That would explain why the needle would bounce all over the place!!Most car fuel tanks on older vehicles (both diesel and gasoline) use fuel sensors that are a wire wound pot with a metal wiper, and most parts of the live wiring (0v to 12v DC) are in direct contact with the fuel.
I think it is fairly unfashionable on newer cars though. Personally I would try to keep electricity well insulated from any liquid that burns.
interestingly (i just looked this up), bio-diesel is a better conductor than petro-diesel.As for your question diesel is a decent insulator. Oil is often used as an insulator. Large transformers have oil flowing within the windings as coolant.
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