Global Diesel Crisis Looms: Sri Lanka Must Prepare Now
By a Special Correspondent
COLOMBO – The global diesel market is undergoing a structural shock unlike anything seen in recent years. With the United States threatening to ban diesel exports, China suspending refined fuel sales abroad, and Russia extending its export embargo following repeated attacks on its refineries, the international diesel supply chain is being squeezed from multiple directions simultaneously. For Sri Lanka, a nation that depends heavily on imported fuel, this is not a distant alarm bell. It is a clear and present danger that demands urgent, strategic preparation.
A Perfect Storm in the Global Market
The roots of the current crisis are manifold. Russia, reeling from sustained Ukrainian drone strikes on its refineries, has extended its diesel export ban until the end of October 2026, with seaborne diesel loadings from Black Sea ports at times dropping to zero. China, a major supplier of refined products across Asia, has suspended export permits for diesel, jet fuel, and gasoline in order to prioritise domestic demand during the autumn harvest season. Analysts estimate that China's October refined fuel exports could plummet from an expected 750,000 barrels per day to just 480,000 barrels per day, with November volumes potentially falling further to 300,000 barrels per day.
The most dramatic development, however, comes from Washington. President Donald Trump has repeatedly stated that he is "seriously considering" a full ban on diesel exports in a bid to suppress record-high domestic diesel prices ahead of midterm elections. The United States exports approximately 1.2 to 1.5 million barrels of diesel per day, accounting for roughly 20 percent of global seaborne diesel trade. Should such a ban take effect, global diesel prices could surge to as high as USD 350 per barrel, far above the current level of around USD 170.
Europe would be hit hardest. The continent imports roughly 500,000 barrels of diesel per day from the United States, and American export restrictions would force European nations to release strategic reserves to fill the gap. Under pressure from Washington, G7 countries have already agreed to coordinate the release of up to 100 million barrels of diesel and crude oil reserves over four months, with diesel to be prioritised in the first 20 days. This episode reveals a harsh reality: in the face of geopolitical conflict, even the world's most advanced economies must resort to strategic reserves to cushion the blow of a broken supply chain.
The Direct Impact on Sri Lanka
Sri Lanka does not import fuel directly through the Strait of Hormuz, but its energy supply chain remains highly exposed to global price volatility. Former Ceylon Petroleum Corporation (CPC) Chairman Susantha Silva has noted that the landed cost of diesel is approaching USD 350 per barrel, with premiums and freight rates having multiplied several times over. The value of a single 40,000-metric-tonne fuel cargo has soared from USD 27–30 million in the past to nearly USD 70 million today, placing enormous strain on financing.
The fiscal burden is equally severe. President Anura Kumara Dissanayake has acknowledged that the petroleum import bill surged from USD 98 million in February to USD 368 million in April, with May projections reaching USD 522 million. The actual cost of diesel stands at approximately LKR 720 per litre, yet it is sold to consumers at LKR 392, leaving CPC with a loss of more than LKR 280 per litre.
More fundamentally, Sri Lanka's infrastructure constraints limit its room for manoeuvre. The country's refineries have been in operation for over 60 years and were originally designed to process Iranian crude, offering very little flexibility regarding the source of feedstock. When traditional supply routes are disrupted, alternatives often mean longer shipping times and higher costs — for instance, sourcing WTI crude from the US West Coast involves a voyage of 30 to 35 days.
Diversification: From Emergency Response to Strategic Doctrine
Confronted with this global crisis, Sri Lanka is not without options. The key lies in elevating the diversification of supply sources from an ad hoc measure to a systematic strategy.
India and China have already demonstrated their value. In March 2026, after CPC's regular suppliers invoked force majeure clauses amid Middle East tensions, India supplied Sri Lanka with 38,000 metric tonnes of petroleum products through Lanka IOC, including 20,000 metric tonnes of diesel. This case demonstrates that regional neighbours can serve as reliable emergency suppliers in times of crisis. China is likewise an option that should not be overlooked. Although Beijing currently restricts exports, maintaining constructive energy dialogue over the medium term could help secure priority access to quota allocations.
Greater private sector participation is essential. Sri Lanka's fuel importation follows a mixed model combining state and private actors, and companies such as Lanka IOC and Sinopec have already proven their flexibility in practice. During a crisis, allowing private importers greater quotas and streamlining approval processes can significantly enhance the responsiveness of the supply system. Private firms typically possess broader international supplier networks and greater transactional agility — precisely the qualities most lacking in the state apparatus during emergencies.
The long-term solution lies in upgrading storage and refining capacity. The government has explicitly identified the reconstruction of the Trincomalee tank farm as a "permanent solution," a project being accelerated with support from India and the United Arab Emirates. Restoring the strategic storage capacity of these World War II-era facilities would give Sri Lanka a longer buffer during supply disruptions, thereby strengthening its negotiating position.
The trajectory of the global diesel crisis remains uncertain. Whether the US export ban will ultimately take effect, how long China's restrictions will last, and whether Europe's reserve releases can effectively stabilise prices — all these questions remain unanswered. But Sri Lanka cannot afford to wait for the fog of uncertainty to clear before acting.
The essence of this crisis is that it has exposed the deep-seated vulnerabilities of Sri Lanka's energy security architecture: a narrow supply base, ageing infrastructure, and a pricing mechanism disconnected from cost realities. The response must go beyond the short-term thinking of "finding alternative sellers." Accelerating the reconstruction of Trincomalee's storage facilities, deepening energy cooperation with India and China, and creating a more permissive policy environment for private imports — advancing these three tracks in parallel is the pragmatic path for Sri Lanka to maintain resilience in a turbulent global diesel market.
The storm is already here. Preparation is no longer optional; it is imperative.