The price of diesel fuel—which moves tractors, trains, and ships around the world—has recently surged, almost doubling in the last two years. The causes of that increase are wide-ranging, from the wars in Iran and Ukraine to policy decisions in Europe and Asia. The resulting crisis is already hitting anyone who uses a diesel-powered vehicle and could soon affect consumers everywhere.
What exactly is diesel? How did Europe become so dependent on it? And who has leverage in the current crisis?
Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: What is diesel exactly, and what makes it distinct as a fuel?
Adam Tooze: In the process of refining oil, which we’re all getting familiar with as a result of this crisis—it does feel like [U.S. President] Donald Trump’s foreign policy is God’s way of teaching us all chemical engineering—you basically cook the heavy oil, and as you warm it up, different fractions of the oil come off in the refining in these tall towers they have, right? There are very light gases that come off first, because they evaporate off the heavy oil first, and then you get regular benzene and petrol.
Then, lower down, you get heavier products—bigger molecules, basically. At the very bottom, you get something that’s basically tar and is used in road surfacing. But in the middle tier, you get heavy molecules with lots of carbon atoms that are still in various ways easily combustible—not quite as prone to combusting under ignition as petrol, but nevertheless combustible. Diesel is a cocktail of these ingredients in the middle range of the refining stack.
When you encounter diesel, it’s much more oily than regular fuel. Regular fuel is kind of terrifyingly … it feels light if it splashes on your skin, right? Diesel is oily. The thing with diesel is that you want it to spontaneously ignite in hot air, which has to do with the design of the diesel engine. Whereas the classic internal combustion engine injects an emulsion—a cloud of air mixed with petrol and then igniting it with a spark plug—the diesel engine instead compresses air, generating enormous heat in the air.
You don’t really need a spark plug if you have a fuel type like diesel, which when it’s injected into the hot air will spontaneously combust. The result is it produces a much more uniform flame. The problem with a standard internal combustion engine is you basically got a cloud of petrol in air and then you ignite it, so you get an uneven spread of the flame. There’s an awful lot of fancy engineering I used to be totally into as a kid about how you design that combustion chamber and where the air-fuel combination comes in and how you maximize it.
All of that disappears with diesel because you’re just going to compress the air and then inject the fuel into the right place. The beauty of that is several different things, but one crucial one is that you can make the engines really, really big because you can control the way in which the combustion takes place, because it’s going to be uniform across the chamber. With a standard internal combustion engine with a spark plug, you’ve got one flash and then the flame has to spread. Microseconds, of course—but in terms of the efficiency of an engine, as the cylinder gets bigger and bigger, that gets more and more problematic.
So you can’t make super big regular internal combustion engines, whereas you can make diesel engines that are the size of houses, the ones that drive giant ships.
CA: What is the story behind Europe becoming so much more reliant on diesel than the United States? How did Europe become such a diesel continent?
AT: In Europe, there was always a branch of standard passenger vehicles that were diesel, Mercedes-Benz in particular. But only about 10 or 11 percent of European passenger cars were diesel in the late ’80s. By the early 2010s, that figure is over 50 percent. So, it’s a huge transformation—far more dramatic than the shift to hybrids, let alone electric vehicles so far.
The diesel shift is an energy transition in Europe engineered by companies and governments from the late ’80s, early ’90s onwards toward a technology: completely different engines, the whole different design. They do have gears, unlike electric vehicles. You could say the tragedy of the European car industry now that they made this shift into diesel and didn’t go down the hybrid electric vehicle route, like Toyota, Tesla, BYD—which is why they’re in the trouble they’re in right now.
This is a really momentous story, and we think it’s a rather perverse combination of business interests. Several of the European producers had very strong diesel development and then rapidly improved the diesel. So diesel became a viable option—even for small [cars], for hot hatches, you could have a turbo diesel that was very, very efficient. You add a turbo and then you add what’s called rail fuel injection, which allows you to dose the fuel injection per cylinder incredibly carefully. It’s super efficient, it’s the ultimate development of internal combustion engines—and that was one line.
So that was an argument, and it was a technological advantage, and it helped to secure European dominance in automotive technology by the 2010s.
Then there was the interest of the European Commission, which was in cahoots with the industry but also had concerns about emissions and didn’t yet see the possibility of EVs. They thought the way to go is simply the most efficient internal combustion engine we can get, and that would be the diesel. So they pushed regulations in that direction. The industry was eagerly cheering and going, “Yes, yes, yes, that is the way we should go.”
The third element is the European refineries, who love to see the development of a market for this midsection of the refinery stack. Because for refineries, a barrel of oil is a barrel of oil: You can break different things out of it and you could mix those ingredients to produce different cocktails, but there’s a finite number of cocktails you can make out of a barrel of oil.
