Iran crisis reveals the United States' greatest vulnerability

Diesel Prices Signal Deep Trouble for Trucking

Recent data from FreightWaves SONAR reveals diesel costs have soared above $5.96 per gallon on the West Coast, with the impact spreading across the country. This spike is not a routine fluctuation—it’s the result of decades of neglect in infrastructure, now colliding with an unprecedented oil supply crisis.

Unprecedented Oil Supply Disruption

MacroEdge Research reports that the current blockade at the Strait of Hormuz has removed about 20 million barrels of oil per day from global circulation—the largest disruption ever recorded. For comparison, the 1978 Iranian Revolution caused a loss of 5.6 million barrels daily, the 1973 oil embargo removed 4.4 million barrels, and the 1990 Iraq-Kuwait conflict disrupted 4.3 million barrels. Today’s crisis dwarfs all previous events, nearly quadrupling their scale.

Compounding the issue, America’s refining infrastructure has been systematically reduced over the past fifty years, leaving the country ill-equipped to handle such shocks.

The Weaponization of Diesel

Diesel, a byproduct of refining crude oil, should theoretically be plentiful and stable in price. My grandfather, who worked in the industry, always said diesel shouldn’t be so vulnerable. While he was correct about the chemistry, he underestimated the economic and policy failures that have made diesel susceptible to supply shocks.

Regardless of market demand, refining crude oil always produces diesel. Yet, the reality is that America’s refinery network is deteriorating, unable to keep pace with demand or absorb disruptions.

Why This Crisis Is Unique

Historically, oil crises followed a pattern: supply interruptions led to price surges, refiners adapted by sourcing alternative crude, and prices eventually stabilized. The current situation breaks this mold—the scale of disruption is overwhelming, and the system cannot adjust.

With the Hormuz blockade removing 20 million barrels daily, the impact is far greater than the 1978 Iranian Revolution, which fundamentally changed U.S. energy policy. This crisis is over three times larger than any previous benchmark.

The 1973 embargo and the 1990 Gulf War each removed less than a quarter of the current supply loss. Even the 2022 Russia-Ukraine conflict, which was expected to reshape global energy markets, only disrupted up to 3 million barrels per day. Today’s crisis is six to twenty times larger.

We are navigating territory no modern energy market has faced, and our refining infrastructure is ill-prepared after decades of neglect.

The Iran Factor

Previous analyses highlighted vulnerabilities in U.S. refining and diesel supply chains, especially concerning the strategic Strait of Hormuz, through which 21% of global oil flows. Recent developments have validated these concerns and surpassed worst-case scenarios.

The Strait is now effectively blockaded, causing a supply shock that overshadows all prior crises. Iran’s actions, including attacks and closure of the Strait, have led to surging crude futures and tightening inventories, with diesel prices rising fastest. However, these price jumps only hint at the deeper issue: the loss of refining capacity to process alternative crude sources.

In past conflicts, global refining could absorb shocks by ramping up utilization. Now, with a supply disruption nearly four times larger than any before and decades of reduced capacity, the U.S. is unable to respond. No new refineries have been built since 1977, and over 180 have closed permanently. Environmental regulations, high costs, and political resistance have made new construction nearly impossible.

Consequently, diesel prices are climbing not due to temporary panic, but because the infrastructure needed to process alternative supplies simply doesn’t exist at the necessary scale.

The remaining refineries are aging, concentrated in vulnerable coastal areas, and increasingly unable to meet demand during global supply chain upheavals. The diesel crack spread, which usually averages $15-20 per barrel, has soared past $40 in some markets, reflecting infrastructure failure and geopolitical risk.

The Trucking Industry’s Recovery at Risk

Freight markets are showing signs of recovery after a prolonged recession. Tender rejection rates are rising, spot rates are stabilizing, and truck orders are increasing—all indicators of tightening capacity and improving conditions.

Normally, this would signal a return to profitability for carriers. Instead, rising diesel prices threaten to undermine the recovery before it begins. Input costs are escalating faster than carriers can adjust their rates, with a typical lag of 30-60 days in contract freight.

For carriers operating on thin margins (3-5%), a $1.50-per-gallon increase in diesel can mean the difference between profit and bankruptcy. At 6 miles per gallon, this adds $0.25 per mile, or $125 per load on a 500-mile route, which must be recouped through rate hikes or surcharges.

Smaller carriers, lacking fuel hedging or surcharge mechanisms, are hit hardest, absorbing the full impact while negotiating rates based on outdated fuel prices.

Diesel Price Patterns During Disruption

History shows diesel prices spike sharply during crises, then settle at higher levels than before. Hurricane Katrina in 2005 caused a 35% jump in diesel prices within three weeks, directly impacting Gulf Coast refineries. The 2008 oil price surge saw diesel reach $4.76 per gallon, driven by speculation and geopolitical risks. After the COVID-19 pandemic, diesel briefly dropped below $2.50, only to soar past $5.70 by mid-2022 due to sanctions, refinery closures, and supply chain chaos.

The current spike above $5.96 per gallon is the fourth-highest nominal price in U.S. history. Adjusted for inflation, it’s below the 2008 peak, but this offers little comfort to carriers struggling to remain profitable.

