Volatility in global oil markets is once again reshaping the economics of renewable fuels. While biofuel fundamentals often drive their own supply-and-demand cycles, the war in Iran has shifted the spotlight back to crude oil. The result is a ripple effect that has dramatically improved biofuel producer margins.
The latest escalation in tensions around the Middle East Gulf has sent shockwaves through global oil markets. Concerns about crude and refined product flows through the region have pushed petroleum prices sharply higher.
In the past week alone, Nymex heating oil has jumped roughly 24%, and prices are now 34% higher than before the conflict escalated at the end of February.
Renewable feedstocks have reacted much more modestly. Soybean oil prices rose less than 6% week over week and only about 7% since the beginning of the Iran conflict.
This uneven price movement has significantly widened the gap between petroleum fuels and renewable feedstocks. In fact, the soybean oil–to–heating oil spread has fallen by 26% over the past week. The effect shows a dramatic improvement in the economics of producing biomass-based diesel.
Meanwhile, D4 Renewable Identification Number (RIN) credits have declined only slightly. The drop was about 4%, meaning credit markets have yet to fully reflect the new price dynamics.
The result shows a sudden and substantial boost in profitability for biodiesel and renewable diesel producers.
After a challenging start to 2025 under the new 45Z clean fuel production credit, biofuel producers are seeing a dramatic turnaround.
Margins for biomass-based diesel, including biodiesel and renewable diesel, have surged to their strongest levels in several years.
For example:
Just months ago, producers were grappling with difficult economics under the new tax credit regime. Now, thanks largely to rising petroleum prices, the outlook has flipped.
Many producers had already planned to maximize production in 2025 to capture higher returns under the 45Z credit. But uncertainty around how the Trump administration would impact the credits led to some hesitation. The current oil rally is now substantially boosting those incentives, encouraging facilities to run at full capacity.
Higher margins in the US biofuels market are also reshaping global feedstock trade.
As domestic demand strengthens, overseas feedstocks are increasingly being pulled into the US from regions where prices remain weaker, including Brazil, Europe, and parts of Asia.
This dynamic helps alleviate domestic feedstock shortages but only as long as international price discounts remain large enough to offset the costs of:
Recent market activity highlights the trend. A large Gulf Coast renewable diesel plant has reportedly been purchasing bulk used cooking oil (UCO) from China, followed shortly afterward by large shipments from Malaysia.
However, Europe currently appears to be the most competitive origin due to lower import duties than those of Asian suppliers.
While geopolitical tensions continue to drive oil prices higher, markets have cooled somewhat as President Trump emphasizes the possibility of a quick resolution.
Nevertheless, several risks remain. Disruptions around the Strait of Hormuz, a critical oil shipping route in the Middle East, continue to inject a premium into crude prices relative to pre-conflict expectations.
Iranian drone activity targeting Gulf tanker traffic has also contributed to price volatility, highlighting the fragility of global supply routes.
For renewable fuels, this means that oil-driven price signals may remain elevated. The outcome will force biofuel markets to gradually adjust their pricing structures.
Beyond short-term pricing effects, the crisis may also have broader policy implications.
Countries heavily reliant on imported fossil fuels are already reconsidering their energy strategies. Brazil and Indonesia, for example, have recently doubled down on biofuel mandates to reduce dependence on volatile global fuel markets.
Similar discussions are now emerging in the United States.
The Renewable Fuels Association (RFA) has urged the Trump administration to accelerate approval of nationwide E15 gasoline, arguing it could help ease rising fuel prices.
For diesel markets, the argument may increasingly shift toward fuel security. Expanding support for biofuels, especially renewable diesel, could align with the broader US Energy Dominance strategy. Recent executive actions have already recognized the importance of green diesel in the country's energy future.
For now, the biofuels industry is experiencing an unexpected tailwind.
A rally in fossil fuel prices driven by geopolitical risk rather than renewable market fundamentals has quickly transformed margins for biodiesel and renewable diesel producers. Whether this boost proves temporary or marks the start of a longer-term shift will depend on how oil markets evolve in the coming months.
But one thing is clear: in times of energy disruption, biofuels are once again stepping into the conversation… not just as a climate solution, but as a strategic energy asset.
Global market movements from disruptive forces like the Iran War showcase the volatility and uncertainty in energy markets. To get an expert-led outlook into what to expect across biofuels and feedstocks, join us for a live webinar event.
Presented by Matthew Stone, ResourceWise's VP of Low Carbon Fuels, the webinar will cover a range of critical industry topics:
The War in Iran and Energy Implications
US Tariff Shifts After Strike Down
Europe's Adoption Progress on RED III
SAF and Marine Biofuels Update
Don't miss out on this essential update on the market. Register today and confirm your spot for the event.