Prolonged conflicts in oil-producing regions have disrupted crude oil supplies and reduced the availability of diesel, a key fuel for transport, industry and the movement of goods. The Russia-Ukraine war and Ukrainian drone attacks on Russian refineries have damaged Russia’s refining capacity and reduced its ability to export fuel. Russia has extended its ban on diesel exports by fuel producers until the end of October, adding to concerns over global supplies.
The conflict in West Asia has further worsened the situation. Disruptions to oil shipments through the Strait of Hormuz have affected supplies from the Gulf region, tightening the global diesel market and pushing prices sharply higher in Europe and the US.
An agreement between US President Donald Trump and his Russian counterpart Vladimir Putin has raised hopes of some relief. Reports on Thursday said Russian diesel had begun reaching global markets following the agreement. Trump said Russia had agreed to supply diesel to global markets to help lower fuel prices.
Parallelly, Trump has waived certain sanctions, restrictions and duties under the Sanctioning Russia and Iran Act, citing US national interests.
Why is there a diesel shortage?
According to the International Energy Agency’s (IEA) Oil Market Report 2026, global gasoil supplies, which include diesel, have contracted sharply since the start of the West Asia conflict. Global gasoil production fell to an average of 26.4 million barrels per day (mb/d) in the second quarter of 2026, down 1.5 mb/d from a year earlier. Production in the third quarter was estimated to have declined by 1.7 mb/d year-on-year to 27.2 mb/d. The IEA said reduced crude oil flows through the Strait of Hormuz had affected refinery operations in Asia, cutting gasoil production in China, India and South Korea. Ukrainian drone attacks on Russian refineries have also reduced Russia’s gasoil production and exports.
The shortage has pushed diesel prices to around $220 a barrel in Europe and the US, according to the IEA. The agency expects tightness in diesel and gasoil markets to continue until the middle of next year. Even if refinery output recovers towards the end of this year, supply may remain below demand in the fourth quarter.
What exactly did Trump and Putin agree to?
With diesel prices rising in the US, Trump announced on October 9 that he had reached an agreement with Putin to increase Russian diesel supplies to the US and global markets. The announcement came despite US efforts to restrict Russia’s energy revenues following its invasion of Ukraine in 2022. The US had also threatened additional tariffs on countries, including India, that continue to buy Russian oil, arguing that such purchases help finance Moscow’s war in Ukraine.
In a social media post, Trump said Putin had agreed to immediately supply more than 300,000 tonnes of diesel, equivalent to about 2.25 million barrels, to the US and global markets. This would be followed by another 500,000 tonnes in November and one million tonnes “immediately thereafter”. Russia would also release three million tonnes of diesel within a short period, depending on the condition of its refineries. Following the announcement, the US Treasury Department issued a temporary licence allowing certain Russian diesel deliveries until April 2027.
Why are crude oil prices not falling?
Crude oil prices have remained high despite signs of a recovery in Gulf exports and the prospect of additional Russian diesel supplies. The main concern is the risk of further disruptions to global oil flows. Brent crude, which was trading at around $65 a barrel before the West Asia conflict, has risen above $100 now. On October 16, Brent futures settled at $109.86 a barrel, while US West Texas Intermediate (WTI) crude closed at $101.41. The IEA said on October 14 that Brent had risen by about 13% since early September to around $107 a barrel. The Strait of Hormuz, which supplies 20% of crude and gas, remains a major concern for oil buyers. Even when some shipments resume, uncertainty over tanker movements and the safety of energy infrastructure can keep prices elevated.
According to the IEA, crude oil exports from Gulf producers, led by Saudi Arabia, rose by 4.4 mb/d to 13.9 mb/d in September. However, this was still only a little over 75% of pre-war levels.
Petroleum and Natural Gas Minister Hardeep Singh Puri had previously said crude prices of 80-85 a barrel would be bearable for India. Prices above $100 for several weeks have increased pressure on oil marketing companies (OMCs), particularly if retail fuel prices do not rise in line with their costs.
