Published on Sep 18, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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Diesel prices hit a record $6.31 a gallon in September 2026 as two separate wars squeeze global refining and export capacity at once. Ukrainian drone strikes have cut Russian diesel output, while the Iran war has throttled Gulf exports through the Strait of Hormuz. Because crude reserves can't replace lost refining capacity, the shortage is draining inventories, pushing up prices, and will eventually crimp demand.
Most people have never filled a diesel tank. Why would they? The average family car or SUV doesn't run on it.
But diesel is the fuel behind almost everything else you buy. The truck that hauled it. The tractor that grew it. The machine that built it.
And this month, it did something it’s never done before. . .
On September 16, AAA's national average1 hit $6.31 a gallon - the highest diesel price in U.S. history (currently at $6.29 as of writing this Thursday).
To give you some context, diesel prices have climbed roughly 60% since late February 2026 - when the national average sat near $3.75 a gallon.
So, why are diesel prices surging?
Well, because diesel is caught in the crossfire of two separate wars - Russia-Ukraine and U.S.-Iran.
And to understand why things may get worse from here, you need a lens that ignores what governments say and watches what they're forced to do.
So let's look at diesel through that lens - geopolitical alpha.
A few years ago, I read Marko Papic’s book Geopolitical Alpha and found it insightful as a commodities analyst.
The idea is simple.
What a government wants to do matters far less than what it's actually forced to do - by financial capacity, legal limits, and physical reality.
Meaning – rhetoric is nice until you have to contend with the real world.
Think of a household on a fixed paycheck. The parents might prefer to buy organic everything at the grocery store. But their wallet says otherwise. So, what ends up in the cart tells you far more about the budget than anything the parent said walking in the door.
Governments work the same way.
For example, they may want to go green and cut emissions fast. But the grid isn't built for it, the transition costs a fortune, there aren't enough battery metals, and rushing it spikes inflation and can unintentionally create severe financial burdens for low-income households.
Thus, the ambition slows to whatever the infrastructure and the finances will actually allow - whether the government admits that or not.
I believe Papic's book is a great tool to use here. Because economics, at the end of the day, is really just the study of scarcity - limited resources with unlimited wants. That's the whole idea an Econ 101 class boils down to.
Geopolitical Alpha just takes that same idea and points it at governments instead of shoppers. Scarcity creates constraints. Spot the constraint early, and you already know roughly what may be coming, no matter what gets said at the podium.
So don't ignore what leaders say, just discount it some and watch the constraints instead - things like costs, resources, sentiment. Because those determine what happens next.
So, what’s diesel fuel?
It’s the fuel in the truck that delivered your groceries, the tractor that planted the wheat inside them, the excavator that dug the foundation under your office, the freight train hauling steel, and the generator keeping a hospital running when the grid drops.
Said another way, gasoline mostly moves people around. Diesel moves the physical economy itself.
Refiners make diesel by heating2 crude oil to roughly 600–750°F and separating it by weight. They then run the middle fractions through a hydrocracker and hydrotreater to remove sulfur and meet the 15-parts-per-million limit for U.S. highway diesel. For perspective, that process runs 100 to 200°F hotter than the process used for jet fuel.
So finding more oil in the ground - whether in the U.S., Russia, Saudi Arabia or Venezuela - doesn't help if the refineries and processes that turn crude into diesel are offline (diesel futures were trading roughly $100 above3 crude oil prices in early September - a gap that signals a refining bottleneck).
And that’s where the problems start.
On September 16th, 2026 - the Russian government decided to extend4 its ban on diesel exports for fuel producers until the end of October.
I’m sure Moscow will say it’s a defensive strategy to hurt NATO and Ukrainian backers.
But the truth is, it’s extending the ban because the constraint forced its hand.
Ukraine's drone campaign is directly targeting Russia’s oil refining system - part of the broader drone-driven asymmetric warfare5 now defining how modern wars are fought.
The International Energy Agency (IEA) logged at least 22 strikes on Russian refineries in August alone and now expects Russian refining to run near 4 million barrels a day through the next 18 months - roughly 30% below6 pre-war levels.
In fact, three of Russia's six largest diesel-producing plants were recently shut or operating at around a quarter of capacity.
Because of this, Russian diesel and gas exports have plunged over 80% since the beginning of the year.
With less diesel being made while supplying its own war economy, Moscow doesn't have much to spare. So, it's rationing what remains at home first - hence the extended export ban.
And Russia isn't even a top diesel producer globally (roughly 4th by UN data). But it was the world's second-largest diesel exporter before the war, right behind7 the U.S.
Now it's number six8, and falling as other export bans stack up around it.
That supply crunch and the soaring diesel prices it triggered pushed President Trump to tell9 Ukraine's president - Volodymyr Zelenskiy - to stop targeting Russian diesel infrastructure because it's "hurting the world."
He's not wrong about the price impact. But Ukraine can't afford to let Russia export more diesel and turn that cash into more artillery aimed at its own cities.
This is where the rhetoric - everyone wanting lower diesel prices - has to contend with the physical constraints - where allies don’t want Russia funding its war effort more easily.
If Russia's constraint is refineries under siege, Iran's is closing a gate.
The Strait of Hormuz is the export path for refined fuel out of Iran, Saudi Arabia, Kuwait, Iraq, Qatar, and the UAE. Before the war, roughly 25% of global energy flowed through it.
