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The conflict between Iran and Israel has pushed European diesel and jet fuel costs to their highest in 15 months, as traders worry about possible export disruptions from the Middle East.
Since fighting began last Friday, the diesel premium over crude oil has skyrocketed by 60%, with jet fuel rising by 45%, based on market data from Argus.
This price surge is due to fears that any halt in shipments from the Gulf, a major fuel source for Europe, could lead to significant supply issues ahead of the busy summer travel season.
Even though Brent crude, the global benchmark, has increased about 9% to nearly $77 per barrel during this time, analysts believe the global oil market remains adequately supplied, and Israel has not yet targeted Iran’s oil export facilities.
The significant increase in refined fuel prices emphasizes Europe’s dependency on imports from the Middle East. “This is one of the most striking week-on-week increases,” noted George Maher-Bonnett from the price reporting agency Argus. “These profit margins have suddenly surged.”
He cautioned that any issues in the Strait of Hormuz, a critical route for oil, gas, and refined fuel exports from the Gulf, would notably impact Europe’s diesel supply.
Last year, more than 20% of the road diesel imported into the EU, UK, and Norway originated from the Gulf, particularly from Saudi Arabia, Kuwait, and the United Arab Emirates.
The Gulf was also responsible for more than half of Europe’s imported jet fuel, totaling approximately 13 million tons, according to data from Kpler. Other countries supplying these fuels to Europe include the US, India, and Turkey.
The UK is particularly vulnerable, importing about one-third of its diesel and two-thirds of its jet fuel last year.
On Thursday, jet fuel was priced at nearly a $27 per barrel premium to Brent crude, while diesel was approximately $29 per barrel more than Brent. Maher-Bonnett indicated that consumers and airlines may not feel the effects of these high prices for a few weeks due to existing hedging strategies in many companies.
In contrast, profit margins for gasoline in Europe have diminished due to weak demand both domestically and in major export markets like the US, Canada, and Nigeria.
The launch of the Dangote refinery in Nigeria, which was the second-largest market for European gasoline exports, has significantly affected these figures. “We have observed export levels [to Nigeria] cut in half,” stated Maher-Bonnett.