The Refining Bottleneck

The core problem is not crude oil availability—U.S. production is near record highs at 13.2 million barrels per day. The bottleneck lies in refining. Utilization rates hover around 88-92%, but overall capacity has declined, with about 1 million barrels per day lost between 2019 and 2023 due to permanent closures.

Building new refineries is virtually impossible under current regulations. The last serious attempt, Arizona Clean Fuels in 2008, failed to break ground despite significant investment. The remaining refinery fleet is aging, concentrated in Texas, Louisiana, and California, and unable to ramp up quickly during demand spikes or disruptions.

Diesel demand has outpaced gasoline, powering trucks, construction, agriculture, trains, and ships. E-commerce has further increased diesel needs, while gasoline demand has plateaued due to improved vehicle efficiency.

Strategic Weaknesses Revealed

The Iran crisis highlights a critical vulnerability: the U.S. is a net exporter of refined products but cannot meet domestic demand surges without importing diesel from Europe and Asia. The U.S. imports about 200,000 barrels daily, mainly from Canada, Russia (before sanctions), and Europe. When global diesel markets tighten, these imports become costly or unavailable.

The Ukraine war demonstrated this risk. European sanctions on Russian diesel caused global prices to spike, and U.S. exports to Europe surged, tightening domestic supply and raising prices even though the conflict was far away.

The Iran situation is worse, threatening the crude supply that feeds global refineries. The Strait of Hormuz, a narrow chokepoint, handles a fifth of global oil flows. Any disruption—military action, tanker harassment, or insurance panic—quickly impacts diesel markets worldwide.

During the 2019 attacks on Saudi Aramco, diesel prices jumped 8% in a week, even without actual supply loss. The market was pricing in risk. A full closure or sustained attacks would trigger far greater price responses.

Trucking’s Massive Exposure

The trucking sector uses about 40 billion gallons of diesel annually. At current prices, this translates to an annual fuel bill of $180 billion. A $1-per-gallon increase would add $40 billion in costs—more than the industry’s total annual profit in a good year.

Carriers have three main strategies to manage these costs:

• Fuel surcharges: Most contracts include surcharges tied to weekly diesel price indices, but these lag behind actual price increases and may not fully cover costs, especially in high-price regions.
• Fuel hedging: Larger carriers can hedge fuel costs with futures contracts, but this requires financial sophistication and resources that most smaller carriers lack. Only about 15% of companies actively hedge fuel.
• Rate increases: Carriers can raise base rates to offset fuel costs, but this only works when capacity is tight. During recessions, carriers have little pricing power, and the market is not tightening quickly enough to keep up with fuel cost acceleration.

Most carriers will absorb the cost until bankruptcy or market adjustment occurs, as seen during the 2008 diesel spike when many small carriers failed despite strong freight demand.

Looking Ahead

The short-term forecast for diesel prices is bleak, with historical precedents offering little guidance. The Hormuz blockade represents a 20 million-barrel-per-day shock—about 20% of global production. No previous crisis matches this scale; the 1973 embargo disrupted only 4.4 million barrels daily.

If the Strait remains closed and refiners cannot access alternative crude, diesel could surge past $7-8 per gallon in premium markets within weeks. The infrastructure to handle such a disruption simply doesn’t exist. Refining capacity is already stretched, with no room to increase output even if alternative crude becomes available.

If tensions ease and traffic resumes, diesel prices might moderate to $4.50-5.00 per gallon nationally over several months, but this assumes no lasting damage or further disruptions.

Long-term prospects are even more troubling. The crisis exposes deep structural weaknesses in global energy infrastructure that cannot be resolved quickly or cheaply. Building new refining capacity requires years and billions in investment, and regulatory approval is unlikely in most developed economies.

For trucking, sustained diesel prices above $6-7 per gallon would be catastrophic, requiring massive rate hikes or leading to widespread carrier failures. Fuel accounts for 20-40% of operating costs, and a doubling of diesel prices would increase total costs by 14-28%—more than most carriers’ profit margins.

The industry cannot adapt to rapid $2-3-per-gallon swings within short timeframes. Carriers struggle to stay profitable when costs outpace pricing adjustments, and shippers cannot predict logistics expenses when fuel costs fluctuate wildly.

Despite signs of recovery in the freight market, the industry faces the largest oil supply shock in history with the weakest refining infrastructure in decades.

Rising diesel prices are a symptom of a deeper problem: decades of policy failure and infrastructure neglect, now exposed by geopolitical turmoil. The U.S. has reduced refining capacity while increasing dependence on diesel and ignoring vulnerabilities tied to global supply chains, especially those passing through the Strait of Hormuz.

My grandfather was right about diesel’s chemistry—it should not be so vulnerable. But he didn’t foresee how policy missteps and infrastructure decline could override basic economics, nor the scale of today’s supply disruption.

The SONAR diesel price map illustrates the consequences of a massive supply shock hitting a weakened energy infrastructure.

This crisis is a harsh reminder that energy security is essential, and the trucking industry will pay a steep price for decades of neglect.