US Diesel Shortage Looms, Economy at Risk

Diesel shortages are expected to reverberate through the entire American economy for months, according to Peter Zeihan.

The primary concern is shifting from immediate availability to rising price pressure, even as current reports of station outages remain within historical norms.

Targeting of Russian energy infrastructure by Ukrainian forces has severely hampered refining output, turning the nation into a net importer that must now source diesel from the US, India, and South Korea, which one analyst noted is a consequence of taking out domestic capacity.

Russia now sources diesel from the US, India, and South Korea to meet its domestic needs, a situation that is unlikely to change in the short term as damaged infrastructure will take time to repair, ensuring Russia remains a net importer through next year.

Saudi Arabian oil exports are further constrained by the bombing of a bypass pipeline, exacerbating the global supply issue.

Approximately 20 million barrels of crude are currently unable to reach international markets due to these combined factors.

Regional dependency, particularly in places like California, creates a supply breakdown because these areas rely on ships from Texas to deliver refined products, which are subject to logistical constraints imposed by the Jones Act.

The Jones Act mandates that any cargo transported between American ports must be carried on vessels built, owned, captained, and crewed by Americans.

This regulation has inflated maritime transport costs in the United States to five times the global average, leading to limited vessel availability and extreme diesel price pressure on the West Coast.

The East Coast's reliance on the Colonial Pipeline is hampered by insufficient capacity, necessitating alternative transport methods such as Jones Act shipping or trucking.

Regions including South Carolina, Georgia, and Florida are almost entirely dependent on trucking for fuel, while the Mountain West and Midwest remain largely self-sufficient, and the Gulf Coast serves as the primary surplus hub, highlighting significant infrastructure gaps that force reliance on diesel-consuming trucks and trains.

Historical policy shifts in the United States have prioritized truck transport over more efficient water and rail systems, despite water shipping being ten times cheaper than trucking.

This structural vulnerability means that regional diesel shortages are inevitable for the next 18 months, even though the US is the largest net exporter of refined products, with the majority of US cargo, measured by ton-mile, transported via truck.