Chain Reaction of Diesel Shortage in Europe: Short-Term Pressure and Long-Term Transformation Path for the Plastics Industry

Since the implementation of the import ban on Russian diesel in 2023, the European diesel market has undergone significant trade restructuring and supply tightness.

Firstly, the diesel supply pattern in Europe has undergone a transformation. The EU's ban on Russian diesel has led to significant adjustments in trade flows. Europe has increased diesel imports from the Middle East and the United States to make up for the loss of Russian supplies. By 2024, the share of Russian diesel in European imports has dropped to less than 1%. New refining capacities in the Middle East, such as the Al Zour refinery in Kuwait and the Duqm refinery in Oman, have helped to some extent meet Europe's demand.

Europe's reliance on Middle Eastern diesel has increased, with the region accounting for a significant portion of diesel imports to Europe (approximately 43% in the first half of 2025). However, escalating tensions related to Iran's nuclear program and the attack on Israel's Haifa refinery in mid-June have heightened market concerns about supply disruptions, driving up diesel prices and crack spreads.

Although the United States has become an important diesel supplier for Europe, its export volume significantly decreased by nearly 50% month-on-month in February 2025 due to a decline in domestic refinery operating rates and tight supply, further exacerbating the supply dilemma in the European market.

Europe's refining capacity continues to be phased out, with an estimated closure of about 800,000 barrels per day by 2025. Additionally, the power outage incident on the Iberian Peninsula in April temporarily shut down over 1.5 million barrels per day of refining capacity, leading to a decline in domestic diesel production. Furthermore, the low water levels in the Rhine River have impacted inland transportation, driving up transportation costs. Despite overall weak demand (especially in the industrial transportation sector), low inventory levels (with ARA region stocks depleting rapidly) have amplified the impact of supply disruptions. This reflects a structural weakness in the domestic supply in Europe.

Under the combined influence of the aforementioned factors, the European diesel market is expected to experience a tight supply situation in the summer of 2025. The ICE diesel crack spread (relative to Brent crude oil) has significantly strengthened, reaching an annual high of 84 cents per gallon on July 10th. The high crack spread indicates improved refinery profits but also means that European consumers and industries are facing higher energy costs.

Looking ahead, the EU's 18th round of sanctions against Russia clearly states that starting from January 2026, it will prohibit the import of refined oil products (such as diesel produced in India and Turkey using Russian crude oil). Although there is a six-month transitional period, in the long term, this may further alter trade flows, intensifying Europe's reliance on diesel from the Middle East and the United States, and potentially leading to a sustained premium for diesel in Europe.

In summary, the tight situation in the European diesel market in the summer of 2025 is the result of a combination of geopolitical risks, structural supply constraints, unexpected supply disruptions, and low inventory levels. Although the short-term tension may ease with the end of the Middle East power generation peak season and increased operating rates of U.S. refineries, future EU sanctions and the continued decline in European domestic refining capacity mean that the European diesel market may face long-term structural supply challenges and price fluctuations.

Therefore, the tension in the European diesel market has a complex and multi-layered impact on the plastics market. The core logic behind this is:

In the short term, cost and supply shocks: The tight diesel market has raised the overall cost of the plastics industry chain through cost support and raw material diversion effects, and may cause supply tensions in specific segments (such as PX-PTA).

In the long term, structural and policy transitions: The phasing out of refining capacity and green policy direction in Europe are driving profound structural changes. The European plastic industry may gradually transition towards higher value-added, lower-carbon specialty chemicals and materials, while the production of some bulk general-purpose plastics might further shrink.

For market participants, this means paying more attention to:

Price disparity opportunities between regions: Differences in energy costs and policy environments across regions will create trade opportunities.

Profit Redistribution in the Supply Chain: Under cost shocks, it is necessary to carefully assess the profit-bearing and transmission capacity of each link in the supply chain.