Hormuz to Black Sea: Dual wars turn diesel, tankers into new weapons of economic warfare

Rising fuel prices are making road transport more expensive, while attacks on ships and fears of further strikes are driving up the cost of moving oil by sea. Together, the two pressures are adding to inflation and could make everyday goods more expensive in the coming months. Diesel prices are pushing up the cost of everyday goods The rise in diesel prices is easy to see at fuel stations. But because only a small share of US drivers own diesel vehicles, many may assume that higher prices will not affect them directly.

US weighs largest non-nuclear bomb for Iran operations The impact, however, goes far beyond diesel vehicle owners. Diesel powers much of the US trucking industry, which carries food, household goods and other products to shops and homes. It is also used by farm machinery, including tractors and harvesters. When diesel becomes more expensive, the cost of producing and delivering goods rises as well.

Oxford Economics has described diesel as "the workhorse fuel of the economy". Diesel prices have more than doubled from a year ago, forcing transport companies to charge more for moving goods. These higher costs are now showing up in wholesale prices, raising concerns that consumers could soon face another round of price increases. The US Labor Department's producer price index, or PPI, released on Thursday, showed that wholesale inflation rose much more than economists had expected in September.

The increase suggests that businesses are facing higher costs and may pass some of them on to customers. Trucking costs are rising faster than after the pandemic The producer price index for truck freight transportation rose 19% in September from a year earlier. It was the biggest annual increase in more than four years. Transport costs are also reacting to higher diesel prices more quickly than they did during the fuel price surge that followed the COVID-19 pandemic.

Reuters identified two reasons for the sharper impact. First, the US economy is in better shape than it was during the pandemic recovery, with the jobless rate at a historically low 4.2%. This is supporting demand for goods and transport services. 52 trillion GDP Second, diesel itself is much more expensive in absolute terms than it was when the economy began recovering from the pandemic. For transport companies, the combination of strong demand and higher fuel bills makes it harder to absorb the increase without charging customers more.

Higher farm costs could make food more expensive Diesel plays a role at almost every stage of food production. Farmers use it to run tractors and harvesters, while trucks carry crops and other food products to processing centres, grocery stores and restaurants. Food prices in the producer and consumer price indexes remained relatively moderate in September. However, costs earlier in the supply chain are rising much faster, suggesting that the pressure could reach shoppers later.

The average price of food-related inputs in the first two stages of the producer price index's intermediate-demand categories rose 15.6% from a year earlier. This was the biggest annual increase in about four years. These categories include energy costs faced by producers, as well as energy used to make farm supplies such as fertilisers and agricultural chemicals. Several products used as animal feed or in farming have also become much more expensive.

Prices of corn, hay, hayseeds and oilseeds each rose by more than 25%. Matthew Martin, senior US economist at Oxford Economics, said after the report that the firm expects food inflation to pick up later this year. If the pattern continues, households could see higher grocery bills in the coming months, even if food prices have not yet risen sharply at the retail level. Manufacturing costs and toy prices are also climbing The US economy uses much less energy for every dollar of output than it did during the oil shocks of the 1970s.

However, higher energy prices can still spread across the economy, particularly when they remain elevated for a long period. Manufacturers face higher costs for producing goods and transporting raw materials and finished products. Several producer price categories linked to manufacturing materials are now rising at double-digit annual rates. Businesses have two choices: absorb the additional costs and accept lower profit margins, or raise prices for customers.

The impact is already visible in some consumer products. Toy prices rose by the biggest amount ever recorded in a single month in September. Higher shipping costs are among the factors affecting prices as retailers prepare for the holiday shopping season. One oil tanker voyage now costs $81 million The rising cost of moving goods is not limited to roads. Shipping crude oil across oceans has also become dramatically more expensive as the wars disrupt trade routes and increase the risk of attacks on vessels.

The supertanker Esteem Explorer is scheduled to sail from the United States to Japan in late November, carrying around 2 million barrels of crude oil. The voyage is expected to cost $81 million. The same journey cost an average of $9.1 million last year. That means the cost of the voyage has risen nearly ninefold. For each barrel of oil, shipping charges have climbed from about $4.50 to $40.50. Based on a US oil price of around $95 a barrel on Wednesday, freight now accounts for more than 40% of the value of the oil being transported.

Last year, the share was about 7%. The figures are based on shipping and oil price data from LSEG. The 2025 cost per barrel is calculated using the average voyage cost and the same cargo size. Attacks and longer routes are driving up tanker rates Attacks on ships linked to the US-Iran war and the Russia-Ukraine war have pushed up shipping and insurance costs. Disruptions in the Black Sea and the Strait of Hormuz in particular have kept insurance premiums and tanker rates elevated.

The risk of further attacks is also forcing shipping companies to change their routes. The cost of shipping oil from the Strait of Hormuz and the Red Sea to Asia reached a record of around $34 a barrel this week as companies factored in the risk of attacks. They are using more vessels and transferring oil between ships to reduce the risk to any single tanker. These changes followed attacks on Saudi Arabia's main pipeline, which increased the volume of oil being exported through the Strait of Hormuz.

Using more ships and transferring cargo between vessels can reduce the risk to individual tankers, but it also ties up more of the available fleet and increases the time oil spends at sea. The shortage of very large crude carriers has pushed up rates for smaller tankers as well. According to shipping data firm Signal Ocean, rates for Suezmax tankers travelling from the US Gulf Coast to Asia and Aframax tankers sailing from the US Gulf Coast to Europe have quadrupled since the Iran war began in February.

Long-term shipping contracts could become valuable Oil companies and traders arrange tanker transport in different ways. Some book vessels under contracts lasting three to five years, while others hire ships on the spot market, usually about a month before the cargo is loaded. With shipping rates rising sharply, companies that secured vessels under long-term agreements could benefit from lower costs than those paying current market rates.

If tanker rates continue to rise, these contracts could prove to be bargains. Companies that rely on the spot market, meanwhile, face the risk of paying much more to move the same amount of oil. How long will the price pressure last? Higher diesel prices and rising tanker rates are adding to costs at the same time. Diesel is making it more expensive to move goods by road, while higher ocean freight charges are increasing the cost of transporting oil and other goods across borders.

The effects are spreading through farming, manufacturing, trucking and retail. Even when the initial increase affects fuel or shipping, consumers can eventually feel it through higher grocery bills, fuel prices and the cost of other everyday products. How long the pressure continues will depend largely on the wars, the risk of further attacks and the availability of ships. For now, shipping analysts expect tanker rates to remain high until crude oil supply catches up with demand. If the disruptions continue, businesses could face higher costs for longer, increasing the risk that consumers will pay more in the months ahead.