Diesel

0:01Adam Tooze: This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

0:32Adam Tooze: Hi, and welcome to Ones and Twos' FP's economics podcast. Every week we take a couple data points, use them to try to explain the world. I'm Cameron Abadi, FP's deputy editor with you in Berlin, Germany. Joining us, as always, is FP's economics columnist and Columbia University professor, Adam Twos in New York. Hi, Adam. Hi, Kevin. So, we actually have one data point for you all this week. It's a broad subject. We thought it could be a standalone episode all its own. And the data point is$6.43. That is the price per gallon on average across the United States of diesel. Now, that is a lot more than it used to be in January 2025.

1:17Adam Tooze: The same gallon of diesel cost$3.69. Diesel is now up 27 cents in one week. One of the biggest spikes ever. A rapid surge in the price of diesel fuel is straining businesses and threatening to raise costs across the economy. Diesel prices making history this morning, hitting another all-time high. And yeah, that is the American number, obviously, but the same pattern goes for Europeans and the rest of the world. In Europe specifically, governments are trying to combat that surge in diesel price with various kinds of tax relief schemes or other subsidies, including in Germany, but also Spain, etc.

2:00Adam Tooze: But more generally, diesel is a fuel that often gets neglected in public discussions in the United States. Diesel is the fuel that moves tractors and harvesters and ships and trains around the world. And so it's not always just the kind of motorist at the pump who is complaining when the price goes up, but the effects are very real. And the surge in the price has to do with many factors, including the Strait of Hormuz traffic that has been disrupted as a result of the Iran war, but also, you know, the campaign against Russian refineries that Ukraine has been pursuing. And a lot of these factors, including those two I just mentioned, have to do with one, Donald Trump and the administration in the United States.

2:51Adam Tooze: So even though American drivers are not affected as much by the diesel price as others around the world, they are certainly, you know, indirectly responsible for the problem and also suffering the consequences in other indirect ways. So, Adam, to start off with, maybe a very basic question, but what is diesel exactly? I mean, on some chemical basis, we're talking about a fuel that is different than petrol or benzene that is often used in cars in the United States. But, yeah, what makes diesel distinct as a fuel? Yeah, so in the process of refining oil, which we're all getting familiar with as a result of this crisis, it does feel like Donald Trump's foreign policy is God's way of teaching us all chemical engineering.

3:36You basically cook the heavy oil and as you cook it, warm it up, different fractions of the oil come off in the refining these tall towers they have, right? and there's very light gases that come off first because they evaporate off the heavy oil first and then you get regular benzene petrol and then lower down you get heavier products bigger molecules basically and at the very bottom you get something that's basically tar and is used in you know road making road surfacing but in the kind of middle tier you get heavy molecules with lots of carbon atoms in them, which are still in various ways easily combustible, not quite as prone to combusting under ignition as petrol, but nevertheless combustible.

4:27And diesel is a cocktail of these kind of ingredients in the middle range of the refining stack. So I'm not a chemical engineer. So, you know, may the Lord forgive me for what I'm about to say, but it's, It's got like 10 to 20 carbon atoms, so many more than regular benzene. And it's generally mixed in the cocktail that's actually used in modern diesel fuel with paraffins, with naphthines, with aromatic hydrocarbons. And these are all, you know, what makes up the diesel product. When you see it, it's much more oily than regular fuel. I mean, regular fuel is kind of terrifyingly, it feels light, right?

5:06if it splashes on your skin. Diesel is oily. And the crucial difference is that what you want petrol to do is to take compression in the engine, but not ignite. So this is the famous knock property. So you want the engine to be able to squeeze up with the piston up against the cylinder head for the fuel and gas mixture, which you've injected to not ignite until you provide the spark plug, whereas the thing with diesel is that you want it to spontaneously ignite in hot air, which is to do with the design of the diesel engine, we'll say much more about in a minute. But the chemical properties of these two fuels, as they emerge from the refining stack, as it were, mesh with two different designs of engine.

