Gulf Conflict Drives European Diesel Prices Up 98% Since February

The conflict in the Gulf has led to a significant surge in European diesel prices, which have risen by 98% since February 28 compared to a 36% increase in Brent crude. The disruption to shipping is causing fuel costs for businesses that rely on diesel to rise, including those in freight, farming, and construction.

According to Permutable's analysis, the European distillate refining margin has widened from $28 to $101 per barrel, which is a critical factor in determining fuel costs. The Strait of Hormuz traffic has decreased significantly, with an average of three vessels per day in September compared to 64 vessels per day before the conflict.

The energy effect on inflation is visible in official figures, but there is limited evidence so far of broader pass-through. UK energy inflation reached 13.8% in August, while UK services inflation was 3.4%. Central banks are weighing this risk, with the European Central Bank raising its deposit rate to 2.50% and the Federal Reserve raising its target range to 3.75% to 4.00%.

Permutable's Global Macro Sentiment Indices show energy-related coverage rising again, while policy-related coverage remains elevated. The company will continue to track four developments to assess whether the pressure is easing or spreading: a sustained recovery in Hormuz traffic, a narrowing of the European distillate margin, a reduction in the EU gas-storage shortfall, and a rise in food, services, or wage-related coverage alongside energy.