U.S. diesel prices have exceeded $5 per gallon for the first time since December 2022, driven by ongoing supply disruptions caused by the conflict in Iran. This surge is placing additional strain on broad segments of the American economy. According to data from the American Automobile Association (AAA), the national average retail price for diesel reached $5.044 per gallon on Monday, marking a sharp increase since the outbreak of hostilities.

With the Strait of Hormuz effectively closed to shipping, the conflict has severely constrained the flow of fuel, crude oil, natural gas, and fertilizer from the Persian Gulf. Diesel serves as a vital resource for U.S. freight transport, agriculture, and construction sectors, meaning any rise in its retail price triggers ripple effects across the overall economy.

Refineries in the Persian Gulf are major suppliers of diesel, and as a result, its price has climbed much faster than most other petroleum products. In several U.S. states, diesel prices have already surpassed $5 per gallon. The U.S. Energy Information Administration also reported that heating oil—which is largely interchangeable with diesel—has similarly risen above $5 per gallon.

Persistently rising fuel costs could influence the political outlook for the upcoming midterm elections, posing a challenge for U.S. President Trump. Earlier, Goldman Sachs warned that the ongoing Middle East conflict has triggered the largest oil market disruption on record, with a more pronounced impact on products like jet fuel and diesel than on crude oil.

Analysts Yulia Zhestkova Grigsby and Daan Struyven at Goldman Sachs noted in a report, "Many refined product prices have risen significantly more than crude oil prices." They indicated that severe disruptions in medium and heavy crude supplies could lead to reduced output of diesel, jet fuel, and fuel oil.

"No product or region is entirely immune," the analysts emphasized, pointing out that the conflict is impairing the ability of Persian Gulf producers to export refined products, causing refinery shutdowns and sharply reducing supplies of crude oil best suited for producing fuels like diesel.

They added, "Nearly 60% of typical crude exports from the Persian Gulf consist of medium and heavy crude grades, which are commonly used to produce jet fuel, diesel, and fuel oil—and there are far fewer alternative producers outside the Middle East."

The spike in diesel prices will directly increase freight costs, meaning that even if certain goods in the U.S. core CPI are falling in price, their final retail prices could be pushed upward due to transportation expenses. Moreover, energy price increases typically take one to three months to feed into airfare and core service categories.

Goldman Sachs projects that by mid-year, airfare prices could rise by as much as 10% to 15% year-on-year. The persistent climb in energy prices and the inflationary pressures stemming from the conflict have significantly weakened market expectations for interest rate cuts by the Federal Reserve and other major central banks.

Traders widely anticipate that the probability of a rate cut at this week's Fed meeting is near zero. According to the CME FedWatch Tool, market participants now expect only one rate cut this year, likely pushed back to September rather than occurring in the first half as previously anticipated.