5:54So it feels different, it smells different, it doesn't evaporate as much as petrol, because if you have a splash of petrol anyway, the whole place will stink of the petrol. Diesel is quite different than that. And crucially, in terms of the way in which it fits with an engine design, they burn in completely different ways. Petrol needs a spark and diesel will go when it's in hot air.

6:18Adam Tooze: Yeah, you mentioned the engine. And I was interested to learn that, you know, the engine in some sense, the diesel engine that is, was, from what I could tell in reading about it, almost primary in the development of diesel as a fuel. And it all goes back to the namesake of diesel, namely one Rudolf Diesel, who was an interesting figure in his own right, had an interesting, you know, in some respects, strange life and also a mysterious death. So I was curious if you could talk a little bit about Rudolf Diesel and then, yeah, how he came to develop the diesel engine and how that led to the development of diesel as a fuel, exactly.

7:02Yeah, he's really, he should really be an absolutely classic figure of the, you know, what some people call the second industrial revolution. So not the pioneers of the first industrial revolution in Europe and not coming out of Britain, which where that was marked largely centered but out of continental Europe like a Siemens or a figure like this in in electrical engineering or the famous German chemical engineers around BASF and companies like that that go on to form IG Farben he's a Bavarian by his family's Bavarian but they were in Paris when he was born in 1858 then because of the Franco-Prussian war in 1870-71 his parents go to London so they're peripatetic Germans, but young Rudolf is sent back to Augsburg.

7:46And so he becomes from the 1870s onwards part of this protean mixture of German engineers that, you know, the Daimler and Otto Benz come out of that make the petrol engine and the car. And the thing that they're all working on really is what comes after the steam engine because the steam engine, you know, is the transformative prime mover of the 19th century, but it's very inefficient and it runs on very low energy. You know, coal is relatively low energy content in comparison with other possible fuels. And so the resulting power is awesome and it changes the world, but it's inefficient and it's incredibly heavy.

8:27And so the engines are on, you have to carry vast amounts of coal. So there's a whole generation of engineers who are investigating other options. And whereas Bents and the internal combustion, what we think of as the standard four-stroke engine, go towards this idea of injecting an emulsion, a cloud of air mixed with petrol, and then igniting it with a spark plug, diesel realizes that if you compress air, the extraordinary thing is it generates heat, right? The compression generates enormous heat in the air. So you don't really need a spark plug if you have a fuel type, which when it's injected into the hot air will spontaneously combust.

9:12And were it to do so, it would produce a much more uniform flame. The problem with a standard internal combustion engine is you basically got a cloud of petrol in air and then you ignite it. And so you get an uneven spread of the flame. So then there's an awful lot of fancy engineering I used to be totally into as a kid about how you design that combustion chamber and where the air-fuel combination comes in and how you maximize the air-fuel combination. All of that disappears with the diesel because you're just going to compress the air and then inject the fuel into the right place. And the beauty of that is several different things.

9:47But one crucial one is you can make the engines really, really big because you can control the way in which the combustion takes place because it's going to be uniform across the chamber which you've compressed because the air pressure and the air heat will be the same across the entire chamber. Whereas with a standard internal combustion engine with a spark plug, you've got one flash and then the flame has to spread microseconds, of course. But nevertheless, in terms of the efficiency of an engine, as the cylinder gets bigger and bigger, that gets more and more problematic. So you can't make super, super big regular internal combustion engines, whereas you can make diesel engines, which are the size of houses, the ones that drive giant chips.

10:26Now, if you make them that big also, then there's another problem, which is that conventional internal combustion engines, everyone will be familiar with the sound. Every kid learns it, go like this. Change gear. And what you're doing there is speeding the engine up. And, you know, high-powered internal combustion engines will rev to 5 ,000, 6 ,000, 7 ,000, 8 ,000 revs per minute. So they're going around like absolutely crazy, you know, several, you know, dead dozens, 20, 30 times per second. And so the crucial thing about them, they have to be small, they have to be light, because you can't have revolving masses going that fast.