According to credit rating agency ICRA, Indian OMCs were estimated to be incurring under-recoveries of ₹8 per litre on petrol, ₹9 per litre on diesel and nearly ₹300 per domestic LPG cylinder, as of September 22.
Crude prices are likely to fall more sustainably only when oil flows recover reliably, shipping risks ease and the threat of further attacks recedes.
Why is India vulnerable to higher crude prices?
India imports more than 87% of its crude oil requirements, making it particularly sensitive to changes in international prices. The impact is visible in the country’s import bill. India imported 21.7 million tonnes of crude oil in September, 7% more than a year earlier, but its crude import bill rose 47% to $15.4 billion. Higher crude prices mean India has to spend more dollars to buy the same quantity of oil. This can widen the trade deficit, increase demand for foreign currency and put pressure on the rupee. The impact extends beyond the oil sector.
Transport, logistics, aviation, manufacturing and agriculture are all exposed to changes in fuel costs. If businesses pass on higher energy costs to consumers, inflation could rise.
Also, keeping petrol and diesel prices unchanged can shield consumers from an immediate increase, but it puts pressure on OMC margins when costs rise faster than selling prices. Passing on the increase, meanwhile, adds to the burden on households and businesses.
The longer crude prices remain elevated, the harder it becomes to absorb the increase without affecting government finances, company earnings and consumer spending.
Why has Trump waived sanctions, and what does it mean for India?
Days after reaching the agreement with Russia to increase diesel supplies, Trump waived the application of certain sanctions, restrictions and duties under the Sanctioning Russia and Iran Act, citing US national interests. In an executive order issued on Friday night, Trump said he had submitted a certification to Congress stating that granting the waiver was in the US national interest.
“I am hereby waiving the application of such sanctions, restrictions, and duties provided for in the Graham Act,” Trump said.
The Lindsey O. Graham Sanctioning Russia and Iran Act was passed by Congress on September 16 and signed by Trump two days later. It empowers the US President to impose sanctions on Moscow and tariffs of up to 100% on goods from major purchasers of Russian oil and gas, including India and China.
Section 115 of the law allows the President to waive certain sanctions, restrictions and duties if doing so is considered to be in the US national interest.
The waiver comes ahead of US Secretary of State Marco Rubio’s visit to India and offers some relief from the immediate threat of punitive tariffs.
With the Iran conflict disrupting supplies from the Gulf, Russian crude has become important for meeting India’s oil requirements. The waiver may ease immediate concerns, but its longer-term impact will depend on the scope of the exemption and how Washington applies the law.
What do experts say?
Madhavi Arora, chief economist at Emkay Global Financial Services, said Trump’s decision to waive sanctions under the Russia sanctions bill was sentimentally positive for India, which faced the risk of tariffs of up to 100% as one of the world’s largest buyers of Russian oil.
The move came days after Trump announced an agreement to import Russian diesel to help lower domestic fuel prices ahead of the US midterm elections in November. Keeping Russian supplies in the global market could help prevent further price increases, Arora said.
However, she cautioned that Trump’s shifting position on Russia and his approach towards India meant the possibility of further action could not be ruled out after the midterm elections.
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI) said the waiver highlighted uncertainty in US trade policy, with Washington threatening penalties but stepping back when enforcing them became inconvenient.
He said the September 18 law had raised the prospect of punitive tariffs on countries buying Russian oil, but the October 9 agreement to import Russian diesel made penalising other buyers difficult to justify. “For India, the waiver buys time but offers no lasting certainty,” Srivastava said.
He noted that Russia’s share of India’s oil imports fell from 51% in July to 44% in August as Indian refiners increased purchases from the US and the UAE, despite higher prices.
Srivastava said the law remained in force, leaving Washington with the option of reviving tariff threats to extract concessions in bilateral trade negotiations. India, he added, should protect its energy security, purchase oil on commercial terms and prepare for renewed US pressure.