When Diesel Surges: How the Oil Shock Hits the Real Economy

The escalation of the Iran war has triggered what the International Energy Agency describes as the largest disruption in the history of global oil markets, sending shockwaves far beyond crude prices and into the fuels that power everyday economic activity. While headline attention often focuses on oil benchmarks, the more consequential shift is happening downstream. According to Bloomberg (2026), Goldman Sachs analysts state that refined products such as diesel and jet fuel are bearing the brunt of the disruption, with tighter supply dynamics and sharper price increases than crude itself. 

That pressure is already becoming tangible. In the United States, diesel prices have climbed above $5 per gallon for only the second time on record, a threshold previously reached during the 2022 energy crisis. While gasoline remains the more visible cost for consumers, it is diesel’s surge that is raising concern across industries. Given the emergent context, this article will explore how the global oil shock is driving sharp increases in refined fuels like diesel and jet fuel, and how this is impacting economies and shaping policy responses globally. 

Impact of Middle East Conflict on Global Oil and Refined Fuel Prices – Source: Bloomberg 

Why diesel matters: the primary transmission channel of the oil shock 

The surge in refined fuel prices, particularly diesel and jet fuel, is where the current oil shock translates most directly into the real economy. Unlike crude, diesel sits at the core of economic activity, meaning price increases move quickly across sectors and into end-consumer costs. 

Diesel powers agriculture, construction, and logistics, the physical backbone of production and distribution. In trucking alone, it accounts for roughly one-fifth of operating costs, second only to labour. As a result, even modest increases compress margins and cascade downstream, raising the cost of goods across the supply chain. 

Global ripple effects: inflation pressure and early signs of structural demand shift 

As diesel costs rise, the effects are gradually feeding into the broader economy. Given its role in transport and production, higher diesel prices tend to increase operating costs across supply chains, which can, in turn, contribute to upward pressure on consumer prices. According to Bloomberg (2026), estimates from RSM US suggest that a 10% increase in diesel prices may raise headline inflation by around 0.1 percentage points, implying a more moderate but still noticeable impact if current price levels persist. 

Signs of this pressure are observed across different regions. In Brazil, higher diesel costs are increasing transport expenses during peak soybean export season. In Japan, fuel supply constraints linked to disruptions around the Strait of Hormuz have contributed to an 18% weekly increase in gasoline prices, with refiners such as Idemitsu Kosan Co Ltd adjusting supply. In the United Kingdom, both petrol and diesel prices have also risen to their highest levels in over a year, reflecting similar cost pressures. 

In Vietnam, these effects have surfaced at the consumer level. According to Vietnam Plus (2026), in early March, fuel price volatility led to a surge in demand in Hanoi, with long queues forming at petrol stations. Sales at some locations surged 30–50% above normal levels, exceeding the city’s average monthly consumption of 150,000 m³. The spike was driven in part by precautionary buying and short-term resale activity rather than underlying supply shortages, temporarily placing pressure on distribution systems. The situation stabilised within days, with consumption falling 25% from peak levels, but it highlights how quickly price signals can distort demand even when supply remains sufficient. 

The impact is also evident in aviation, where both operations and cost structures are under pressure. Airlines including Qatar Airways and Emirates have cancelled or suspended flights affecting thousands of passengers due to Middle East airspace restrictions. Fuel costs are the central constraint. Jet fuel prices are averaging $160–170 per barrel, with potential to approach $200, pushing total airline operating costs significantly higher. In Vietnam, fuel now accounts for 35–40% of airline expenses, driving cost increases of 50–60% for full-service carriers and adding around 2 trillion VND ($75.9 million) per month for low-cost airlines. Longer routes further increase fuel burn, while insurance and overflight fees compound the pressure. 

At the same time, the current shock also drives a structural response. Rising fuel costs are accelerating a shift toward electrification, as both consumers and businesses seek more stable and predictable energy alternatives. In the United States, petrol prices reaching $6.81 per gallon have triggered a surge in electric vehicle (EV) interest, with online searches rising 20% in a week. Similar patterns are emerging in the United Kingdom, where EV inquiries have increased by 30%. 

As fuel prices rise, EVs and electric systems become more economically attractive, particularly with entry-level models now available below $30,000. Second, risk hedging: households and firms are increasingly prioritizing energy sources less exposed to geopolitical disruption. Third, technology readiness: unlike previous oil shocks, scalable alternatives, EVs, solar, and heat pumps, are already commercially viable and widely accessible. 

The shift is also visible in capital markets. Clean energy firms have recorded double-digit stock gains (27%–45%) since the conflict began, reflecting expectations of sustained demand growth. Adjacent sectors, including charging infrastructure and home energy systems, are seeing parallel momentum, suggesting the early formation of a broader electrification ecosystem. 

Policy responses: from short-term relief to structural adaptation 

As price pressures build across refined fuels, governments are responding along two parallel tracks: immediate cost containment to stabilise markets, and longer-term shifts to reduce exposure to volatile fossil fuel supply chains. 

In the short term, several countries have prioritised direct price relief and market intervention. According to Bloomberg (2026), Ireland, for instance, has rolled out a €250 million support package, anchored in fuel tax reductions of up to 22 euro cents per litre for diesel and 17 cents for petrol, alongside targeted subsidies such as increased diesel rebates for transport operators and expanded fuel allowances for households. The objective is straightforward: cushion consumers and businesses quickly, while maintaining flexibility as the situation evolves. 