11:02But the diesel has this property that the flame is very uniform, you get very, very large amounts of torque from these engines at very low revs, you can build gigantic engines, which in ships will rev, you know, not at 10 ,000 times per minute, but maybe only 100 times per minute. So one hundredth of the speed of revolution. And that means you can make them absolutely massive because you're not going to tear the ship apart by revving up this giant, you know, multi-ton piston to 10 ,000 revs, which is what would happen. So the diesel has this set of properties which make it the ideal replacement for the steam engine, really.

11:41If you think of the standard petrol engine, does something different than the steam engine. You would never really think of it. But the diesel literally replaces steam on ships, on boats, on railway, in heavy traffic. For any heavy or ideally stationary engine, diesels are ideal. And so they've always had a niche over the course of the 20th century. And even in societies which otherwise are completely wedded to standard petrol driven internal combustion, like the United States, as you were saying early on, all of the heavy rigs are driven by diesel. every single one of the big ships, which America, of course, doesn't build, but were it to be building them, all the stuff that America imports comes on diesel-powered ships up to this point.

12:23So diesel had this sort of checkered career, but it wasn't a great success. We think ultimately that then bleeds to his death because it was a niche product. It didn't drive Henry Ford's Model T, the diesel engine. It became an industrial engine. And so in 1913, he's on a business trip from Europe to London. He's on the line of the Dresden. And one night, Diesel, a well-dressed gentleman, takes himself off to his cabin and he's never seen again. His hat, his umbrella, apparently all laid out neatly on the bed. There's no message. And a couple of weeks later, a decomposed body is fished out of the North Sea, which his son apparently identifies.

13:05And forever after, rumours have sort of circulated that maybe this was foul play, that this was German or British intelligence that were trying to eliminate diesel because one of the applications for his engines would be submarines. So the big dreadnoughts, the giant battleships, use another technology again, which is turbines. But the submarines, you know, in a submarine, there's always this choice between electrical batteries and diesel operation. They all ran on diesel. And so he may well have been a target, but the most likely explanation is simply that he was a disappointed man who had made this really quite fundamental breakthrough.

13:46And engineers have agreed that this is an inherently more efficient type of engine, and yet was facing really serious business difficulties and may simply have chosen suicide.

13:56Adam Tooze: Yeah, there were these other theories, although it was officially ruled a suicide, as you alluded to, some suspect that he was on his way to meet the Royal Navy to perhaps suggest adopting his engine and that then maybe German agents eliminated him, so to speak. And then there was one theory I came across that some suspect kind of big oil, essentially, associates of Rockefeller's standard oil or other big tycoons also may have had him eliminated because they thought of his engine precisely as more efficient and perhaps a threat to... More efficient. Yeah, yeah. To petrol consumption. Exactly. So he may have been a victim of big oil assassination early on.

14:36But who knows?

14:38Adam Tooze: We'll never know, I suppose. But maybe just to clarify one point, because you're describing, I think, very aptly why the fuel is suitable for heavy continuous work. But are there downsides to the fuel? I mean, with respect to benzene or petrol, like what is the weakness of diesel compared to normal petrol? I mean, it's noxious. It produces really toxic NOx, so really toxic gases. And because it's efficient, you use less oil. So there's always been an argument, and this is key to why diesel came to be adopted quite extensively by Europe from the 1990s onwards. but it does produce really poisonous gas fumes.

15:21I mean, if anyone, if you've ever stood next to a truck, you know, I mean, it's disagreeable. And the engines themselves in their early iterations were suitable for heavy work, but not for high revving, high performance, maximum performance. So growing up as a, you know, engine obsessed kid, as I did in the seventies and eighties, diesels for me were the stuff of the devil and they were there these these grunty engines that were used in incredibly boring applications whereas you know anyone that loved motor vehicles was obsessed with very high revving schneller motor very high revving internal combustion four strokes or two strokes even in motorbikes which is another engine design which uses a different again a different fuel mix and dispenses with valves but it generates minimal torque so two strokes, minimal torque, maximum revs, four strokes, standard engine in between and diesels at the bottom end.

