Europe’s Diesel Shortage Is A Problem Created By Political Design

Authored by Daniel Lacalle via dlacalle.com,

The diesel agreement between Donald Trump and Vladimir Putin will not solve the diesel shortage, considering the magnitude of the problem created by years of misguided, wrongly called “environmental policies.” Complaining about diesel prices and the US-Russia deal while eliminating domestic refining capacity and bombing refineries is just another example of bureaucratic hypocrisy.

Renewables are important, but they cannot substitute diesel, just as they have been unable to offset the importance of natural gas. Diesel is essential for every segment of the economy, from transport, manufacturing, and farming to distribution. Now, European politicians complain. However, governments cannot negotiate away years of lost refining capacity. Europe’s vulnerability is structural. Yes, war has intensified it, but policy choices helped create an energy system increasingly dependent on imported fuels, expensive infrastructure, and high taxation. Furthermore, the risk is that – as happened in the past – oil and gasoline prices may fall, and the European businesses and families will still pay much higher energy and fuel prices.

According to European Commission figures and comparisons based on official European and US data, Europe suffers an enormous energy-cost disadvantage after two decades of massive subsidies and renewable rollout. Industrial electricity prices are more than twice those in the United States, while industrial natural gas prices reach four times US levels. At the pump, European consumers pay approximately 47% more for diesel and 70% more for gasoline. This is not simply an oil-price problem. It is an enormous competitiveness problem that permeates throughout the economy.

On October 9, Trump announced that Russia would release 300,000 tonnes of diesel immediately, followed by 500,000 tonnes in November, one million thereafter, and another three million, subject to refinery conditions. Washington temporarily authorized Russian diesel transactions until April 7, 2027. However, these are announced commitments, not confirmed deliveries. It may mitigate but not solve the diesel crisis.

The distinction is important. A sanctions exemption may permit trade, but it cannot repair damaged processing units. According to International Energy Agency estimates, Russian diesel production has suffered a temporary but significant blow, declining almost 30% following Ukrainian attacks.

The important element is a policy choice, not a consequence of war.

Europe’s refining contraction is the key factor behind the structural diesel problem. It has lost more than 20% of refining capacity since 2009. At the end of 2025, the EU, Britain, Norway, and Switzerland had 72 mainstream refineries and an annual primary processing capacity of 625.4 million tonnes, down 167.6 million tonnes. Industry association FuelsEurope counts 35 closures since 2009.

The deterioration did not stop with the 2022 Ukraine war and has continued recently. Europe lost almost 400,000 barrels per day of refining capacity between 2024 and 2025, with five refineries closing over two years. This trend is a continuing reduction in the infrastructure needed to turn crude into usable fuel.

Environmental policy is part of this story, but taxation and policy choices have aggravated the problem. Governments made it uneconomical to upgrade aging facilities or build new units. Furthermore, at least five closed European facilities abandoned crude processing through conversion into biorefineries. These conversions worsened conventional refining capacity and did not offer a reliable and sustainable alternative.

The policy mistake is obvious and reminds us of the same errors committed with nuclear plants and natural gas supply. Eliminating capacity is a policy mistake without a credible path to reduce diesel’s importance. This move was not a transition but a jump into the void. Europe now relies more heavily on refined products from the Middle East, the United States, and India. Importing products is not an environmental policy success. “Not in my backyard” led to dependency and loss of competitiveness. The EU was the fourth-largest buyer of Russian fossil fuels, accounting for 8% (EUR 1.2 bn) of Russia’s export revenues from the top five importers in August 2026, according to CREA.

Ukraine’s refinery attacks have reduced fuel availability, and Russia has restricted diesel exports. While damaged refineries can be repaired, it will take months.

War in the Middle East and disrupted Hormuz flows have compounded the shortage. The European Central Bank estimates reported in September put the refining-margin contribution to diesel prices at €0.41 per liter, approximately 19% of the pump price. That is why watching Brent alone misses the problem, as crude and diesel are different markets.

On September 21, EU diesel averaged €2.226 per liter, the highest reading in the European Commission’s series since 2005. Taxes accounted for €0.861, or 38.6% of the price. VAT applies on top of excise duties, effectively taxing the tax itself.

The EU minimum diesel excise is €0.33 per liter. America’s federal diesel tax is 24.4 cents per gallon, before state taxes and fees. European taxation adds a persistent cost wedge that cheaper crude cannot eliminate. This means that the average EU final diesel price is almost 50% higher than the US one. Thus, falling oil prices can provide relief without restoring competitiveness. Fixed duties remain, and scarce refining capacity may keep diesel expensive even when crude oil becomes cheaper.

Europe needs to abandon ideology in energy, provide solid investment conditions, eliminate regulation, and support an adequate refining system. Even though the European Commission’s newly announced “refinery dialogue” mentions these issues, it does not change the underlying ideological perspective or any of the existing regulations and misses the key measures to reduce the competitiveness gap, which come from lower taxes, more investment, and elimination of punitive regulations. Emergency Russian cargoes may help at the margin, even if European politicians complain about the US-Russia deal. However, none of this is going to repair Europe’s own policy-created vulnerabilities. The solution may take years, even if the changes are implemented today.