High diesel prices push up inflation and borrowing costs. This speeds up deindustrialization of Germany, suffocating under high cost of energy already. This also slows down the reindustrialization attempts of Trump’s tariffs. Trump simply has no time to see through the reindustrialization. The West is ending up with no industry needed to scale production of drone and missile swarms for survival in a heating up and therefore turbulent world.
The intersection of high diesel prices, structural energy crises, and aggressive trade policies poses a severe risk to Western industrial capacity at a time when military manufacturing needs to scale rapidly.
1. Germany’s Deindustrialization Crisis
Germany's economic model historically relied on cheap Russian natural gas and stable energy inputs. The loss of this infrastructure, combined with high diesel and electricity costs, has severely strained its industrial sector.
• Energy Costs: German manufacturers face energy costs significantly higher than their international competitors, forcing factories to cut production or relocate.
• Economic Stagnation: Sustained high inflation and rising borrowing costs driven by central bank rate hikes have choked off the capital investment needed for industrial modernization.
• Structural Shift: Legacy industries—such as automotive, chemical, and steel manufacturing—are shrinking, leading to a structural loss of industrial skills and capacity that cannot easily be recovered.
2. The Limits of Tariffs and Time Constraints
While protectionist trade policies like tariffs aim to shield domestic industries and incentivize reindustrialization, they face steep economic and temporal hurdles.
• Inflationary Pressure: Tariffs on foreign imports often drive up the cost of raw materials and machinery. When combined with high diesel prices, this increases the total cost of domestic manufacturing.
• The Temporal Mismatch: Rebuilding a hollowed-out industrial base—constructing factories, securing supply chains, and training a skilled workforce—takes a decade or more. A standard political term is rarely long enough to see these long-term structural shifts to fruition.
• Capital Constraints: High borrowing costs make it expensive for private companies to finance the massive capital expenditures required to build new domestic factories.
3. Implications for Defense Manufacturing
Modern defense strategy increasingly relies on the mass production of low-cost, high-tech systems like drones, missile swarms, and autonomous hardware. Scaling this production requires a robust commercial industrial foundation.
• Supply Chain Dependencies: Defense manufacturing does not exist in a vacuum; it relies on commercial steel, electronics, chemicals, and energy infrastructure. If the civilian industrial base erodes, defense supply chains become fragile and dependent on foreign components.
• Scale and Speed: Winning prolonged modern conflicts requires the capacity to mass-produce hardware faster than it is consumed. Without cheap energy and a thriving manufacturing ecosystem, the West struggles to match the production scalability of nations with lower energy costs and deeply entrenched manufacturing infrastructure.
“Because of the war in Iran, the cost has climbed past the record it reached in 2022 after events in Ukraine.
Diesel fuel prices jumped to a record high on Friday in the United States, as the war in Iran continued to restrict the supply of energy worldwide, further squeezing businesses that rely on diesel to run their factories and equipment.
The national average price of a gallon of diesel reached $5.85 per gallon, according to the AAA motor club, up more than 55 percent since the war started. That surpassed the previous peak, set four years ago during the global energy crunch caused by events in Ukraine.
Other refined petroleum products, like gasoline and jet fuel, have also soared. Gasoline cost $4.15 a gallon on Friday, on average, up nearly 40 percent since the war began, according to AAA.
Over the past six months, “global prices of all main refined products have increased more than crude prices ,” analysts at Goldman Sachs wrote in a research note.
The price of Brent crude oil, the international benchmark, traded at around $96 a barrel on Friday, up about 30 percent since the start of the war.
Diesel fuels are used by many commercial vehicles, including farm equipment and freight trucks. Higher fuel costs make it more expensive for business owners to run factories and ship products. Some businesses have passed on the higher costs to customers through fuel surcharges, and UBS recently cited higher diesel prices as a growing risk for homebuilders.
Fuel costs began rising after the United States and Israel began attacking Iran on Feb. 28. Tehran retaliated by effectively closing the Strait of Hormuz, the narrow Persian Gulf passageway through which about a fifth of the world’s oil and large amounts of related fuels are normally transported.
The turmoil in the supply of crude has spread to refineries, where oil is processed, or cracked, into fuels like diesel and gasoline. Missile strikes have damaged refineries in the Middle East.
In addition, Ukraine has attacked and damaged many Russian refineries. That has forced Russia to ban the export of refined fuels until the end of September.
“With little spare refining capacity, meaningful relief requires a recovery in Persian Gulf and/or Russian flows,” Warren Patterson, the head of commodities strategy at ING, wrote in a research note.
U.S. refineries are producing more fuels to take advantage of the “crack spread,” or the difference between the price of crude and refined petroleum products, which has reached record highs, Mr. Patterson said. A widening spread has helped companies like Marathon and Valero earn record profits.
Experts say the higher fuel costs will linger even if the war in the Middle East is resolved and the price of crude oil falls.
“The oil market remains tight, but refined product markets are even tighter,” Mr. Patterson wrote.” [A]
A. U.S. Diesel Prices Set New High. Schmidt, Gregory. New York Times (Online) New York Times Company. Sep 4, 2026.
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