16:20And there's a really interesting story about how that shifted from the 90s onwards, actually, particularly in Europe.

16:28Adam Tooze: Yeah, let's turn to Europe, because obviously, Europe does rely more on diesel than the United States, for example. So what is the story behind that? How did Europe become such a diesel continent? Well, it's the thing about technology, and this is the essential point to make. And I made the point a little flipply a minute ago saying that somebody was obsessed with internal combustion engines, I didn't like diesels. I mean, entire engineering teams, entire businesses, entire industries and huge corporations are orientated around technologies where people make investments like the difference between Android and Apple, open source, non-open source for AI.

17:08Same for internal combustion engine and mechanical engineering. And in the US, really, for standard passenger vehicles, and in Japan as well, the standard is really the internal combustion engine. In Europe, there was always a branch of standard passenger vehicles that were diesel, Mercedes-Benz in particular, but only about 10-11 % of European cars, passenger cars, were diesel in the late 80s. By the early 2010s, it's over 50%. So it's a huge transformation, far more dramatic than, for instance, the shift to hybrids, let alone electric vehicles so far. So the diesel shift is an energy transition in Europe, engineered by companies and governments from the late early 80s, early 90s onwards, towards a technology, completely different engines, the whole different design, they do have gears, so unlike electric vehicles.

17:59And you could say the tragedy of the European car industry now is that they made this shift into diesel and didn't go down the hybrid electric vehicle route, Toyota, Tesla, BYD, which is why they're in the trouble they're in right now. So this is a really, it's a momentous story. And we think it's essentially a combination, a rather kind of perverse combination of business interests. Several of the European producers had very strong diesel development, and then rapidly improved the diesel. So the diesel became a viable option, even for small, for hot hatches, you could have a turbo diesel that was very, very efficient.

18:35and so they were a good proposition you add a turbo and then you add what's called rail fuel injection which allows you to dose the fuel injection per cylinder incredibly carefully so it's super efficient it's the ultimate development of internal combustion engines and that was one line so that was an argument and it was a technological advantage and it helped to secure european dominance actually in automotive technology by the 2010s then there was the interest of the European Commission, which was in cahoots with the industry, but also had concerns about emissions, and didn't yet see the possibility of EVs.

19:12So thought, right, the way to go is simply the most efficient internal combustion engine we can get, and that will be the diesel. And so pushed regs in that direction, the industry eagerly cheering and going, yes, yes, yes, that is the way we should go. And then the third element is the European refineries, who I love to see the development of a market for this mid-section of the refinery stack, because refinery will say more about it in a minute. You know, you can get a choice. A barrel of oil is a barrel of oil, and you can break different things out of it, and you can mix those ingredients to produce different cocktails.

19:47But there's a finite number of cocktails you can make out of a barrel of oil. So once you've started refining the barrel of oil, your question is, where do you find the market for the different bits in the oil? and diesel's great because it takes the bit that's heavier than petrol and lighter than the fuel oil that you use in houses that's really like porridge or something like that. It takes that segment and provides a market for it. So everyone was happy. And the nightmarish result of this is the Dieselgate scandal where the VW engineers were trying to convince everyone that you could have a car that was the most efficient and the cleanest and didn't even produce any, you know, truly toxic NOx pollution and just basically fudged the results to produce that outcome.

20:33And now the competitive disaster of having totally lost the plot to the EV, the battery EV model, which the Europeans just sort of sniffed at in the 2010s because diesel, turbo diesel was so much more attractive. But it's a historic turning point and it should be, it's a little bit, I would put it up there almost with like nuclear policy in the 70s and 80s. It was a turning taken by a combination of different interests, which has had really long lasting consequences. I mean, the engines are astonishing from the point of view of efficiency. They can run a small car, you know, for 100 kilometers on, you know, like a like a like a milk carton worth of fuel.

21:14So it's, you know, passenger car with four people and a dog and, you know, suitcases. And you can run it for 100 kilometers on a small milk carton. But it's a technological dead end in the end compared to battery electric.

