Iran's war is not extinguished, the oil price "safety cushion" has been burned through: The U.S. economy is facing a diesel storm.

The energy market turmoil caused by the Iran war is exposing the US economy to unprecedented vulnerability. The US economy has always been resilient, but the "safety net" that used to cushion against soaring oil prices is now thinning. Ultimately, even if the actual conflict this summer is more contained than in the initial stages, the war will still erode the living standards of the American people. From the perspective of US President Trump, since he has actively restarted direct military confrontation with Iran, he has almost no way to protect the American people from economic shocks. The White House, on the other hand, maintains that Trump has always been honest with the American people and insists that oil prices will soon fall. White House spokesperson Taylor Rogers said in an email, "As the US military continues to weaken Iran's terrorism regime, attacking commercial ships, and disrupting the free flow of energy in the Strait of Hormuz, oil and gas prices will quickly fall back to pre-conflict levels." However, every consumer who has visited a gas station recently has felt the pressure of rising oil prices. According to data from the AAA, the average gasoline price in the US reached $4.06 per gallon this Wednesday, up 4.4% from $3.89 a week ago. This is undoubtedly painful. However, to fully assess the economic impact, attention should be paid to diesel prices. Christian Lawrence, Director of the Americas and Energy Market Strategy at Rabobank, said, "Diesel is undoubtedly the lifeblood of the US economy." The benchmark diesel price of the US Energy Information Administration (EIA) surged nearly 34 cents per gallon last week to $5.13, marking the largest weekly increase since the war broke out in March. This directly determines the fuel surcharges that airlines and other businesses charge to consumers, thereby transmitting price pressures to every corner of the US economy. Of course, this is not the first occurrence of such a situation. When the war broke out in March, oil prices surged, and gasoline and diesel prices followed suit, but the conflict paused after a few weeks, and oil prices temporarily fell. Now, as reports of the US and Iran attempting to reach a new ceasefire agreement regularly circulate, people may think that oil prices will return to lower levels with just one post from the president on "Truth Social." Unfortunately, the situation is now different, especially in the crucial diesel sector for the economy. Lawrence pointed out, "Currently, there is an asymmetrical relationship - if oil prices rise, diesel prices will inevitably rise; but if oil prices fall, diesel prices may only slightly decrease, remaining generally high." The root of the problem lies in the refining process - the bottleneck in converting crude oil into refined petroleum products is becoming increasingly apparent. The EIA stated on Wednesday that the capacity utilization rate of US refineries has reached 96.1%. Refineries have already taken action to increase production at this level. After the outbreak of the war, US refineries ramped up production to supply aviation fuel and other products to the European market, which had suddenly lost its Middle Eastern suppliers. The inventories consumed in the early stages of the war have not been replenished before the peak summer demand. According to a report from the EIA last week, the crude oil inventories at the key delivery point in Cushing, Oklahoma have fallen to the so-called "bottom of the tank" level since early June - meaning the remaining liquid is physically unable to be drawn out. According to EIA data, the US strategic petroleum reserves have fallen to 311 million barrels, the lowest level since March 1983. Not only is Iran in conflict, but the Russia-Ukraine conflict is ongoing. Analysts at a US bank pointed out that in the past three months, Ukraine has attacked 24 out of 34 major refineries in Russia. Russia has transitioned from a supplier to an importer of products like diesel, while at the same time, China is trying to replenish its own inventories. According to data from the International Energy Agency (IEA), although the risk remains of ships being attacked in the Strait of Hormuz, the oil flow through the waterway has exceeded the most severe period in March. However, this crude oil cannot benefit any party until it is converted into products useful for the global economy. Therefore, the importance of benchmark prices like Brent crude (currently about $96 per barrel) as economic indicators is less than the actual retail prices consumers pay. Although these factors are not yet sufficient to constitute an immediate economic crisis, they further exacerbate the burden on the American people that has plagued them for many years. The surprise inflation data released last week brought good news - the consumer price index for June rose by 3.5% year-on-year, surpassing market expectations. However, this respite is likely to be temporary. Rising energy prices will erode wage growth and force Americans to rely more on savings. A nationwide economic survey published last week showed that 37% of American voters said they are using credit cards more frequently to pay for daily expenses due to rising food and gasoline prices. As the war continues, this percentage has risen by 6 percentage points since April. The US government has tried to take measures to stop the bleeding, including releasing large amounts of strategic oil reserves, easing restrictions on fuel and other commodity ships, and easing sanctions on Russian and Iranian oil. However, the effects of these measures are likely to have been absorbed by the market, and it is currently unclear what policy tools the government has in the short term. Only when the conflict ends completely can oil prices potentially fall back; but at least until Labor Day (early September), gasoline and diesel prices may remain high - the pressure will only slightly ease after the end of summer travel demand. In the long run, the surging demand will eventually drive the construction of new refineries. "But this takes time, there is no short-term solution," Lawrence said.