As the war between the United States and Iran that began on Feb. 2 drags on and global crude refining volumes fall, oil product prices continue to strengthen. In particular, diesel, which is used mainly as an industrial fuel for freight transport, factories, and construction sites, is harder to substitute or cut consumption for, so its price has jumped more than gasoline. Domestic refiners are reaping substantial windfall gains.
According to foreign media including the Financial Times (FT) on the 4th, U.S. President Donald Trump met with top executives of major oil corporations such as Chevron and ExxonMobil at the White House on the 1st. With diesel prices in the United States surging to $4.71 per gallon, the meeting was seen as an effort to find ways to stabilize the oil market.
Some predict U.S. retail diesel prices will soon surpass the record high of $5.8 per gallon set in 2022 when the Russia-Ukraine war broke out. The FT reported, "President Trump could consider a U.S. oil products export ban."
From Feb. 27, just before the United States-Iran war began, to Sept. 1, diesel prices traded in the international oil products market jumped 76.1%, from $92.9 per barrel to $163.56. Over the same period, gasoline prices rose 49.5%, from $79.64 per barrel to $119.03).
The sharp rise in oil product prices is due to reduced supply caused by a shortage of refining capacity. According to the International Energy Agency (IEA), as of July the world's daily crude refining volume was 81 million barrels, down about 6% from a year earlier.
The IEA assessed that current global crude refining volume is on average 2 million barrels per day short of oil products demand. It also projected third-quarter refining runs would fall by an additional 370,000 barrels per day.
There are multiple reasons for the decline in crude refining. First is the closure of European refineries. Europe's refining industry began restructuring after the 2008 financial crisis. As tougher environmental regulations drove up the expense of purchasing emissions permits, about 30 crude refineries across Europe were permanently closed from 2009 to 2024.
According to S&P Global Commodity Insights, a market analysis firm specializing in energy and raw materials, Europe saw refineries capable of processing about 500,000 barrels of crude per day closed in 2025.
Market research firm Statista said, "Major oil corporations such as Shell and BP have accelerated refinery closures centered on Europe starting in 2025," adding, "From 2024 through 2029, Europe is expected to lose refineries with the capacity to process about 100 million barrels of crude per day."
A bigger problem is that Europe can no longer import from Russia, which it previously relied on to make up shortfalls in oil products. The European Union (EU), as part of sanctions against Russia after the Russia-Ukraine war, halted imports of Russian oil products.
While Europe had been importing oil products from the Middle East and Asia, the war between the United States and Iran led to the closure of the Strait of Hormuz, sending diesel and gasoline prices soaring.
The war also reduced refining capacity. According to the Korea Petroleum Association (KPA), last year Russia's and Saudi Arabia's crude refining throughputs fell 5.8% and 0.8%, respectively, from a year earlier.
With the U.S.-Iran war reportedly destroying major refineries belonging to Kuwait National Petroleum Company (KNPC) and other crude refining facilities along the Gulf coast, the Middle East's crude refining throughput is expected to drop further from last year.
Diesel prices have climbed sharply and surpassed gasoline because it is hard to curb demand. While consumption in the passenger car market, which mainly uses gasoline, can be reduced through electric vehicles, hybrids, and public transportation, diesel is used mainly as an industrial fuel for freight transport, agriculture, and construction heavy equipment.
On top of that, most ground military equipment runs on diesel, so war has further increased demand.
With diesel prices rising, domestic refiners are increasingly likely to see continued earnings improvement. According to Bloomberg, the diesel crack spread, having topped $100 last month, hit $106 per barrel on the 2nd, setting a record high.
The diesel crack spread refers to the price difference between one barrel of crude and one barrel of diesel, and is an indicator of a refiner's refining margin. The higher the spread, the more a refiner's profit surges.
In fact, domestic refiners are benefiting from higher diesel prices. SK Energy, the petroleum and refining subsidiary of SK Innovation, saw second-quarter revenue (1.32106 trillion won) and operating profit (651.1 billion won) rise 41.9% and 21.9%, respectively, from a year earlier.
S-Oil, GS Caltex, and HD Hyundai Oilbank also saw second-quarter revenue increase 40.9% (1.13435 trillion won), 55% (1.66724 trillion won), and 44.9% (947.74 billion won), respectively, from a year earlier. In addition, S-Oil, GS Caltex, and HD Hyundai Oilbank swung to operating profits in the second quarter compared with the same period last year.
On top of that, Korean refiners are expected to see increased opportunities to export diesel to Europe. According to shipping contracts obtained by Bloomberg News, about 90,000 tons of diesel loaded in Korea are scheduled to arrive in the United Kingdom or the Netherlands in September.
Bloomberg News reported, "Korea typically exported diesel to the Asia-Pacific region, but the tanker Priamos is sailing more than 19,000 kilometers toward Europe," adding, "What has made a previously uneconomical route necessary is that diesel prices in Europe have become far higher than in Asia."
An industry official said, "It is not easy to expand refining capacity in the short term, and it will take considerable time to restore facilities destroyed by the war," adding, "For the time being, diesel prices are expected to trend higher."