21:30Adam Tooze: Yeah, that makes me wonder why the resulting cars that run on these various types of engines themselves don't look more different than one another. I mean, if the engines are so kind of fundamentally different in terms of their capabilities and their kinds of strengths and weaknesses, the outside of the cars, though, from the outside, they all very much look the same. Oh, so we should do it. You know what? We haven't done the ones and twos on aerodynamics. We should do the ones and twos on aerodynamics. I mean, what shapes the outside of motor vehicles and why they all now look exactly alike is aerodynamics.

22:07It's all about drag reduction. because beyond a certain speed, the power demand goes up exponentially because of drag. And so if you can reduce drag, you can enormously reduce power demand. And if you reduce power demand, you can increase efficiency. Not that you think that was actually going on right now because the cars have just gotten heavier and more and more powerful. But the way in which they help manage that and reduce emissions and consumption all the while making them heavier and more powerful is by optimizing ferrodynamics. So that's why they all look the same. but and none of these packages are so big that they would you know that would break the shape of a conventional vehicle you know where they really do look different is in a truck or where in a heavy application those engines i do not exaggerate are the size of small houses so a maritime diesel engine is several stories tall and they are really like you know you can go see them in industrial museums they're like old school steam engines that kind of rhythm you know whereas a whereas a high revving engine is like an instrument it generates harmonics it's going you know it's that's that sound that they make the racing engine 16 000 rpm 10 cylinders they're like a you're shaking the air so dramatically that you create this this cloud of sound so they're completely different objects i mean presumably there's a

23:33Adam Tooze: trade-off between the aerodynamics and the weight of the fuel and then again maybe a separate episode on it diesel is lighter as well diesel is like in terms of because it's so it's energy dense and the engines are efficient so you don't have to carry as much of it couldn't that mean it could afford less aerodynamic exteriors like couldn't it couldn't it afford relatively uh well with the big truck with the big trucks yeah yeah but even with the trucks now they've tried to optimize them but um for a long time of course american american you know the big rigs are generally diesel power and those are like ostentatious displays of all manner of americana that hasn't got a lot to do with those steer horns that you have on the front and the giant air horn or whatever.

24:25None of this is drag reducing.

24:27Adam Tooze: Yeah, there's a part of me maybe is imagining some weird cyberpunk kind of aesthetics that could emerge from this kind of... The thing with diesel is mainly the sound. Anyone who's actually sensitive to engine sound, and a lot of motorheads are, it's really an acoustic thing. The diesel engine just sounds like toothache. It just doesn't sound sweet. That kind of sound. This really is an audio product we're doing today with all sorts of sound effects. But I guess to return to one of the points you were making, namely about, you know, Europe's reliance on diesel. It strikes me that that may explain one of the curious issues that the world is now facing that's at the heart of this diesel crisis, namely a kind of structural mismatch in diesel markets.

25:18Adam Tooze: You know, Europe isn't producing all the diesel it requires. And even as its refineries maybe are now producing a surplus of petrol that the continent doesn't require. And instead, Europe has become dependent on Russian diesel and sort of exports from the Gulf and, yeah, exports from other countries' refineries. And that sort of structural mismatch, which seemed kind of baked into the diesel markets, I'm curious whether, yeah, that was somehow just baked into global diesel markets. Was that always then the case? And how did that develop? Yeah, I mean, this whole debate arises from the fact that as a result of the Ukraine war and the Hormuz, the US-Israeli war on Iran, energy supplies have suffered this big hit, right?

26:07And one of the real puzzles has been, why hasn't the oil price gone even more crazy than it has? It's around$100 a barrel. Shouldn't it? surely it should be even crazier. When you actually look for crazy prices right now, you find diesel and you find air fuel. And then you realize that in the end, when we say people are dependent on oil, this is kind of one step back. What we're actually dependent on is fuel, in other words, the product of refined oil. And the real problem in the current moment is that the Gulf, as we've spoken about several times on the show, is not just the center where oil comes out of the ground and gas, but it's a place of industrial processing, of petrochemical processing of those outputs, unsurprisingly.

