Hormuz at 20% capacity, diesel tops $6 in US: How West Asia's energy crisis could hit the global economy 

Oil supply disruptions, rising crude prices and record diesel costs are converging into a major energy challenge. The Strait of Hormuz is operating at a fraction of its reported pre-war capacity, Saudi Arabia’s East-West pipeline has reportedly been shut down following attacks, and the Bab el-Mandeb Strait faces the risk of further disruption.  

The consequences are already being felt in the US, where diesel prices have crossed $6 per gallon. With transport, agriculture and industrial activity heavily dependent on diesel, the energy shock could spread through supply chains, pushing up the prices of food, consumer goods and energy.  

Here is why the disruption matters and how it could affect the global economy.  

Three critical oil routes face disruption  

In a post on X (formally twitter), The Kobeissi Letter warned that the energy situation in West Asia had become exceptionally severe. It estimated that nearly 30 million barrels per day of oil flows were either offline or at risk, although the figures include overlapping routes and should not be interpreted as a confirmed loss of supply.  

The three key routes are the Strait of Hormuz, the Bab el-Mandeb Strait and Saudi Arabia’s East-West pipeline.  

1. Strait of Hormuz: The biggest concern

Located between Iran and Oman, is one of the world's most important energy chokepoints. It connects the Persian Gulf with the Gulf of Oman and the wider Indian Ocean, serving as a major export route for crude oil and petroleum products from Gulf producers. The strait is operating at around 20% of its pre-war capacity, putting approximately 15 million barrels per day of oil flows offline or at risk. Any prolonged disruption could create significant supply shortages, push crude prices higher and increase shipping insurance and transportation costs.  

2. Bab el-Mandeb: A threat to oil and global shipping

The Bab el-Mandeb Strait connects the Red Sea with the Gulf of Aden. It is a critical passage for ships travelling between Europe and Asia through the Suez Canal. The Kobeissi Letter estimates that a closure or severe disruption could threaten up to 9 million barrels per day of oil supply. The consequences would extend beyond energy markets. Ships could be forced to avoid the Red Sea and take the longer route around the Cape of Good Hope, increasing voyage times, fuel consumption and freight costs.  The route has already faced security risks from attacks on commercial shipping, making its future availability a major concern for energy traders and shipping companies.  

3. Saudi Arabia's East-West pipeline: An alternative route under pressure  

Saudi Arabia's East-West pipeline transports crude from the kingdom's eastern oil-producing region towards Yanbu on the Red Sea coast. It provides an alternative to shipping all of the country's oil through the Strait of Hormuz. The supplied input says the pipeline was shut down following recent attacks, placing around 4 million barrels per day of oil exports at risk. If the pipeline remains unavailable, Saudi Arabia could face greater pressure to use maritime routes that are themselves vulnerable to disruption.  

The global oil market consumes roughly 100 million barrels per day. Even a fraction of the estimated disruption could therefore have a substantial impact on prices. The actual impact will depend on the duration of the disruptions, the availability of alternative routes, the response of oil-producing countries and the ability of consumers to reduce demand.  

US diesel prices cross $6 per gallon  

The energy shock is also being reflected in US diesel prices. US diesel prices shattered records on September 11, breaching the $6-per-gallon mark for the first time in history.

Driven by acute supply disruptions linked to conflict in Ukraine and Iran, the unprecedented surge is sending transport costs cascading across the entire American economy.

Commercial operators and agricultural producers bear the immediate brunt of the spike. Truckers and farmers are now paying roughly 63% more to refuel their fleets than they were a year ago, pushing the national average to $6.06 per gallon, according to data from AAA.

The pressure is most severe in California, the nation's agricultural hub, where diesel prices have climbed to $7.98 per gallon.  

Why expensive diesel affects everyone  

Diesel is a fundamental input across the economy. It powers much of the freight transportation system, agricultural machinery and parts of the industrial and energy sectors.  

When diesel prices rise, the effects can move through several channels.  

• Transportation: Trucks, trains and ships use petroleum-based fuels to move goods. Higher diesel costs increase freight expenses, which can eventually be passed on to businesses and consumers.  
• Agriculture: Farmers rely on diesel-powered tractors, harvesters and other equipment. Fuel price increases raise the cost of planting, harvesting and transporting crops, adding pressure to food prices.  
• Manufacturing and distribution: Businesses that depend on diesel-powered machinery or transport face higher operating expenses. Companies may pass those costs on through higher prices for consumer goods.  
• Household energy: Diesel and other petroleum products are used for heating and, in some cases, electricity generation. Higher energy prices can put further pressure on household budgets.  

According to the supplied AAA data, truckers and farmers are paying approximately 63% more to fill their semis and tractors than they did at the same time last year. Higher oil and diesel prices can create a broad inflationary effect.

For central banks, this creates a difficult policy challenge. Higher energy prices can push inflation upwards even as rising costs weaken economic activity. Policymakers may face pressure to maintain or tighten interest rates to control inflation, potentially slowing investment and consumption.