Diesel crunch in Asia: India shortages deepen in 2026

A two-speed diesel market emerges in Asia

Asia’s diesel market has split into two tracks as the Middle East war disrupts crude and product flows. Poorer importing countries are facing acute shortfalls, while richer nations with deeper refining capacity are preserving buffers by holding back exports. Diesel is central to freight movement, agriculture, and industrial activity across the region, so supply issues translate quickly into higher operating costs. The situation worsened after refiners in China and South Korea curbed exports when they were forced to cut run rates. Those export reductions hit import-dependent buyers first, especially in Southeast Asia. At the same time, domestic availability in the exporting nations remained comparatively stable. That divergence is now visible in inventory and price signals across the region.

Strait of Hormuz disruption and the crude supply shock

The war between the US and Iran is now in its third month and has led to the near-total closure of the Strait of Hormuz. This has crippled shipments of crude oil and refined products. Brent futures topped $126 a barrel this week, the highest in almost four years, and product prices including diesel have also surged. For Asia, which relies heavily on Middle East crude, the closure has been a direct hit to feedstock availability for refineries and to seaborne product supply lines. Goldman Sachs Group Inc. estimated that oil supplies from the Persian Gulf are down by more than 14 million barrels a day. With less crude available and shipping routes constrained, diesel balances across Asia tightened sharply.

Refinery run cuts and export curbs tighten supply

Refinery cutbacks are amplifying the crude disruption. Analysts and refinery sources expect Asian refining output to fall in April as crude imports hit a decade-low and refiners are forced into processing lighter grades. That shift is expected to reduce diesel and jet fuel production by at least 1 million barrels a day. Rystad’s analysis suggested a 1%-2% drop in Asian refining yields could translate into a loss of 250,000 to 500,000 barrels a day of diesel and jet fuel supply. Kpler’s modelling estimated total middle distillate supply losses in April at 1.8 to 2.0 million barrels a day, with most of that diesel. Export restrictions imposed by some governments and run reductions in Japan, South Korea, and China to preserve stockpiles are further constraining availability.

Richer Northeast Asia shows buffers despite slower runs

In Northeast Asia, the immediate issue has been higher costs rather than outright deficits. Japan’s refineries have been running at 68% of capacity compared with 80% in normal times, according to traders cited in the report. Even so, there have been little-or-no local diesel deficits in Japan and South Korea. Both governments have also overseen releases from emergency energy stockpiles. China’s domestic balance appears relatively comfortable on some indicators, with commercial diesel inventories recently touching the highest level in nearly two years, according to Mysteel Oilchem data, even as state-owned refineries ran slower. Industry consultant FGE NexantECA said South Korean refiners may be set to raise exports of diesel next month.

India sees pump-level disruption and price uncertainty

India’s experience has been markedly different, with shortages showing up on the ground. Diesel is a backbone fuel for India because most goods move by road, making availability at service stations critical for daily commerce. A truck owner, Smruti Ranjan Samantaray, said one of his vehicles headed to pick up iron ore was stranded by the roadside in Odisha as pumps ran dry. He also halted the departure of seven additional trucks as shortages appeared to worsen, and said other trucks were idling on the side of roads. Separately, India’s Ministry of Petroleum said oil marketing companies such as IOCL and BPCL are absorbing under-recoveries to protect consumers. The reported losses were Rs 24.40 per litre on petrol and Rs 104.99 per litre on diesel at current retail selling prices. The same disclosure said that without the cushion, diesel could rise to Rs 192 per litre and petrol to Rs 119 per litre.

Southeast Asia declares emergency and inflation accelerates

Southeast Asia’s vulnerability stems from limited oil stockpiles and heavy reliance on regional supply. Xavier Tang of Vortexa said the impact is not evenly distributed, and Southeast Asian countries have limited oil stocks, leaving them more exposed to disruptions. The Philippines declared a national energy emergency as price pressures intensified. Inflation there reached 4.1% in March, the fastest in nearly two years, and the central bank expects it to go higher. With seaborne diesel exports contracting across Asia, importers such as Indonesia and the Philippines are among those bearing the brunt. Seasonal demand is also picking up due to harvesting and cooling needs, adding pressure when supply is already constrained.

India turns swing supplier as exports surge

While domestic supply strains are visible, India has also been a key swing supplier into Asia as trade flows adjust. Shipping data showed India’s diesel exports to Southeast Asia surged to the highest level in more than seven years in March. About 1 million metric tons, or 7.45 million barrels, was shipped on this route, with around half bound for Singapore, according to Kpler data and trade sources. Around 90% of these volumes were shipped by Reliance Industries, operator of the world’s largest refining complex, according to Kpler. Separately, vessel tracking data cited in another report showed diesel exports reached 12.90 million barrels between March 1 and 28, compared with 10.74 million barrels in February. Analysts cited in the reports said buyers that usually rely on Chinese and Northeast Asian supplies have been seeking alternatives, with India’s Reliance a main candidate.

Policy moves and margins: what the data implies

Policy choices are shaping both availability and profitability across the chain. India imposed export levies of Rs 21.5 per litre on diesel and Rs 29.5 per litre on jet fuel to discourage outbound shipments by private refiners. Another report also cited a government cut in excise duties on petrol and diesel by Rs 10 per litre each amid the war. On trade economics, the front month April east-west price spread averaged a discount of $10 a ton in the week of March 27, LSEG pricing data showed. Traders typically consider a discount of less than $10 a ton more favourable for pivoting cargoes to east of Suez markets rather than west. These pricing signals help explain why cargoes were redirected into Asia even as some governments tried to preserve local supply.

Key figures at a glance

Why this matters for Indian investors and businesses

For India, the immediate economic sensitivity is diesel’s role in trucking, mining logistics, and farm supply chains. Reports of pumps running dry point to operational disruption risks that can ripple into freight rates and delivered input costs. At the same time, the Ministry’s disclosure on under-recoveries highlights the financial strain placed on oil marketing companies when retail prices do not fully reflect international crude and product spikes. For large refiners with export optionality, the March surge in diesel exports to Southeast Asia shows how global dislocations can improve export realizations when regional cracks strengthen. But export levies and shifting policy tools can quickly alter netbacks and export incentives.

Conclusion

The near-total closure of the Strait of Hormuz and the resulting crude shortfall have tightened diesel markets across Asia, with the most severe stress evident in poorer importing economies. India is facing pump-level shortages and heightened price uncertainty, even as it plays a bigger role in supplying diesel into Southeast Asia through exporters led by Reliance. Northeast Asia has so far avoided major local deficits by holding back exports, drawing on inventories, and releasing emergency stockpiles. Market participants are now watching for changes in refinery run rates, export policy decisions, and the timing of any increase in South Korean diesel exports next month, as regional demand rises seasonally.