26:50And a huge amount of refining capacity has gone offline. And that's then when the shortages develop, because oil and gas, oil in particular, is super fungible. There's lots of different sources of supply, and you stick it in a tanker, and you float it around and just find the market that's most attractive. refineries are a multi-billion multi-year it can take a decade to build a really big one industrial facilities which are fixed and so totally non-fungible and that's where all of this stress has arisen from and Europe following the strategy we were just talking about from the 90s onwards prioritizing diesel mean quite deliberately built an imbalance so they not just sucked up all of the demand of their refineries but they then ended up in a net deficit for diesel.

27:38So when we say Europe is dependent on imported oil, what we really should be more often saying is that it's really dependent on imported diesel. It uses roughly three times as much. It needs about three times as much imported diesel as it needs imported, you know, kerosene petrol. And so where was it getting it from? Yes, Russia had huge refinery capacity. So it was taking it from Russia, when Russia's diesel exports were in the end sanctioned in 23, it shifted. The UK shifted to the Gulf of Mexico. So the UK became very dependent on diesel imports from the United States. The EU shifted mainly to Middle East and India.

28:24And then guess what happens? Somebody has the bright idea of launching a war on Iran and shutting the Straits of Hormuz. And so then the Europeans can't import diesel from the Middle East anymore either. And so then you're really stuck. Then you're fishing around. And that puts the Americans in a strongly rich position. And so then you have these fundamental imbalances developing. But the thing we've learned really is that when we talk about dependence on oil, what we should really be talking about is dependence. What we're really interested in, after all, are the final products. And those are the ones that matter most.

28:58And that's why there's now this big gap between, it's called the crack spread, the gap between the underlying cost of the barrel of oil and what you pay for the things you actually want, which are petrol or diesel or kerosene or fuel oil.

29:13Adam Tooze: So we're going to take a quick break right here, but we'll be back in a second to continue talking about diesel and the diesel crisis.

29:55Adam Tooze: We'll see you next time. like Chrome. Check responses set up required compatibility and availability varies 18+. Is your home wish list just sitting in your cart? Well, get ready to hit checkout because Wayday at Wayfair is here. Save up to 80 % off everything home during the biggest sale of the year. Whether you're refreshing the living room, upgrading the bedroom, or finally tackling that home project you've been putting off, now's the time to save big. Shop Wayfair's Wayday sale and get up to 80 % off now till October 26th. These deals won't last. Go to Wayfair.com today. Wayfair, every style, every home.

30:33Adam Tooze: Yeah, in the middle of this, it does seem like this year, 2026, has been a tipping point for diesel. And I guess there are a few possible causes of that. I mean, Hormuz and the closure of the Strait of Hormuz obviously is among them. But yeah, the refinery damage in various Gulf countries, the resulting export bans from Asia. And yeah, what's happening in Ukraine and Russia amid that war? I mean, does all this really amount to a shift that is legible this year specifically? I think what's really come together this year is the impact of the Israeli-American attack on Iran, which is just a disaster from the point of view of the global fuel economy and oil prices, crude oil prices have not been telling the full story.

31:21And so, I mean, early on, it was jet fuel air fuel we were think hearing a lot about that now it's diesel and diesel is much more pervasive in its uses and the second thing is the ukrainians have just developed this extraordinary long-range strike capacity with drones um which no one did reckon with which they weren't able to do early in the war and they've realized they think that by striking russian diesel refinery capacity they are really hitting a nerve and that's of course what ukraine wants above all it needs leverage it needs somebody to be actually paying attention to the horrendous, the nightmare that they're going through.

31:55And they need somebody to be willing to actually say, look, call off the dogs, this has got to stop. So I think that's really what's tipped this. It's also a matter of exhausting supplies gradually, exhausting stocks. There's only so many times you can rearrange supply chains. But I think it's those two factors, Richard, really are making 2026 into a kind of moment of truth.

