IEA: Diesel crunch will last into 2027 as Iran war and Russian cuts drain global stocks

Diesel inventories worldwide have been drawn down so severely that restoring them to adequate levels will take years, not months — with consumers, truckers, farmers and manufacturers set to contend with constrained supplies and record prices well into the second half of 2027, the International Energy Agency said Wednesday in its October Oil Market Report.

The IEA's assessment goes beyond a near-term price warning. Summer drawdowns that were 'much heavier-than-normal,' the agency said, have 'deprived global gasoil markets of crucial stock cover ahead of the peak winter demand season,' and rebuilding those reserves — beyond ordinary seasonal patterns — is 'unlikely before the second half of 2027.'

Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation.— International Energy Agency, October Oil Market Report

The root cause is a double supply shock. Combined diesel export losses from the Middle East and Russia reached 1.3 million barrels per day in September, according to the IEA. On a year-over-year basis, worldwide diesel exports dropped 700,000 barrels a day last month, with gains from other suppliers only partially making up for the shortfall from the Middle East and Russia, the agency said.

Attacks on energy infrastructure tied to the Iran war curtailed refining capacity, pushing diesel refining margins — the fuel's premium over underlying crude — to record highs of nearly $95 per barrel in September. In Europe and the United States, wholesale diesel prices reached all-time peaks of roughly $220 per barrel, while Singapore prices topped $200 a barrel in mid-September, the IEA said. U.S. retail diesel topped $6 a gallon for the first time last month, according to CNBC.

Even with prices at record levels, the IEA noted that 'relatively price inelastic diesel demand has remained strong,' bolstered by government support measures for consumers — a dynamic that is slowing the market's self-correction compared with other fuels. Looking ahead, the agency projects that total oil demand will decline by an average of 2.6 million barrels per day in 2026, with diesel responsible for 25 percent of that reduction.

IEA member countries have been coordinating emergency stock releases to calm prices. An initial 400-million-barrel release agreed in March had delivered 331 million barrels by the end of September, but the pace slowed sharply — to around 270,000 barrels per day in September, down from an average of 2.2 million barrels per day over March through June. Members are now executing an additional coordinated release of 100 million barrels of oil and diesel. Of roughly 1 billion barrels in government stocks held by IEA members, more than 200 million barrels are diesel. Europe has yet to release 46 million barrels from the earlier agreement, the Americas 40 million, and Asia-Oceania 10 million, according to Reuters.

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 before any eventual surplus emerges in 2027.— International Energy Agency, October Oil Market Report

The diplomatic response has been contentious. President Donald Trump said last week that he had reached an agreement with Russian President Vladimir Putin under which Russia would immediately send 300,000 metric tons of diesel onto the global market to help bring prices down. A tanker loaded with roughly 40,000 metric tons of ultra-low sulphur diesel departed the Baltic port of Primorsk on Tuesday bound for Morocco, signaling the resumption of Russian diesel exports, according to LSEG data reported by Reuters.

The deal drew bipartisan condemnation in the United States and criticism from European officials. At the IMF meetings in Bangkok on Wednesday, European Commissioner for the Economy and Productivity Valdis Dombrovskis said 'now is not a time to ease sanctions on Russia,' and raised doubts about whether the quantities involved would make a meaningful difference in the market.

If we discuss this diesel deal specifically, it's worth noting that the volumes which are being discussed are anyway not going to have any macroeconomic significance, and the big question mark if Russia is able to deliver them anyway.— Valdis Dombrovskis, European Commissioner for the Economy and Productivity

Italian Prime Minister Giorgia Meloni also warned on Wednesday that the deal contradicts efforts to bring Putin to the negotiating table with Ukraine, according to CNBC.

Meanwhile, new attacks are threatening the partial recovery already underway in the Gulf. September saw Middle East Gulf producers' crude oil exports climb by 4.4 million barrels per day, reaching about 75 percent of pre-war levels, with a 3.7 million barrel per day increase in Strait of Hormuz shipments driving the gain. But over the past week, Yemen's Houthis have launched a series of attacks on the Saudi capital Riyadh, with some resulting in fatalities. Saudi officials confirmed Wednesday that an administrative building owned by oil giant Saudi Aramco was struck overnight, according to CNBC. The IEA warned that attacks on Saudi Arabia risk derailing the market recovery, with Saudi production increases in September having driven OPEC+ supply gains that month.

The IEA projects global oil supply will fall by 5.8 million barrels per day this year before reversing to rise by 7.7 million barrels per day in 2027, which would tip the global oil market back into surplus — but the agency cautioned that 'renewed attacks in the Gulf leave the recovery fragile.' Brent crude was trading at around $105.80 per barrel on Wednesday, according to Reuters.

The IEA also warned that tensions in the crude freight market mean delivered diesel prices in the dominant importing markets — Europe, Africa, and Latin America — could rise again in the coming weeks, even before winter demand peaks.

Why it matters — Diesel powers freight, farming, and heating across the global economy, so a crunch lasting into late 2027 means persistently higher prices for goods, food, and energy — with the IEA warning that further demand destruction and its economic costs may still be needed before markets stabilize.

Reported by cnbc.com, money.usnews.com, ca.finance.yahoo.com, ground.news