situation is different.
19:55Yes, there is some movement. Yes, there is better than let's say two weeks ago. However, just today
20:01only we saw that a major tank, a big tanker was attacked. So therefore, you know, after at the end
20:06of the day, these are tank oil tankers are commercial vessels. They are not military vessels. The majority
20:11of these ships, as you probably know, are actually meant by Indian captains and Indian sailors.
20:16So we, you know, we are very worried about, you know, the safety of our people who are operating
20:21these ships. Ships may belong to, you know, whichever country, but in majority of cases,
20:26there are Indians and Filipinos and they are the ones who are actually operating these ships.
20:30So therefore, my own sense is that probably when America says 85 to 90% back to normal,
20:38they are not correct. When the Iranians say that there is no movement of ships, they are also wrong.
20:42So probably, let's say, I think 55 to 60% traffic has begun to happen. And however,
20:50the risk is very high. It is shown as premiums are going up. And the salaries that they have to
20:55pay
20:56to captains and officers who are operating these ships have also gone literally through the roof.
21:00So overall, the economics is in the challenge. And unless and until there is some kind of, you know,
21:06accord or agreement between Iran and the United States, I think the situation would continue to be like that.
21:13Jorge, when we're looking at the Persian Gulf, and especially Saudi Arabia being such a massive
21:18diesel exporter, I can't help but wonder, why isn't OPEC jumping in here to save the day? I thought
21:24that this cartel had a lot of power when it comes to energy flows.
21:29Sure, yes, but in reality, they don't have any power at the moment, OPEC and OPEC Plus.
21:35You know, how OPEC Plus works, they manage supply in order to make sure that supply meets demand.
21:42And lately, what they've been doing since April 2025, they've been increasing production,
21:48they've been unwinding production cuts, more than 4 million barrels per day.
21:52Now, that's on paper. On paper, Saudi Arabia has been increasing production in the last year or so.
22:00But in reality, the fact that the Strait of Hormuz is closed means that those paper barrels are precisely that.
22:08Those are paper barrels. They're not real barrels because they can't be exported at the moment.
22:13So, their power right now, extremely, extremely limited. And you couple that with the fact that Russia,
22:19the other major OPEC Plus member, is under attack. Their production has come down rapidly.
22:27Their quota is around 9.5 million barrels per day, and they're producing close to 8.5 million barrels
22:32per day because of the attack. So, in reality, right now, OPEC Plus has no power in oil markets
22:40because of those two constraints. So, there's very little that OPEC Plus ministers can do.
22:46They meet every month to decide whatever they want to do in terms of oil supply. But in reality,
22:52those meetings are, and the results of those meetings, are pretty much irrelevant for the oil
22:59market at the very moment. We've heard Narendra's view, Jorge, from New Delhi, looking towards Western
23:06Europe, but the EU, a net importer of diesel, from what I understand. Are we screwed, Jorge?
23:14I guess it really depends on how long this crisis is going to last for. Narendra mentioned that he's
23:22quite optimistic that we might have a diplomatic breakthrough after the mid-term elections.
23:29I'm increasingly less optimistic, really, because I don't see any diplomatic efforts
23:37being materialized anytime soon. I have the feeling that the fact that there's more crude
23:43flowing through the Strait of Hormuz actually has the opposite effect in terms of a diplomatic
23:48breakthrough. I think it puts much more pressure on Iran to ramp up and escalate further the
23:55of the counterattacks. The Strait of Hormuz serves as a leverage for Iran. The fact that it looks
24:02like Iran is losing that leverage, it puts actually more pressure on them to escalate further. So I
24:08think that the situation is quite critical at the moment. What I'm more worried about, though, is
24:14the impact that diesel prices are already having on inflation across the world,
24:21but particularly in the European Union. When I see the latest inflation reading 3.8%
24:28just last month, that is very high. And this is because there's a very strong correlation between
24:34inflation and diesel price, particularly in the US, but also in Europe. So what I'm more worried about
24:41is the macroeconomic effects that a sustained crisis could have on the European economy.
24:47I mean, we've seen the European Central Bank increasing interest rates rapidly after the 2022
24:55Russia-Ukraine war, then coming down as inflation started to cool down. And now we're probably going
25:03to see another round of increasing interest rates. And that has very important macroeconomic implications
25:09and growth implications for final consumers such as you and me. So I'm a bit more worried about,
25:16let's say, the macroeconomic effects that this could have, not in the next few months,
25:21but actually into 2027.
25:23Narendra, cast your optimistic gaze on what an off-ramp could look like to this crisis. What are
25:29things that leaders could be doing, either in the West, the US, or so on, that could have an actual
25:34impact
25:34here? Well, you see, oil is 90% politics. And oil has always been 90% politics. Look at from
25:42the time
25:43when Winston Churchill, when he was heading the Royal Navy, he made the switch from coal to oil. Since
25:51then, energy security and oil has been, you know, 90% politics. So my own sense is the Persian Gulf
25:58war is
25:58no longer only about the United States and Iran. What is happening there, the situation is getting
26:04a little out of control, practically on a daily basis. You have Houthis, Saudi Arabia's internal
26:10situation, domestic political situation. You have seen what's happening in Iraq with American pulling
26:15out, you know, and Iraq is a Shia majority country. And at the same time, you know, that the overall
26:21situation there is such that, you know, if we don't put, you know, America and they all come together,
26:27you know, put an end to the war there, I think then it's going to get completely out of control.
26:32And my own sense is that China doesn't want this war to continue. Russia doesn't want this war to
26:38continue. America has realized that they can't defeat Iran. And Iran has realized that, you know,
26:44probably this is the best time for them to sit across the negotiating table and find a good solution.
26:49However, Iran is waiting for American Congress elections and their own analysis is there or their
26:54wishes that Republicans lose and Democrats win both the houses. That would put pressure on Trump
27:00to sit across the negotiating table and find a solution on ASAP basis. However, if that does happen,
27:08then we are talking of a Middle East crisis, you know, getting out of control. We have already seen,
27:14for instance, Pakistani sending forces to Saudi Arabia to defeat Houthis. Turkey is getting into it.
27:21Who knows? Some other countries might get into it. So, and then the situation would be really extremely,
27:27extremely serious, not only for the Persian Gulf region, but for the whole world. It will drag the
27:31entire world into a kind of mess that the world would find very, very difficult to deal with. I mean,
27:37we'll be probably back to 1939 or 1940 kind of situation. So my own sense is nobody wants that. And
27:43I'm a
27:43Chinese and Americans are talking Indians and Americans are talking Indians and Chinese are
27:47talking about the Middle East. We are also talking with the Iranians and also with the Saudis at the
27:52same time. My own sense is a good sense will prevail because the right now, the situation is such the
27:58entire world is paying the price and the situation is such unless we find, you know, deliver a solution,
28:03let's say these countries or the world together before Christmas. I think then if that does happen,
28:08then 2027 can be the worst year for humankind since the Second World War.
28:13Narendra, Tunisia, on the line from New Delhi, thank you for making the time.
28:18Thank you. Thank you very much.
28:20And Jorge Leon from Raistead Energy joining us from London. Thank you as well for joining The Dip.
28:26Thank you so much.
28:29That is it this week for The Dip. Thank you very much for tuning in. And don't forget, of course,
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