Diesel is almost £2 per litre in the UK, the highest price ever. The latest average cost – 199.18p – has edged past the 199.09p of June 2022, following the Russian invasion of Ukraine, said the RAC.
This is “uncharted territory”, an expert told City A.M. Donald Trump has already sent markets into a “frenzy” by threatening to ban diesel exports from the US, said the same paper. Weakened infrastructure for refining diesel and lower reserves than European counterparts mean the UK could be uniquely “exposed” to any further “ripple effects”, including more price rises.
Donald Trump is trying to bring diesel prices down for US consumers ahead of the midterm elections in November. If he does decide to ban exports of US diesel, it would “hurt the countries which heavily depend” on it, said the BBC, including the UK. But it might also have “unintended effects that could hurt US production” in the longer term.
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Trump’s threats have “highlighted Britain’s over-reliance on the goodwill of other countries” for its diesel needs, said an editorial in The Times. Last year, the UK imported more than 50% of its diesel supply, around a sixth of that from the US.
Our infrastructure depends on it: around 10 million cars, a quarter of the country’s trains, 70% of buses, virtually all tractors and “almost 99% of HGVs” run on diesel. Yet the UK has enough reserves to last for only around six weeks, according to International Energy Forum data, compared to around six months for France, Italy, Spain and Germany.
Breaking the £2 threshold for a litre of diesel should “set alarm bells ringing in Downing Street”, said The Telegraph in an editorial. The government’s response so far has been to remove VAT from energy bills in an attempt to cushion the blow to consumers, but this “hardly addresses the fundamental issues”. As a nation, we have “failed to prepare”, allowing our refining capacity to “wither away” to leave us “dangerously exposed” to market fluctuations beyond our control.
The diesel crisis could “deepen” after the UK’s largest refinery shut down production for up to 10 weeks, said energy editor Jonathan Leake in The Telegraph. The Fawley refinery in Hampshire – which produces “one fifth of the fuel used on UK roads” – has closed for planned maintenance, a move that “will add to fears about another diesel price spike hurting drivers at the pumps”.
In the 1980s, the UK had 18 refineries, but that has dropped to just four. Two closures last year – in Grangemouth, Scotland and Lindsey in Lincolnshire – “slashed UK refinery output by about a third”. Now, any closures, planned or unplanned, temporary or permanent, have a “rapid impact on supplies”.
What next?
“Rising diesel costs aren’t just a problem for drivers generally but a wider inflation threat,” said Sky News. Diesel is the “engine of the UK economy” and shortages would heavily disrupt supply chains and lead to costs being passed on to consumers, particularly in the run-up to Christmas. This is the type of inflation that “worries” the Bank of England, which is “widely tipped” to raise interest rates in November.
Taxes on fuel – which account for “just over half of the cost of a litre” – are also set to rise. Hikes planned by former chancellor Rachel Reeves are set to come into effect in January, but her successor, John Healey, should “question the wisdom of raising prices at the pump at a time when they are clearly inflationary in nature”. As such, they are likely to be “scrapped or further delayed” at the upcoming Budget.