32:17Adam Tooze: I'm wondering from the perspective of someone who does not drive a diesel vehicle, why should they care about this diesel crisis? Obviously, there are people who rely on diesel. But if you're not in Europe and you're not the owner of a tractor or ship, why should one be invested in this? And I guess the obvious reason is that it spills over into agricultural markets. And obviously, everyone relies on the products of those. But what exactly is the link then between diesel and the production of food more generally? I mean, the reason why everyone needs to be interested in diesel is that it is the fuel for the prime movers of the world economy.

33:03So diesel is logistics, in short. It's everything. Everything you buy is moved. and it's moved overwhelmingly with diesel. Whenever you hear one of those chug, chug, chug, chug, chug, chug, chug, chug, chug, type noises, that's a diesel engine that's moving your parcels or your food or your clothing or the container ship that's going to bring your kids presents for Christmas or whatever. It's all diesel. So, you know, you're right. People may think this is remote. It isn't. It's somebody else that's paying the bill and ultimately you will be as the consumer. In the food supply chain, it's critical because it's in tractors because it's in the logistics chain that allows food to be delivered just in time.

33:40And so it just adds to the costs all the way along the line. And then more generally, the point is that diesel is part of the refinery process, right? This is the key thing we need to all understand, is that it's co-produced along with petrol and with the industrial gases that are used for all of petrochemical production. and agriculture modern agriculture is essentially in large part one could rather reductively say a giant pipeline for turning fossil energy into food i mean that's what modern agriculture does through fertilizers through the application of machinery through irrigation which is driven by pumps until we move to a you know fully sustainable energy system that will rely on wind and solar above all and batteries, we're in an economy in which food production itself is really just a mediated form of chemical engineering and biochemical engineering.

34:45And so diesel is just part of the equation. The other one is fertilizers, which we've talked about on the show. And then the packaging and everything else, right? We just live in a world that is petrochemically transformed and diesel is one of the fractions of that process. And so it directly impacts. And again, geography, geography, geography. Russia is a huge producer of heavy chemicals and chemical engineering and the Gulf is the other and both of them are now in the crosshairs. So that's the way this is going to work. I mean, there's an estimate that says that 30 % of all energy use in the most extended sense is part of the food chain.

35:20And this will feed through to prices in measurable ways, percentage points on the price of all of the ingredients of a household's diet. So it's the same complex, hyper complex supply chain.

35:35Adam Tooze: So if we are facing this crisis, I guess it's only natural to ask how we might exit it and who exactly has leverage in this diesel crisis. And I guess the flip side of that is who does not have leverage. I mean, it strikes me that any country with spare refining capacity would have to consider that a strategic asset right now. And so then who would be holding the cards? as I guess the United States and reading about this, you know, India, South Korea, China come to mind, but how will that play out exactly in terms of the development of this crisis going forward? Yeah. So, I mean, I think a simple answer is that once again, it seems the Europeans have the weakest hand.

36:22They have a large deficit of diesel. Anyone with refining capacity certainly is in a stronger position. And that means you don't need to be an oil producer. You need to be the person that turns oil into something that people actually want, because people don't want barrels of oil, they want diesel, and they want so. Interestingly, India moves in this story from being exposed to massively high oil prices, which have not happened, to being a country with a very large, very sophisticated petrochemical sector with recently built refineries. Part of the problem is in the West, no one's been building refineries, because it's been so obvious that the feedstock should really be, you should build a refinery close to the feedstock in the emerging markets or in the Gulf, which is where all the building has been done.

37:07And you would then rely on global trade. So the European position is not irrational, it's just risky, and it leaves you without resilience. And in that kind of system, then players like India and South Korea, which have built really large refining capacity of a very modern kind, a very versatile kind, are actually in a rather strong position. And famously, of course, the Indians have been the people who've served as a conduit for Russian crude. So the Indians buy Russian crude at prices discounted as a result of sanctions and then sell what Europeans actually want, which isn't the Russian crude, but diesel to the Europeans and everyone's all good.

