Pain at the gas pumps? That’s nothing compared to the damage this fuel shock can do

Countries whose energy supplies are more exposed to the Middle East are in diesel-fuel rationing mode, with price caps, export restrictions and even shortened work weeks for commuters. Photo by JOHAN ORDONEZ/AFP via Getty Images

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The United States-Israel-led war on Iran has put the screws to fuel supplies, removing 10 million barrels of oil a day from the global marketplace, creating a 10 per cent supply shortfall, according to an Oxford Economics Ltd. report on Wednesday.

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The average price of diesel in Canada is up 45 per cent since the start of hostilities in the Middle East, and that could prove costly as it is critical to several industries, including freight, agriculture and construction.

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“Diesel is really kind of the life of the economy because it is what you consume to ship products by rail, by truck and, again, if you have a large agricultural sector, like we do in Canada, that’s the product you need in order to run the sector,” Randy Ollenberger, managing director and oil and gas analyst at BMO Capital Markets, said. “Diesel is often considered a good indicator of economic health.”

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The average retail price for a litre of diesel in Canada was $2.37 on Tuesday, compared with $1.63 on Feb. 27, the day before the conflict started, and $1.46 at the beginning of 2026, according to Kalibrate Technologies Ltd.

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Similar to when Russia attacked Ukraine, diesel prices have “rocketed” up more than gas prices, Douglas Porter, chief economist at BMO Capital Markets, said during an online session for investors on Wednesday.

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That is stoking concerns over food prices because of the “tight linkage” between energy and groceries, he said.

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Food inflation is already “sticky” and elevated energy prices won’t help. The latest consumer price index (CPI) data, out before the war started, put inflation for food purchased at grocery stores at 4.1 per cent year over year compared with the overall CPI of 1.8 per cent.

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The problem for industries that rely on diesel is that they “cannot easily switch fuels or stop operating without broader economic disruption,” Bridget Payne, head of energy forecasting at Oxford, said in the report. “That means diesel demand falls relatively little through price alone, which is exactly why diesel shortages are so economically damaging.”

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Countries whose energy supplies are more exposed to the Middle East are in rationing mode, with both the Philippines and Pakistan shortening the workweek to four days from five. Bangladesh has imposed fuel purchase caps, Myanmar has resorted to alternating driving days and Thailand capped diesel prices and banned fuel exports.

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Physical shortages of diesel are “not emerging” in North America, but Canada exports and imports the fuel, Ollenberger said, “so the combination of those things does tie us to international markets.”