But since the war broke out, Iran has launched drones and missiles to disrupt much of that trade10.
The IEA estimates11 Gulf exports of diesel, gasoline, and jet fuel are running nearly 60% below prewar levels (no surprise given those idled Saudi refineries).
But crude doesn't have that problem. It ships without a refinery first, limited mostly by war risk in the strait rather than anything onshore.
That's why estimates12 from Goldman Sachs put overall Hormuz traffic - crude and products combined - at only 40% below pre-war levels. That’s because some tankers are slipping through with transponders off - ghosts the data misses.
Making matters worse, Iran-backed Houthi rebels13 in Yemen have made major ground and now effectively control Yemen's entire Red Sea coast. That's a serious problem for Saudi Arabia, which depended on the Red Sea to bypass a closed Hormuz strait - and Saudi refineries are now getting attacked by those same rebels.
The point is this isn't about Iran's national diesel output but rather about a chokepoint being one of the only options Iran has left to make every tanker captain think twice before entering the strait.
This is where the rhetoric - Washington wanting Iran to simply capitulate - has to contend with the real world - where a single blocked shipping lane is inflicting material pain on economies and consumers that have nothing to do with the fight.
But keep in mind - Iran faces its own version of this problem.
Years of sanctions, corruption, and inflation have limited Iran's own economic options. Thus, whatever position Tehran takes publicly, a strained economy is itself a constraint - one that applies regardless of what gets said publicly.
This leaves the Fed boxed in by the same situation - physical constraints surpassing ideology.
Higher diesel costs trickle into everything built on trucking and farming, pushing prices up across the supply chain. That's inflationary. But the Fed's mandate is price stability and low unemployment, and a rate hike can't fix a supply problem (it can't repair a bombed Russian refinery and it can't escort a tanker through Hormuz.)
What it can do is try slowing the rest of the economy - housing, hiring, autos, credit - until total spending shrinks down to fit the smaller fuel supply available.
Thus, cooling inflation isn't the direct effect of a rate hike here. It's a byproduct of demand destruction everywhere else.
That makes this a blunt tool aimed at a supply problem.
The Fed's own language about fighting inflation matters less than what the inflation print, the employment mandate, and a fuel shortage it can't touch will physically allow it to do without causing investors to lose confidence in their abilities (they may not want to hike, but they’ll have to).
Fed researchers have long argued oil gets too much blame for the 1970s - that expectations and policy mattered more than the barrel itself.
Thus, the lesson isn't that oil shocks don't matter. It's more about how long they last - and whether expectations stay anchored - that decides whether this becomes a one-quarter headline or a multi-year mess.
So, if diesel stays this expensive long enough, the Fed may have to hike more than they’d wish to – hurting everything else in the economy.
None of this is set in stone.
U.S. refiners are running at 98% capacity14 – but the White House is weighing ways to boost investment and output.
Cargo ships increasingly keep their transponders off to travel the oceans - sneaking what they can out.
And a ceasefire - in either war - would ease the pressure fast, even if it takes years to fully rebuild inventories, repair Russian units, and restore shipping confidence.
None of that erases the pressure completely – but it could ease prices enough to prevent inflation from spiraling.
Diesel isn't the only gauge on the dashboard. Right now, it's the one flashing red.
Geopolitical Alpha doesn't say ignore what leaders say – only to discount it and watch the material constraints instead.
Every government in this piece has talked plenty. Moscow talks about hurting NATO. Washington talks about Iran capitulating. Iran talks about keeping the Strait of Hormuz shut until Trump is out of office. But that talk isn't what's actually setting diesel prices. It’s the refineries, the shipping lanes, and the depleted inventories that are.
So watch what Russia, Iran, the U.S., Ukraine, and the Fed are forced to do.
Because the constraints already told you where this was headed.
But as always, time will tell.
Why are diesel prices hitting record highs in 2026? Diesel hit a record $6.31 a gallon because two wars are choking off supply at the same time. Ukrainian drone strikes have cut Russian diesel refining by about 30%, and the Iran war has slashed Gulf fuel exports through the Strait of Hormuz by nearly 60%. Pumping more crude oil can't fix either problem, since the shortage is about refining and shipping, not raw oil supply.
Is the Russia-Ukraine war or the Iran war more to blame for the diesel shortage? Neither war fully explains it on its own. Russia's diesel shortfall comes from bombed-out refineries, while Iran's comes from ships getting stuck outside the Strait of Hormuz. Since the two problems hit different links in the supply chain, fixing just one conflict probably wouldn't bring diesel prices back down.
Why did Trump ask Ukraine to stop striking Russian refineries? He wants the strikes to stop because they're making the global diesel shortage and price spike worse. Ukraine has kept hitting the refineries anyway. Letting Russia sell diesel again would hand Moscow fresh revenue to keep funding the war, so Kyiv sees the strikes as worth the economic fallout.
Can the Federal Reserve fix inflation caused by a diesel shortage? Not really. The Fed can't rebuild a bombed refinery or reopen a blocked shipping lane. Raising rates only works by cooling down the rest of the economy, like housing, hiring, and credit, until overall demand shrinks enough to match the smaller fuel supply. That's a blunt tool for a supply problem, not a fix for it.
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