Synopsis
The 2026 oil shock is no longer about crude. It has become a refined-products crisis, and diesel is the main way it is spreading through the global economy. With refineries in the Middle East and Russia disrupted by two separate conflicts, diesel crack spreads have more than tripled in nine months, from about $35 to nearly $114 per barrel. At these levels, diesel prices imply crude above $200 per barrel. Several Asian economies now face physical fuel shortages, and the strain is reaching Europe.
India stands out as an island of relative calm. Its refining capacity exceeds domestic consumption, which has helped it avoid shortages and keep retail fuel prices largely insulated. Domestic diesel prices have risen just 8.6% since February, compared with far steeper increases elsewhere.
That calm comes at a cost. Airlines, petrochemicals, fertilizers and food supply are all under pressure. WPI inflation has been near double digits for four straight months, and price pressures are spreading across the economy. Global bond yields have also reached multi-year highs, with US 10-year yields above 5.2% and Japanese yields at 3.08%.
The note concludes that India remains relatively well placed, but the path ahead may prove more painful than investors expect.