Historic Second Time! US Diesel Retail Price Breaks Through $5 Per Gallon, Which Industries Will Be Impacted?

According to CCTV, on March 16th local time, as conflicts in the Middle East disrupt global energy supplies, the average retail price of diesel in the United States has surpassed $5 per gallon, marking the second time in history this level has been exceeded.

It is reported that the last time diesel retail prices broke through $5 per gallon was in 2022. Over the past month, U.S. diesel prices have surged by more than one-third, approaching $5 per gallon; with the turmoil in the Middle East squeezing global supply—from freight transportation to crop planting—all costs are rising. This marks the highest diesel prices since the aftermath of the Russia-Ukraine conflict.

Diesel is a crucial fuel for industrial production. Analysts point out that this sharp increase in diesel prices occurred after the Middle East conflict plunged into turmoil and is unlikely to reverse in the short term.

Ed Hirs, an energy economist at the University of Houston, said, “Diesel costs tend to spike like a rocket and then fall back slowly like a feather.” He added, “The only thing the Trump administration could do is end this conflict.”

U.S. Cost of Living Crisis

The surge in diesel prices is driving up expenses for American drivers and farmers and could trigger a chain reaction, leading consumers to face spiraling inflation.

Previously, the “cost of living crisis” and “affordability” have been hot topics in U.S. midterm elections.

By mid-2025, overall U.S. prices are still rising. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by 2.4% year-over-year in January. A survey by the New York Federal Reserve also found that throughout most of 2025, American companies and consumers bore over 90% of the costs from Trump-era tariffs.

A YouGov poll showed that nearly 47% of respondents said their cost of living had “worsened” or “significantly worsened” over the past year; 36% believed it remained about the same; only 18% said their burden had improved.

Jason Furman, former chief economist during the Obama administration and chairman of the White House Council of Economic Advisers, and a professor at Harvard Kennedy School, recently told First Financial that the core economic issue in current U.S. political debates is price affordability, i.e., the level of prices, and tariffs clearly impact this.

Now, with oil prices soaring, this situation is “adding fuel to the fire.”

Kareem Miller, CEO of Strong Pact Trucking, said that rising diesel prices have hit them hard, “This is terrible because everyone is affected by rising costs. It will push up prices for groceries, building materials, and everything else.”

Miller’s company owns three trucks. He explained that large transportation companies might be able to automatically add surcharges to freight costs, but this is often not feasible for small trucking firms. He said, “We consume about 100 gallons of diesel daily, and with the current increase, we’ll be paying an extra roughly $750 per week. It’s a heavy burden.”

At the same time as the Middle East conflict erupted, farmers across the Western Hemisphere were beginning spring planting, heavily reliant on diesel to power tractors, combines, and water pumps. The impact on livestock farms is especially severe, as they need vehicles to transport animals.

According to the U.S. Department of Agriculture, in 2024, U.S. farmers spent nearly $10 billion on diesel, accounting for about 2% of their total expenses.

Walter Schweitzer, a livestock farmer near Geyser, Montana, said that although Trump’s tariffs led to oversupply of some agricultural products, the surge in diesel prices, combined with high fertilizer and seed costs and low crop prices, will be a major factor causing “more farm bankruptcies.”

In fact, even before this round of Middle East conflict, U.S. farmers were under enormous pressure: rising input costs and tariffs impacting their export markets. Data from the USDA shows farm bankruptcies increased by 46% in 2025.

Schweitzer said, “Farmers and ranchers are racking their brains trying to figure out what crops to plant; they often choose those with the smallest expected losses.”

Jed Bower, president of the National Corn Growers Association, also said that rising fuel costs will have a chain reaction on fertilizer prices, likely influencing planting decisions regarding scale and yield.

Bower stated, “For the past few years, farmers have struggled with extremely high fertilizer prices; over the last four years, they’ve faced consistently high production costs. The uncertainty in the Middle East makes this even more complicated, as farmers are about to plant what will be the second most expensive corn crop in history.”

In a letter to the Trump administration dated the 16th, the U.S. Soybean Association said, “Farmers’ costs for planting crops have reached unprecedented levels.”

It added, “Before the Strait of Hormuz was blocked, the average prices of various inputs had increased by 15% to 95% over the past five years, depending on the specific input. Since the blockade, prices have surged further.”

Hu Jie, a former senior economist at the Federal Reserve and a professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance, told First Financial that although crude oil is a single commodity, its fundamental role in the economy makes it one of the most critical indicators influencing inflation.

He explained that if energy prices remain high for an extended period, the transmission effects will far exceed a single industry. “All economic activities are based on energy. From corporate operating costs to daily commuting, rising energy costs are universal and will inevitably trigger chain reactions, pushing up consumer prices across the board.”

“The core variables in the current situation are threefold: first, the duration of the conflict; second, whether it will directly impact oil supply; third, how long the supply shortage will last. If these three factors combine to keep oil prices high over the long term, a series of chain problems will follow,” Hu said.

Lack of Refining Capacity

Some believe that as an oil-producing country, the U.S. does not lack crude oil. However, in practice, a shortage of refining capacity has worsened the diesel price increase. Data shows that the U.S. has 132 refineries, many of which are outdated and better suited for processing heavy crude from Venezuela and Canada rather than domestically produced oil.

Public information indicates that the blockade of the Strait of Hormuz has affected 10% to 20% of global diesel shipping. Meanwhile, a sharp decline in Middle Eastern crude oil flowing to Asian refineries has led to reduced refinery output, further impacting global diesel supplies.

Last week, the Trump administration announced the first new large-scale refinery project in the U.S. since 1977, to be located in Brownsville, Texas.

However, refineries in states like California are facing closures. For example, Phillips 66 recently shut down a refinery in Los Angeles, and Valero Energy plans to close its Benicia refinery next month.

“Our infrastructure is aging, and the current production system cannot meet domestic demand for various downstream products,” said Alex Jacquez, policy and advocacy director at Groundwork Collaborative, a think tank, and a former advisor during the Biden administration.

The Oxford Economics Institute’s latest report estimates that if global oil prices remain around $140 per barrel for two consecutive months, combined with tightening financial markets, disrupted supply chains, and deteriorating collective expectations, it could push parts of the global economy into a mild recession.

“The subsequent recovery will depend on how quickly shipping in the Strait of Hormuz resumes, and how fast oil prices, supply chain pressures, and financial conditions ease. Since the 1990s, markets tend to rebound quickly after major conflicts in the Middle East; but this time, the rebound may be more gradual,” the institute said.

Ryan Sweet, chief global economist at Oxford Economics, told reporters, “We also considered a milder scenario: if oil prices stay around $100 per barrel for two months. In this case, although inflation would slow global GDP growth by a few tenths of a percent, the world economy could avoid a recession.”