37:45So the Russians pay a penalty in the sense they don't get the full price for their oil, but it goes that way. China is as usual in a relatively strong position in this game because it has huge modern refining capacity and a government with determined policy and large stocks of oil and the Chinese were relatively early to begin to regulate exports. the country unsurprisingly which has caused panic and in fact caused the g7 to intervene so the heads of the richest countries in the world issued statements about diesel and sat down and talked about it hard and decided they would release some of their stocks and there are quite a lot of stocks in many countries notably in europe the germans have got lots of diesel stockpile the brits typically have got hardly any i think the brits have 40 days the germans have 400 days worth of diesel supply They're going to release some of those.

38:38The reason why that conference happened and why everyone got panicked is Trump. Because Trump being Trump, seeing diesel prices go through the roof in the US and understanding a little bit about business and knowing that heavy things get hauled by diesel and seeing midterms coming along, thought, oh, you know what? The excellent thing to do is we should shut in all of America's oil supply and just make sure that we supply ourselves first. America first. You can see the playbook's obvious. is America has your huge, both oil production and refining capacity in the Gulf. But this is then where the logic of refining comes in and storage capacity.

39:16Because the Americans have this capacity, but they're operating, they're used to operating a just-in-time kind of system, right? So you refine a barrel of oil, you get a bunch of cool stuff out, and you sell it in every single possible direction. so what America doesn't have is huge reserve storage capacity for diesel so were America to impose export controls on diesel it would rapidly overfill the capacity for storage that it has of diesel which is quite limited because it's used to exporting it to the entire world in a continuous way and earning really good profits from doing that so what would the American refineries have to do, they would almost certainly have to reduce overall refining activity because diesel is just, you know, 25 % of what you get out of a barrel of oil.

40:03So if at any point in that mix, you run into a rate limiting factor, which in this case will be the storage capacity for diesel, you have to slow the entire process down. So then you would be in a situation in which diesel prices would moderate in the US, but the price of everything else in the refinery stack would go up. So it's a typical kind of, you know, the world more complicated than Donald Trump think. And this actually a hugely complex organism, where if you intrude into one part of it, sure, you reveal strengths, but those strengths themselves are conditional on networks of interconnection and so on that your own suppliers will completely rely on.

40:45No one in the Gulf of Mexico, ever thought of themselves as a strategic asset to be used in some sort of play to keep the price of diesel down in the US. They're businesses which optimize, you get a barrel of oil, you make the most of it. And if the Europeans will pay top dollar for diesel, that goes to Europe, and you do not spend any additional dollars in building storage facilities for the off chance that someone's going to decide to do something unprecedented. So, you know, it's an absolutely fascinating lesson in industrial supply chains. And yes, there are people who have got stronger and weaker hands, but it's not clear that you can just, you know, wheel the big stick and not suffer any consequences.

41:27Adam Tooze: Yeah, I do think we've made a good case that everyone should be caring about this diesel crisis, even if you don't have a diesel vehicle at home. And yeah, in classic ones and twos fashion, connecting the Ukraine war, the Strait of Hormuz, Indian refineries, the Franco-Prussian war, mysterious suicide on a ship in 1913. All of it explains the current diesel crisis. But for now, we should say goodbye. We will, of course, be back next week with a new data point or two, perhaps.

42:06Adam Tooze: ones and twos is written and edited by adam and me and produced by claudia tady the show is made possible through the support of foreign policy readers and ones and twos listeners as always we love getting listener feedback you can leave voice messages on the ones and twos homepage on foreign policy.com or email us that's podcasts at foreign policy.com or you can tweet us that's at onesandtwospod. I'm Cameron Abadi. Thank you very much for listening, and we'll be back in your feed next week.

42:51Adam Tooze: Is your home wish list just sitting in your cart? Well, get ready to hit checkout because Wayday at Wayfair is here. Save up to 80 % off everything home during the biggest sale of the year. Whether you're refreshing the living room, upgrading the bedroom, or finally tackling that home project you've been putting off, now's the time to save big. Shop Wayfair's Wayday Sale and get up to 80 % off now till October 26th. These deals won't last. Go to Wayfair.com today.