Middle East Crisis Leaves Europe in Hands of US Diesel Producers

The European diesel market is rallying due to the war in Iran, as the de-facto closure of the Strait of Hormuz blocks exports from the Middle East while refineries and storage facilities in the region come under attack.

The Middle East Gulf (MEG) is home to several major suppliers of middle distillates to Europe, including Saudi Arabia, the U.A.E. and Kuwait. According to Vortexa data, Northwest Europe (NWE) sourced 22% of its diesel and 59% of jet imports from ports north of the Strait of Hormuz over the last 12 full months.

Now, the war has resulted in an effective halt to the transit of oil tankers through the Strait of Hormuz, with Iran threatening to attack any vessel attempting to pass the strait.

Moreover, Saudi Arabia, which has been Europe’s largest diesel supplier since Russian oil products were banned in 2023, has had to shut its 550,000 b/d Ras Tanura refinery after it was hit by a drone.

“The diesel market faces acute physical pressure in the near term because it is the primary fuel for military logistics, it is regionally concentrated in supply, and it is the hardest product to source alternative supply for quickly,” data provider Kpler said.

OPIS assessed the spot diesel crack in NWE at $51.87/barrel on Tuesday, up from $28.73/bbl last Friday. Low Sulfur Gasoil (LSG) futures surged above $1,000/mt for the first time since 2023.

As things stand, nearly all of Europe’s main diesel suppliers are either impacted by the Middle East conflict – Saudi Arabia, Kuwait, Qatar, the U.A.E. and Oman – or subject to sanctions – Russia, India, Turkey and China. To make things worse, the disruption to Middle East crude oil flows will likely result in lower refinery run rates across the globe.

This leaves the U.S. as the only major producer capable of sustaining diesel exports into Europe, at least while shipping is unwilling or unable to transit the Strait of Hormuz.

“For diesel, the expected alternative supplier to Europe would be the U.S. Gulf Coast … We have also seen stronger exports from the Red Sea to the Mediterranean and NWE,” Mick Strautmann from Vortexa told OPIS.

Meanwhile, in the physical market, premiums for spot diesel deliveries remain low in NWE, with FOB barges in Amsterdam, Rotterdam and Antwerp (ARA) trading at discounts to LSG. A diesel broker told OPIS that, while there are plenty of spot volumes available in NWE, the real impact will likely start in around three weeks.

Reporting by Jaime Llinares Taboada, jllinares@opisnet.com