The coming oil shock

Today, Explained

The episode examines the escalating diesel price crisis and its potential to destabilize the American economy. It explores how geopolitical

Key takeaways

• Diesel prices have spiked due to the closure of the Strait of Hormuz following US-Israel-Iran tensions.
• Ukrainian drone strikes on Russian energy facilities are further tightening global refining capacity.

Main topics

• Diesel price volatility
• Geopolitical energy disruptions

Notable quotes

Diesel powers the American economy, and in about a month, it will almost certainly power Americans to vote in midterm elections.

Conclusion

The episode highlights the precarious intersection of global energy ge

Transcript preview

Speaker 7 (0:00) There is a time bomb lurking in the American economy. It has the potential to make almost everything even more expensive, and some experts say it's about to explode. You see it every time you gas up your car, but you probably ignore it. Diesel. The price of diesel has gone up and up and up since the war with Iran started. Diesel powers the American economy, and in about a month, it will almost certainly power Americans to vote in midterm elections where they say high cost of living is their biggest concern. Aware that a wipeout is possible for Republicans in November, President Trump is up to his old tricks, trying to meddle in the U.S. economy. Coming up on Today Explained from Vox. Speaker 5 (0:41) Well, it's I ran this and I ran that. Well, I ran out of damn money trying to start selling pictures of my feet. I might not have money for food or to hang out with my friends, but I always have money for candles. I always have money for candles. This is Today Explained. Speaker 1 (1:07) I'm Nathan Bomey. I'm a business reporter at Axios and author of Axios Closer, our daily newsletter on all things business. What is diesel? Diesel is essentially a fuel made from another fuel. Diesel is made from crude oil, and it's basically refined into a liquid that essentially powers the economy. And so diesel is... primarily used in trucks and in farming equipment and in industrial machinery that essentially allows us to ship things from place A to B. Diesel is a fuel that I think a lot of people just don't pay attention to until something goes bad. And that's what we're facing now because the price of diesel has spiked. And, you know, that affects trucking in particular. And most products in America are shipped along the road via trucks. Speaker 5 (1:54) It seems like every single week we start the video saying the same shit. Fuel prices again hit a record high. I'm like a damn auctioneer over here in my head trying to figure out how much money this truck's going to take. Oh, apparently it's $175. This is getting redammed. Okay, so Speaker 7 (2:12) we're talking about serious rises in prices here. What is actually happening with diesel? Why is this going on? Speaker 1 (2:20) Obviously, there was one major geopolitical event this year that disrupted the entire energy economy, which is the U.S. and Israel attacking Iran. Speaker 6 (2:28) Right from the beginning, we projected four to five weeks. Speaker 1 (2:32) Iran is, of course, at the headquarters of the oil economy in some ways. But primarily, the thing you have to look at is the closure of the Strait of Hormuz and then the jockeying over it that's happened in the months since then. Speaker 5 (2:46) With the war now passing 200 days, Iran claiming it struck an oil tanker trying to transit the Strait of Hormuz. As Speaker 1 (2:54) President Trump Speaker 5 (2:55) rejects Iran's proposal for a seven-day ceasefire to reopen the critical waterway. Speaker 1 (2:59) Once they closed that strait, that disrupted the entire global energy economy because that strait handles a substantial portion of the shipping that... basically where they bring the supplies out of the Middle East and ship them to other people. And so that affected diesel prices, gasoline prices, affected jet fuel, affected effectively everything that is based on crude oil. I Speaker 6 (3:23) don't know how much more they can take, but, you know, whatever it is, it doesn't matter. And I'm not affected by the election. Speaker 7 (3:28) Who are the people right now that are profoundly freaked out about the cost of diesel? Speaker 1 (3:33) Well, first off, I think certainly truckers are freaked out because their cost of doing business is going much higher. While Speaker 7 (3:40) nationwide, word of a possible truck driver's strike is spreading. Speaker 5 (3:44) If there's no freight, nothing moves. No police ticket, no grocery store, nobody eat, nothing moves. No construction on the highway. Speaker 7 (3:52) Trucking is a fundamental. Speaker 1 (3:54) And I think also farmers are freaked out because they're already facing real pressures from the trade wars that are going on that President Trump started, from things that are totally out of control like climate issues that have caused their costs to go higher. And all of a sudden the price of diesel affecting farmers as well. So that then eventually affects. the price that they charge, which ultimately gets to the consumer because it ends up costing more to pay for things like an ear of corn. We're in Speaker 5 (4:22) the middle of a harvest, the time that we use the most diesel. So it's really hitting us. I mean, we don't make any more for a bushel of corn, wheat, a pound of beef. So yeah, that comes straight out of our pocket. Speaker 7 (4:34) How stark do you think this might be? Like in a month or two months, do you think I could... go down to the Walmart and I see that something I buy all the time is now a dollar more expensive, or there's like a sign saying diesel is expensive, so we're adding a, you know, a 10 % surcharge. Like, what do you think this actually might look like? Speaker 1 (4:54) I think that the impact is imminent. Oh. This flows through very quickly, usually. We're not talking about months, we're talking about weeks, if not days, before people will start to notice increases, especially in the grocery aisle. I think that's the first place people will notice it because fresh food has to be shipped on a weekly basis. And so I think diesel prices are going to have a big effect on food inflation. This is coming off of, of course, several years of food price increases that we experienced in the wake of the pandemic. And then we're also now barreling toward the holiday shopping season and holiday shopping season is going to be affected by this as well. Because if a toy, for example, was made with some sort of resin that is affected by the cost of crude oil, which also affects the cost of diesel, and then it's shipped over the road to Walmart through a truck that uses diesel, all of these things add up and ultimately are going to probably lead to higher prices. We've also got an issue with heating oil, which is a fuel that is used primarily by households in the Northeast. where essentially they're using that to heat up their home. And