Why Diesel and Petrol Prices Are Rising Differently in Europe

The conflict in Iran and the resulting closure of the Strait of Hormuz pushed up the price of a barrel throughout the week, with the effect feeding through to fuel prices. Yet this alone does not explain the gap between the expected rise in diesel and petrol prices: 23p more per litre versus “only” 7p per litre, respectively.

So what accounts for the difference? The answer lies beyond the Middle East alone. It is rooted in decades of European decisions that have steadily weakened the continent’s ability to make its own fuel. The trigger came from abroad; the underlying issue is structural.

A Europe that stopped investing in refining

European refining capacity has been stagnant for decades and is technically ill-suited to processing increasingly heavy crude oils with higher sulphur content.

Investment in the sector has all but disappeared: no refineries have been built on the continent for more than 30 years, while nearly 30 sites have shut since 2009. Other plants are being converted into biorefineries, producing sustainable aviation fuels and hydrogen in an effort to keep the facilities economically viable.

This has been compounded by mounting political pressure arising from policy choices aimed at carbon neutrality. Those choices have progressively pushed liquid fuels to the margins, with the ambition for them to play, quite literally, no part in the future of road transport.

The same approach has also reduced investor interest in fuel production. The European Investment Bank (EIB) stopped funding most fossil-fuel projects, including conventional refining, at the end of 2021. With public finance no longer available and regulatory pressure intensifying, private capital has also moved away from the industry.

In practical terms, this means European refineries - which remain competitive and rank among the world’s most environmentally responsible - could close prematurely, before being given the chance either to decarbonise or to convert to producing renewable low-carbon fuels.

Reliance on Russia and the 2022 shock

As Europe’s refining capacity declined, its dependence on external supplies of already refined diesel increased. For a long time, those supplies came roughly half from Russia and half from the Middle East. Although this appeared to be a comfortable arrangement during periods of geopolitical stability, it was bound to prove highly fragile if that stability broke down.

That is precisely what happened in February 2022, when Russia invaded Ukraine. Whether through voluntary action or sanctions, purchases from Russia were halted. The European market suddenly had to find alternative suppliers for the huge volumes of diesel previously arriving from Russia - both refined diesel and crude oil intended for European refineries.

Dependence on the Middle East has grown since then, although Europe has sought new suppliers, including the United States and India, even if they do not yet carry the same weight. The supply route has changed too, shifting from pipelines to sea transport. This option is not merely more expensive: it is inherently more exposed to crises such as the present one, making it more vulnerable.

The current trigger: the Middle East has failed too

That vulnerability has now become reality. The closure of the Strait of Hormuz to shipping - one of the main arteries of global trade in oil and refined products, accounting for around 20% of worldwide crude traffic - has abruptly cut the flows of refined diesel on which Europe has relied since 2022.

The impact was immediately visible in international prices. Refined diesel rose far more sharply than crude oil itself - three times as much - because the issue is not a shortage of crude. What is being paid for is the scarcity of the processed product and the risk that it cannot be transported to Europe.

Petrol has a different market profile. Europe is comparatively less dependent on imports through this route for its petrol supply, while its domestic production base can still meet demand with greater autonomy. That is why the increases in the two fuels differ so markedly.

What now?

No short-term solution can address the underlying problem: Europe has created a dependence on refined diesel from the other side of the world, dismantled much of its capacity to produce it at home, and is now discovering that, in an increasingly volatile world, this equation comes at a cost.

And that cost always ends up in the same place: at the pump, paid litre by litre by all of us.