Once you’ve started refining the barrel of oil, your question is where do you find the market for the different bits in the oil? Diesel is great because it takes the bit that’s heavier than petrol and lighter than the fuel oil that you use in houses that’s really like porridge. It takes that segment and provides a market for it. So everyone was happy.
The nightmarish result of this is the Dieselgate scandal, where the VW engineers were trying to convince everyone that you could have a car that was the most efficient and the cleanest and didn’t even produce a truly toxic NOx pollution and just basically fudged the results to produce that outcome. Now [we have] the competitive disaster of having totally lost the plot to the battery EV model, which the Europeans just sort of sniffed at in the 2010s because turbo diesel was so much more attractive.
But it’s a historic turning point, and I would put it up there almost with nuclear policy in the ’70s and ’80s. It was a turn taken by a combination of different interests that has had really long-lasting consequences. The engines are astonishing, from the point of view of efficiency: They can run a small car for 100 kilometers on like a milk carton worth of fuel. But it’s a technological dead end compared to battery electric.
CA: Europe isn’t producing all the diesel it requires, even as its refineries maybe are now producing a surplus of petrol that the continent doesn’t require. Instead, Europe has become dependent on Russian diesel and exports from the Gulf. Is there just a structural mismatch in diesel markets that’s unavoidable?
AT: This whole debate arises from the fact that, as a result of the Ukraine war and [disruption to] the [Strait of] Hormuz in the U.S.-Israeli war on Iran, energy supplies have suffered this big hit. One of the real puzzles has been why hasn’t the price of oil gotten even more crazy? It’s around $100 a barrel. When you actually look for crazy prices right now, you find diesel and you find air fuel. Then you realize that when we say people are dependent on oil, what we’re actually dependent on is fuel—in other words, the product of refined oil.
The real problem in the current moment is that the Gulf, as we’ve spoken about several times on the show, is not just the center where oil comes out of the ground, and gas—but it’s a place of industrial processing, petrochemical processing of those outputs, unsurprisingly. And a huge amount of refining capacity has gone offline. That’s when the shortages develop, because oil and gas, [and] oil in particular, is super fungible. There are lots of different sources of supply and you stick it in a tanker and you float it around and just find the market that’s most attractive.
Refinery is a multibillion, multiyear … it can take a decade to build a really big one. Industrial facilities are fixed, and so totally nonfungible, and that’s where all of this stress has arisen from.
Europe, following the strategy we were just talking about from the ’90s onwards of prioritizing diesel, quite deliberately built an imbalance. They not just sucked up all of the demand of their refineries, but they then ended up in a net deficit for diesel. So, when we say Europe is dependent on imported oil, what we really should be saying is that it’s really dependent on imported diesel. It needs about three times as much imported diesel as it needs imported kerosene petrol.
Where was it getting it from? Yes, Russia had huge refinery capacity, so it was taking it from Russia. When Russia’s diesel exports were sanctioned in 2023, it shifted. The U.K. shifted to the Gulf of Mexico, so the U.K. became very dependent on diesel imports from the United States. The EU shifted mainly to the Middle East and India.
Then guess what happens? Somebody has the bright idea of launching a war on Iran and shutting the Strait of Hormuz, and so then the Europeans can’t import diesel from the Middle East anymore either. Then you’re really stuck, and then you’re fishing around, and that puts the Americans in a strong leverage position. So then you have these fundamental imbalances developing.
But the thing we’ve learned is that when we talk about dependence on oil, what we’re really interested in are the final products—those are the ones that matter most. That’s why there’s now this big gap between … it’s called the crack spread, the gap between the underlying cost of the barrel of oil and what you pay for the things you actually want, which are petrol or diesel or kerosene or fuel.
CA: It seems like 2026 has been a particular tipping point for diesel. Why is that?
AT: I think what’s really come together this year is the impact of the Israeli-American attack on Iran, which is just a disaster from the point of view of the global fuel economy. Crude oil prices have not been telling the full story. Early on, it was jet fuel, air fuel. We were hearing a lot about that. Now it’s diesel, and diesel is much more pervasive in its uses.
The second thing is the Ukrainians have developed this extraordinary long-range strike capacity with drones, which no one had reckoned with and which they weren’t able to do early in the war. They’ve realized, I think, that by striking Russian diesel refinery capacity, they are really hitting a nerve. That’s of course what Ukraine wants above all. It needs leverage, it needs somebody to be actually paying attention to the nightmare that they’re going through. Then they need somebody to be willing to say, look, call off the dogs, this has got to stop.
I think that’s really what’s tipped this. It’s also a matter of exhausting supplies gradually, exhausting stocks. There’s only so many times you can rearrange supply chains. But I think it’s those two factors that are making 2026 into a moment of truth.
