Buckle Up for Diesel: Why Middle East Tensions Are Fueling a $105+ Rally – and How to Play It

The Strait of Hormuz isn't just a geographic chokepoint—it's now the financial chokepoint of global energy markets. With diesel prices surging past $105 per barrel and Middle East tensions escalating, this isn't a fleeting blip. This is a structural shift in how we trade, refine, and profit from diesel. Strap in, because the next leg of this rally is just beginning—and investors who ignore it risk missing one of the biggest opportunities of the decade.

The Hormuz Hedge: Why $105+ Isn't a Ceiling—It's a Floor

Let's start with the math. Over 20% of global oil flows through the Strait of Hormuz, and diesel—a critical fuel for shipping, agriculture, and manufacturing—is disproportionately exposed here. With Iran and Israel swapping missiles, the risk of a full-blown blockade isn't just theoretical. Analysts at Kpler warned that even a partial disruption could push diesel prices to $120+/bbl.

The data speaks louder than words:
- Diesel futures hit $2.4689/gallon by June 17, translating to ~$105/bbl for Brent-equivalent pricing.
- The ULSD crack spread (a measure of refining profit) widened to $28/bbl, the highest in years.
- European diesel premiums over crude hit $20+/bbl, a level not seen since Russia's invasion of Ukraine.

This isn't a blip—it's a new normal. Why? Because refineries in the Middle East and Europe are running at maximum capacity, yet geopolitical risks keep shutting down supply.

Backwardation: The Markets Are Screaming “BUY DISEL”

The futures curve is giving us a masterclass in scarcity. Backwardation—where near-term contracts trade higher than later ones—is now the rule, not the exception.

• The July/August diesel spread is $13.75/ton backwardated, meaning traders are paying a premium for immediate supply.
• The December 2025/December 2026 spread widened to $24.75/ton, signaling fears of prolonged shortages.

This backwardation isn't just a technicality—it's a buy signal. Refineries that can secure Middle Eastern crude (or diversify supply chains) are sitting on gold mines. European refiners like Repsol (REP.MC) and TotalEnergies (TTE.F) are my top picks here. Why?

1. Geographic leverage: Europe relies on Middle Eastern diesel imports, and refineries there are already pricing in scarcity.
2. Crack spread upside: Every $1 rise in diesel prices adds ~$500 million to their annual profits.

The Geopolitical Gamble: Why This Isn't a “War Trade”

Critics will say: “What if a ceasefire happens?” Sure, peace would ease prices… but it won't eliminate the structural shortage. Even if Hormuz stays open, here's why diesel stays elevated:

• Refinery outages: Israel's Haifa refinery (195k b/d capacity) is offline, and Iran's South Pars gas field is damaged.
• Shipping costs: Insurers are now charging 200% premiums for vessels transiting Hormuz, adding $10+/bbl to diesel costs.
• U.S. inventory lows: Diesel stocks are at 20-year lows for this time of year, with no relief in sight.

This isn't a war premium—it's a supply premium. Even if tensions ease, the damage is done.

How to Play It: Go Long Diesel, Short Ignorance

Here's how to profit:

1. Long diesel futures: The NYMEX ULSD contract is my go-to. Buy the July/August spread—backwardation ensures you're paid to wait.
2. European refining stocks: Repsol (REP.MC) (+45% YTD), TotalEnergies (TTE.F) (+30%), and Eni (ENI.MI) are all leveraged to crack spread widening.
3. Options for the cautious: Buy call options on diesel futures with strike prices at $110/bbl. The volatility is there—use it.
4. Avoid the “cheap” plays: U.S. shale? Too exposed to OPEC+ cuts. Electric vehicle stocks? Diesel isn't going away anytime soon.

The Bottom Line: This Rally Isn't Over

The Strait of Hormuz isn't just a shipping lane—it's now the world's most expensive insurance policy. With refineries at capacity, crack spreads soaring, and geopolitical risks baked into every barrel, $105 is just the starting line.

The question isn't whether diesel will hit $120—it's when. And the answer? Probably sooner than you think.

Action Items:
- Open a long position in diesel futures.
- Buy European refining stocks with exposure to Middle Eastern crude.
- Hedge with options to lock in gains if prices retreat.

This isn't a bet on war—it's a bet on math. And the math says diesel is going higher.

Disclosure: The above analysis is for educational purposes. Always consult a financial advisor before making investment decisions.