Robert J. Johnston and Kruthika A. Bala

October 15, 2026

October has been yet another month of turmoil in the energy markets, with knock-on effects reverberating from household budgets across Canada to global geopolitics.

Instead of supply-chain chokepoints inhibiting the free passage of oil tankers in the Persian Gulf (although that risk has not gone away), the volatility this time is linked to Russia-Ukraine.

• On October 02, under U.S. pressure, G7 leaders agreed to accelerate emergency oil releases of 100 million barrels, including front-loaded diesel, and to maintain sanctions against Russia.
• On October 09, the S. Treasury authorized specified Russian-origin diesel imports through April 2027.
• Two days later, President Donald Trump declared a Russia-Ukraine “energy ceasefire” that neither side had agreed.
• By October 15, Ukraine had resumed strikes on Russian refineries following further Russian attacks on its electricity grid ahead of winter.

Prospects for a military ceasefire have been negligible as this war of attrition approaches its fifth year of stalemate. In such a military deadlock, the primary means by which the two adversaries are hurting each other is through infrastructure attacks, mostly via drone. These have been catastrophic and far-reaching for both countries — primarily hitting electricity and heat supply in Ukraine, and refined products/transportation fuels in Russia.

Over the last two decades, U.S. domestic oil and gas production surged, leaving some to argue that the US is less exposed to 1970s style oil shocks. The Trump administration argues the US is now “energy dominant” – able to secure its own resources while using them to the benefit of allies and the detriment of adversaries like Venezuela, Iran, and Russia. This proposition is being demonstrated – and tested — as the U.S. seeks an energy ceasefire between Russia and Ukraine.

Why did President Trump call for an energy ceasefire? The short answer is that while the Russia-Ukraine attacks are local, the effects are global, including on the US — particularly when it comes to Russian refineries.

The mounting diesel shortage — reflecting both Iran and Russia-related geopolitics — has led to price spikes, consideration of a U.S. ban on diesel exports, and now the diplomatic effort to ease restrictions on Russian fuel and press Kyiv to halt refinery strikes.

Yet, to be effective, a ceasefire would need to be extended and allow time for a re-normalization of Russian supply — and a resolution on sanctions as well.

Ultimately, similar recovery would need to take place in the Gulf diesel production centres. Absent that, prices will rise and demand will be curtailed, over time – through efficiency and substitution.

Domestic Price Pressure

The International Energy Agency (IEA) reported on October 14 that Middle Eastern refined-product exports had recovered to just 1.9 million barrels a day in September, compared with 4.7 million before the Iran war. Gulf crude exports had recovered much further. Combined Russian and Middle Eastern net diesel and gasoil exports fell by 1.3 million barrels a day from September 2025.

Damaged refineries and feedstock disruptions restrict diesel production, while shipping constraints and declining inventories compound the shortage. In the Russian case, the plunge from 900,000bpd exports in 2023 to 144,000bpd average in 2026 reflects both damage from Ukrainian attacks and Russian limits on exports to protect the domestic market.

The U.S. exports diesel, but American buyers still compete in a global market. Higher bids abroad make exports more attractive and raise the price domestic buyers must pay to retain supplies. The U.S. Energy Information Administration (EIA) reported that U.S. distillate stocks were 13% below their five-year seasonal average in late September; refinery utilisation averaged 95% during the third quarter and distillate refining margins nearly tripled from a year earlier.

More crude offers little immediate relief when refineries are already running near capacity, and the shortage is concentrated in diesel. The U.S. Strategic Petroleum Reserve holds only crude, so it is of little use here as well. Canada is directly linked to the U.S. and global refining system and faces the same pressures.

Small Cargo, Larger Offer

The White House indicated an initial 300,000 tonnes of Russian diesel, equivalent to approximately 2.25 million barrels. Global diesel and gasoil demand averaged 28.7 million barrels a day in the third quarter of 2026. Even if delivered promptly, the opening quantity would equal less than two hours of global consumption, although larger volumes could follow. On October 15, shipping data showed a tanker carrying 40,000 tonnes had departed Russia for Morocco.

The question is how much additional diesel reaches the market. Russia already sells fuel to permitted buyers — mostly in Asia and Latin America; shifting cargoes between destinations does not create additional supply. Damaged refineries limit production, and as of its October Oil Market Report, the IEA expects little change in the global diesel balance from easing Russian export restrictions.

Why Make a Deal if Russia Can’t Deliver?

Lowering U.S. and global diesel prices by stabilizing Russian output is only one side of the energy ceasefire construct. Reuters reported that U.S. negotiators told Ukrainian representatives in Miami that the diesel deal could help bring Putin back to peace talks by signalling Washington’s willingness to pursue commercial arrangements with Moscow. As of October 15, The success of the U.S. plan will be contingent on Russian commitment to either resume talks or halt energy attacks.

Brussels, London and Ottawa are of course watching these negotiations closely. They can keep their Russia-focused sanctions in place and continue tightening them, but they cannot influence — let alone dictate — the terms Washington offers Moscow or the restraint it seeks from Kyiv. For Kyiv and its G7 partners, the danger is that Washington eases pressure on Russia without securing concessions in return.

The Unequal Ceasefire

The Zelensky government and many of its allies feared that a refinery-for-refinery ban would curb Ukraine’s active campaign against Russian fuel production while leaving attacks on Ukraine’s electricity grid outside the initial proposal. Kyiv sought immediate protection for its electricity grid, which Russia has continued to attack.

A White House official described the initial American proposal to Axios as “refinery for refinery”, with protection for electricity infrastructure potentially following. Ukraine’s main refinery is inoperable following Russian attacks. However, Russia retains a much larger refining network.

A Russian attack on the electrical grid in Kyiv and Kharkiv on 14 October left 600,000 people without power. On 15 October, Ukrainian forces struck the Rosneft refinery at Ryazan, and Zelensky told the Financial Times the pause was over. Russian diesel transactions are authorized through April 2027.

Balancing Sanctions and Energy Price Pressure

The energy ceasefire episode demonstrates that the geopolitics of energy, notably involving Russia, are fraught with contradictions and mixed signals that the U.S., Canada, the UK and the EU must confront. U.S. consumers are not the only ones facing a diesel-linked affordability shock.

The G7’s October 2nd agreement paired emergency fuel releases and refinery coordination with continued sanctions against Russia. Washington subsequently authorized a Russian diesel exception before proposing an energy ceasefire. On October 12, the European Union (EU) imposed 1,569 additional listings against Russia’s military-industrial sector.

While these measures are legally distinct, they send different signals to Moscow. Washington is offering a commercial opening to encourage renewed negotiations; Brussels – with the full support of Canada — is tightening restrictions on Russia’s military suppliers.

Ultimately, the U.S. is both an energy superpower with the world’s largest exports of oil, gas, and refined products and at the same time exposed to a globalized fuel distribution system that is at, or near, its breaking point.

In that context, and with consumers fed up with high fuel prices and seemingly structural affordability challenges, policy risk around diesel export bans and deals with the Kremlin should not be a surprise, even if they come with unintended consequences.

Robert J. Johnston is Director of Energy and Natural Resources at the University of Calgary School of Public Policy and Professor at the Haskayne School of Business.

Kruthika A. Bala is Managing Director of Resources Now.