Iran Update: Diesel & Gasoline Soar after Iran Strikes

This weekend, the US and Israel launched strikes against Iran, prompting retaliation and raising concerns about oil shipments through the Strait of Hormuz. As markets reopened, oil prices jumped sharply, with crude prices up about $5/bbl and diesel surging by an astonishing 35+ cents. Looking ahead, prices will depend less on Iran's oil production and more on whether tankers can safely navigate key shipping routes. Read all about the strikes and their impact on fuel markets in today's special Iran Update FUELSNews.

What happened?

Early Saturday morning, US and Israeli forces carried out coordinated strikes on Iranian military targets, including killing Iran's Supreme Leader Ayatollah Ali Khamenei. Iran responded with missile and drone attacks across the region, rapidly escalating the conflict. By Sunday night, fighting had spread beyond direct military targets and into areas critical to global energy trade.

The conflict quickly spread to the Strait of Hormuz, with multiple oil tankers damaged near the strait. The Strait is a narrow waterway connecting the Persian Gulf to the open ocean and handling about one-fifth of the world's oil shipments. In response to the danger, shipping companies began halting or delaying voyages. Hundreds of vessels either slowed down or anchored as operators waited for clarity on safety conditions.

Immediate Supply and Price Impact

Oil markets reacted fast. When trading opened, WTI crude jumped into the low-$70s, marking the biggest single-day move in months. This surge was driven by fear, not by confirmed supply losses. Most oil production in the region is still operating.

The major issue for crude markets will be getting oil to market. Even if oil is available, it doesn't help if ships can't move safely. Insurers are reassessing coverage, shipping companies are avoiding the area, and freight costs are rising. This creates delays and uncertainty, which pushes prices higher in the short term.

Nearly all of the oil (80%+) moving through the Strait of Hormuz is destined for Asian markets including China, India, South Korea, and Japan. Global trade flows will need to re-route to cover the gaps, leading to oil flowing away from Brent (European) markets and from WTI (US markets). Meanwhile, crude oil will likely build up in the Middle East, unable to be safely shipped until conditions improve.

On the fuel side, gasoline is following crude higher. Diesel has seen outsized gains because inventories were already trending tighter; this new threat could push diesel further into undersupply. Futures markets surged, with near-term pricing up significantly, while more long-term 2027 and beyond prices, which tend to be more illiquid, remained stable. That suggests that markets see an immediate concern for diesel markets, but not necessarily a long-term issue.

What To Expect Next

Short term: Expect continued price swings. As long as the conflict remains active and tankers face danger in the Strait of Hormuz, oil prices are likely to stay elevated and volatile. Even brief headlines about new attacks or shipping delays can move prices quickly.

Medium term: If shipping stabilizes and vessels resume normal transit, prices could ease back from current highs. However, repeated attacks or ongoing threats could keep a "risk premium" baked into oil prices for weeks, even if no major supply is lost.

Longer term: Global producers, including OPEC members, do have some spare production capacity. But spare barrels don't solve a shipping problem. Extra oil can't calm markets if it can't be moved safely through key routes. That makes chokepoints like Hormuz more important to prices than production levels themselves.