CA: From the perspective of someone who does not drive a diesel vehicle, why should they care about this diesel crisis? Obviously, there are people who rely on diesel, but if you’re not in Europe and you’re not the owner of a tractor or ship, why should one be invested in this?
AT: The reason why everyone needs to be interested in diesel is that it is the fuel for the prime movers of the world economy. Diesel is logistics, in short. It’s a diesel engine that’s moving your parcels or your food or your clothing or the container ship that’s going to bring your kids’ presents for Christmas or whatever. It’s all diesel.
So you’re right, people may think this is remote, but it isn’t. It’s somebody else that’s paying the bill and ultimately you will be as the consumer. In the food supply chain, it’s critical because it’s in tractors and because it is in the logistics chain that allows food to be delivered just in time. It just adds to the costs all the way along the line. Then, more generally, the point is that diesel is part of the refinery process, right? The key thing we need to understand is that it’s coproduced along with petrol and the industrial gases used for petrochemical production.
Modern agriculture is, one could rather reductively say, a giant pipeline for turning fossil energy into food—that’s what modern agriculture does through fertilizers, through the application of machinery, and through irrigation, which is driven by pumps. Until we move to a fully sustainable energy system that will rely on wind and solar above all and batteries, we’re in an economy in which food production itself is a mediated form of chemical engineering and biochemical engineering. Diesel is just part of the equation.
The other one is fertilizers, which we’ve talked about on the show. And then the packaging and everything else, right? We live in a world that is petrochemically transformed, and diesel is one of the fractions of that process. There’s an estimate that says that 30 percent of all energy use in the most extended sense is part of the food chain. This will feed through to prices in measurable ways of all of the ingredients of a household’s diet.
CA: It seems only natural to ask who exactly has leverage in this diesel crisis and who does not. How will that play out in terms of the development of this crisis going forward?
AT: I think a simple answer is that once again, it seems the Europeans have the weakest hand. They have a large deficit of diesel. Anyone with refining capacity certainly is in a stronger position. That means you don’t need to be an oil producer; you need to be the person that turns oil into something that people actually want—because people don’t want barrels of oil, they want diesel.
India moves in this story from being exposed to massively high oil prices, which have not happened, to being a country with a very large, very sophisticated petrochemical sector with recently built refineries. Part of the problem is in the West, no one has been building refineries because it’s been so obvious that you should build a refinery close to the feed stock in the emerging markets or in the Gulf—which is where all the building has been done. You would then rely on global trade. So the European position is not irrational, it’s just risky and it leaves you without resilience.
In that kind of system, then, players like India and South Korea, which have built really large refining capacity of a very modern and versatile kind, are actually in a rather strong position. Famously, of course, the Indians have been the people who have served as a conduit for Russian crude. So, the Indians buy Russian crude at prices discounted as a result of sanctions and then sell what Europeans actually want—which isn’t the Russian crude but diesel—to the Europeans and everyone’s all good, right?
China is, as usual, in a relatively strong position in this game because it has huge modern refining capacity and a government with determined policy and large stocks of oil. The Chinese were relatively early to begin to regulate exports. And there are quite a lot of stocks in many countries, notably in Europe. The Germans have got lots of diesel stockpile. The Brits typically have got hardly any; I think the Brits have 40 days. The Germans had 400 days’ worth of diesel supply, and they’re going to release some of those.
But the reason why everyone is panicked is Trump. Because Trump being Trump, seeing diesel prices go through the roof in the U.S. and understanding a little bit about business and knowing that heavy things get hauled by diesel and seeing midterms coming along, thought: Oh, you know, what the excellent thing to do is we should shut in all of America’s oil supply and just make sure that we supply ourselves first, America First, blah, blah, blah. The playbook is obvious. America has huge both oil production and refining capacity in the Gulf [of Mexico].
But this is then where the logic of refining comes in, and storage capacity. Because the Americans are used to operating a just-in-time kind of system. You refine a barrel of oil, you get a bunch of cool stuff out, and you sell it in every single possible direction. What America doesn’t have is huge reserve storage capacity for diesel. Were America to impose export controls on diesel, it would rapidly overfill the capacity for diesel storage, which is quite limited because it’s used to exporting it to the entire world in a continuous way and earning really good profits from doing that.
So, what would the American refineries have to do? They would almost certainly have to reduce overall refining activity because diesel is just 25 percent of what you get out of a barrel of oil. If at any point in that mix you run into a rate-limiting factor, which in this case would be the storage capacity for diesel, you have to slow the entire process down. Then you would be in a situation in which diesel prices would moderate in the U.S., but the price of everything else in the refinery stack would go up.
It’s a typical example of how the world is more complicated than Donald Trump thinks—and this actually is a hugely complex organism where if you intrude into one part of it, sure you reveal strengths, but those strengths are conditional on networks of interconnection and so on that your own suppliers will completely rely on.