At the same time, other markets are using the disruption to accelerate structural energy transitions. Australia offers a clear example, where rising diesel costs are reinforcing the case for electrification in public transport (The Guardian, 2026). Despite electric buses currently accounting for only about 1% of the fleet (around 629 vehicles), compared to nearly 42,800 diesel buses consuming 530 million litres annually, policy momentum is shifting. Major cities are targeting fully electric bus systems by 2040, supported by mandates for new electric buses and investments in charging infrastructure. This reflects a broader strategy: reducing long-term dependence on imported fuel while stabilising operating costs. 

Vietnam’s response sits at the intersection of both approaches, combining aggressive short-term stabilisation with medium-term supply restructuring. According to Lao Dong Newspaper (2026), on pricing, the government has implemented a series of fiscal measures, including cutting environmental protection tax, VAT, and special consumption tax to 0% from March 26 to April 15, an intervention estimated to reduce state revenue by about 7.2 trillion VND per month while easing cost pressures across the economy. These measures complement the ongoing use of the petrol price stabilisation fund to smooth domestic price fluctuations. 

On the supply side, coordination has been equally pronounced. Petrovietnam continues to anchor upstream and refining capacity, meeting roughly 70% of domestic fuel demand, with some facilities operating above capacity. Imports have also been ramped up significantly, reaching over 2.7 million tonnes by mid-March, up more than 40% year-on-year, to reinforce supply resilience. 

Downstream, major distributors such as Petrolimex and PVOIL, which together control nearly 70% of the retail market, are accelerating the rollout of E10 RON95 biofuel ahead of the June 2026 deadline. This transition is expected to reduce mineral gasoline consumption by approximately 10%, easing import dependence while supporting cleaner fuel adoption. 

At the same time, authorities are tightening market oversight and enforcement, targeting hoarding, smuggling, and supply manipulation, while coordinating across agencies to maintain uninterrupted distribution. Efforts to diversify crude and ethanol sourcing—from markets such as the US and Brazil, further reinforce supply security. 

Taken together, the global response reflects a consistent pattern: stabilise in the short term, adapt for the long term. While tax cuts and subsidies help absorb immediate shocks, the current disruption is also accelerating deeper shifts in how countries source, price, and ultimately consume energy. 

References: 

Vietnam News Agency. (2026). Gov’t leader orders sufficient energy supplies for production, business, consumption. https://vietnam.vnanet.vn/english/tin-tuc/gov39t-leader-orders-sufficient-energy-supplies-for-production-business-consumption-436007.html 

VietnamPlus. (2026). Vietnam diversifies supply sources to meet domestic fuel demand. https://en.vietnamplus.vn/vietnam-diversifies-supply-sources-to-meet-domestic-fuel-demand-post339789.vnp 

VietnamPlus. (2026). Vietnam tightens fuel smuggling controls to safeguard energy security. https://en.vietnamplus.vn/vietnam-tightens-fuel-smuggling-controls-to-safeguard-energy-security-post339820.vnp 

VietnamPlus. (2026). Energy giants work hard to roll out E10 RON95 sale ahead of schedule. https://en.vietnamplus.vn/energy-giants-work-hard-to-roll-out-e10-ron95-sale-ahead-of-schedule-post339914.vnp 

VietnamPlus. (2026). Vietnam cuts fuel taxes to zero till April 15 to stabilise energy market. https://en.vietnamplus.vn/vietnam-cuts-fuel-taxes-to-zero-till-april-15-to-stabilise-energy-market-post340027.vnp 

Lao Động Newspaper. (2026). Báo cáo phương án chỉ đạo điều chỉnh giá xăng dầu đang xin ý kiến là bí mật nhà nước. https://news.laodong.vn/thoi-su/bao-cao-phuong-an-chi-dao-dieu-chinh-gia-xang-dau-dang-xin-y-kien-la-bi-mat-nha-nuoc-1674725.ldo 

Bloomberg. (2026, March 16). Rising diesel prices are wreaking havoc in soybean giant Brazil. https://www.bloomberg.com/news/articles/2026-03-16/rising-diesel-prices-are-wreaking-havoc-in-soybean-giant-brazil 

Bloomberg. (2026, March 17). Goldman says oil’s biggest shock to hurt refined products most. https://www.bloomberg.com/news/articles/2026-03-17/goldman-says-oil-s-biggest-shock-to-hurt-refined-products-most 

Bloomberg. (2026, March 17). UK petrol prices surge to highest in 18 months amid Iran war. . https://www.bloomberg.com/news/articles/2026-03-17/uk-petrol-prices-surge-to-highest-in-1-1-2-years-amid-iran-war 

The Guardian. (2026, March 26). Australia urged to swap diesel for electric buses as fuel costs soar. https://www.theguardian.com/environment/2026/mar/26/australia-electric-buses-transition-from-diesel-fuel-crisis 

Bloomberg. (2026, March 24). Ireland announces energy support package to ease Iran war impact. https://www.bloomberg.com/news/articles/2026-03-24/ireland-announces-energy-support-package-to-ease-iran-war-impact 

Bloomberg. (2026, March 20). Gas prices are high, but so is the cost of diesel. https://www.bloomberg.com/news/articles/2026-03-20/gas-prices-are-high-but-so-is-the-cost-of-diesel?srnd=homepage-asia