US-Iran Negotiations Signal Easing Energy Tensions, but Diesel Crisis Complicates Inflation Risks

On September 25, representatives from the US and Iran engaged in discussions regarding a phased ceasefire during the UN General Assembly, proposing a plan to reopen the Strait of Hormuz within seven days in exchange for a relaxation of US economic sanctions. This marked the first time the market saw a diplomatic possibility for restoring energy supplies. Following the news, international oil prices fell nearly 2% during trading, reflecting traders beginning to price in expectations of supply recovery after the strait's reopening. However, core disagreements remain regarding the jurisdiction over the strait and the extent of sanctions relief, meaning diplomatic signals are not yet equivalent to actual supply restoration.

More concerning is that energy risks have spread from a single shipping route issue to the entire supply chain. The Houthis launched six ballistic missiles at energy facilities in Yanbu, Saudi Arabia, threatening the Red Sea export capacity that was originally intended to bypass the Strait of Hormuz. This means that even if US-Iran negotiations improve expectations for navigation through the Hormuz Strait, the market will still demand a higher risk premium regarding Saudi Arabia's alternative export capacity, Red Sea shipping, and the safety of energy infrastructure. Consequently, oil prices are experiencing a situation where "diplomatic positives" and "supply security risks" are being priced simultaneously.

The US diesel market reveals another layer of more complicated policy contradictions. Retail diesel prices have surged to a historic high of $6.51 per gallon, prompting the White House to consider export restrictions. However, US diesel exports by sea reached approximately 1.6 million barrels per day in August, and if overseas demand is directly curtailed, Gulf Coast refineries may reduce their operating rates due to inventory accumulation and deteriorating profits, thereby weakening the overall output of gasoline, diesel, and jet fuel. In other words, administrative restrictions can alter the flow of fuel but cannot directly create new supply.

Therefore, what the market truly needs to observe on September 25 is not merely the short-term drop in oil prices but whether energy supply can gradually recover from "multiple bottlenecks." If US-Iran negotiations progress, the Strait of Hormuz reopens, and risks to Red Sea and Saudi energy facilities decrease, supply shocks may genuinely ease; conversely, if there is a time lag between diplomatic progress and actual supply recovery, diesel, transportation, and agricultural costs may still perpetuate inflationary pressures through second-round effects. This also transforms energy policy from a simple price management issue into a significant variable affecting global inflation and monetary policy space.

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