The global diesel supply crisis, triggered by the war in the Middle East and attacks on Russian oil facilities, is likely to continue into next year, raising concerns for South Korea, a major diesel exporter. Although the United States has allowed imports of Russian diesel and postponed additional sanctions, analysts suggest these measures are insufficient to resolve the supply shortage. The South Korean government is limiting petroleum product exports to stabilize domestic supply, while the refining industry seeks to expand overseas sales.
On October 18, reports from the White House and foreign media indicated that President Donald Trump decided on October 16 to delay the implementation of the Graham Act. This legislation imposes a 500% additional tariff on certain Russian products, including energy, and a 100% additional tariff on goods exported to the U.S. from the top five importing countries of Russian crude oil and natural gas. The aim is to undermine Russia's energy export revenues.
Trump's decision is seen as an effort to stabilize soaring petroleum product prices ahead of the upcoming midterm elections in November. According to the International Energy Agency (IEA), global diesel exports fell by 700,000 barrels per day last month compared to the same period last year, with Middle Eastern and Russian diesel exports accounting for 1.3 million barrels per day.
Production and export disruptions due to the Middle Eastern conflict, combined with attacks on Russian oil facilities in Ukraine, have exacerbated the situation. While crude oil exports from the Middle East have partially recovered, diesel exports remain below half of pre-war levels. Consequently, global diesel supply potential in the third quarter decreased by 1.7 million barrels per day compared to the previous year.
The IEA predicts that the global diesel supply shortage will persist into next year. Even if refinery operating rates recover by year-end, it will be challenging to replenish stocks depleted this year. The diesel market may temporarily shift to a supply surplus in the first quarter of next year, but supply pressures are expected to continue until the second half of 2024.
Prior to the sanctions delay, the U.S. also sought to increase Russian diesel supply. On October 9, Trump announced that Russia would supply over 300,000 tons of diesel immediately to the U.S. and global markets, with an additional 500,000 tons in November and 1 million tons thereafter.
However, it remains uncertain whether these measures will lead to actual supply increases. The IEA reports that disruptions in Russian diesel exports stem more from a lack of refining capacity than from simple export restrictions. Thus, even if Russian diesel is supplied to the global market, significant improvements in diesel supply are unlikely.
South Korea, which exports 60% of its diesel production, is grappling with calls from the refining industry to ease export restrictions despite the global diesel supply crisis. The country is considered relatively insulated from domestic shortages due to stable crude oil supply and substantial refining capacity.
According to the Korea National Oil Corporation, South Korea produced 184.59 million barrels of diesel from January to July this year, with exports totaling 110.57 million barrels, accounting for about 60% of total production. The crude oil supply is also stable, with import volumes for October and November expected to exceed last year's average by over 100%.
The challenge lies in the refining industry's demand for expanded exports amid rising international diesel prices. The government has implemented a price cap on petroleum products, limiting diesel exports to levels comparable to the same period last year.
International diesel prices surpassed $200 per barrel in mid-September but have since declined, maintaining a high level of around $170 as of October 15. Meanwhile, domestic diesel consumption is on the decline.
In response, the refining industry is urging the government to relax export restrictions, citing decreased domestic consumption. While there is potential for increased overseas sales amid high international diesel prices, export volume limits hinder additional revenue opportunities.
Analysts warn that if the global supply crisis continues, the policy dilemma between domestic supply stability and international energy security may intensify. As supply disruptions from the Middle East and Russia elevate the importance of major refining countries like South Korea, there may be growing demands for additional supplies from the international community.
A Ministry of Industry official stated, "South Korea is not currently facing any specific supply issues, so we are not taking any special measures. In exceptional circumstances, if companies request it, the government will assess and allow exports beyond last year's levels."
* This article has been translated by AI.
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