For the past few weeks, President Donald Trump has been noodling on a diesel export ban as a strategy for lowering fuel costs. As of this weekend, he is still “thinking about it very seriously,” despite strident opposition from the U.S. energy industry.
“That can oftentimes lead to a little bit of an increase on gasoline for cars, so we’re looking at it very seriously. We may do it,” Trump told reporters on Sunday. But implementing such a ban could backfire, with such consequences ranging from lower production by U.S. refineries and higher gasoline prices to a disruption of the global economy.
Although the price of diesel may seem esoteric to an individual whose only vehicles run on gasoline, it is intertwined with the larger U.S. economy. Diesel powers such heavy machinery as construction equipment, trucks, buses, ships, and tractors. If higher diesel prices drive up the cost of shipping goods, that extra expense will be reflected in the price tag of those items.
In theory, a person can decide to use less gasoline, resolve to drive less, or purchase an electric vehicle. But diesel use is something from which we don’t get to opt out.
“It’s almost impossible for you to extract diesel from your life as long as you buy groceries, or something on Amazon,” said Rory Johnston, an oil market researcher and founder of Commodity Context. “Your E.V. was likely delivered on a truck that was fueled by diesel.”
Diesel prices topped $6.38 per gallon this week. This is a result of the war in Iran and the closure of the Strait of Hormuz, which has severely constricted crude oil exports from the Middle East. But other factors have played a role, including the destruction of Russian refineries by Ukraine and a diesel export ban by both Russia and China. As diesel exports have plummeted from other sources, the United States has been the only country to lift its global supply.
The theory behind restricting or banning diesel exports is that more diesel would remain in the country, and therefore fuel costs would go down: If you ship out less, you keep in more. But the reality of that scenario would be more complicated. The U.S. already produces around 5.3 million barrels per day of distillate fuels, which include diesel, but the domestic demand is only around 3.6 million barrels. Refiners on the Gulf Coast rely on trade to absorb that surplus; if exports are banned, around 1.5 million barrels per day of diesel would be “stranded,” according to analysts at S&P Global.
These risks have left oil industry stakeholders in a tizzy. The American Fuel and Petrochemical Manufacturers have warned that such a ban would “reduce U.S. fuel production, put upward pressure on prices, weaken energy security and hand market share to foreign competitors.” It’s a concern echoed by the folks at the American Petroleum Institute, who fear that a fuel surplus would lead to refineries producing less gasoline and jet fuel along with reducing diesel production.
The U.S. produces diesel at a structural surplus, and there is room for refineries to stockpile diesel if it is unable to be exported. But eventually, refineries will no longer have a reason to continue processing as much crude oil.
“You are going to destroy the financial incentive to process these barrels in the first place, and these refiners will begin cutting runs,” said Johnston. S&P Global analysts predict refiners would ultimately need to cut crude runs by 1.9 million barrels per day.
Commodity analysts at Goldman Sachs have predicted that an export ban would initially lead to a decrease in prices—but only until diesel storage is full. Because different fuels are produced together, such an action would put “upward pressure on gasoline prices,” according to a memo by Goldman Sachs. The bank estimated that gasoline prices could increase by $0.30 per week.
A diesel export ban would also have global repercussions. With less diesel coming from the Middle East, China, and Russia, other countries across the world have been more reliant on American oil. According to API, the U.S. currently supplies around 20 percent of the roughly eight million barrels of diesel traded globally per day. Diesel prices continue to spike largely because the U.S. is the primary source for buyers. This past summer, diesel exports hit a record of 1.9 million barrels per day. In short: Cutting access to U.S. diesel would be immediately felt across the world.
“If taken to the extreme, you have a situation where the United States, the preeminent global refining hub on the planet, is cutting back refining runs at a time when refining capacity has never been tighter globally,” said Johnston.
Other countries are bracing for this possibility. Dan Jorgensen, the European Union’s energy commissioner, recently sent a note to member nations urging them to cut gas and electricity consumption.
“It is not in the interests of anybody, not the U.S., not us, to not have as free a flow of energy as possible in these difficult times,” Johnston told reporters at a meeting of European ministers.
The president may choose to restrict diesel exports rather than fully banning them. Trump administration officials certainly seem wary of extreme measures. Energy Secretary Chris Wright has been adamant that a full ban on diesel is not in consideration, saying last week that “nobody wants a full blanket ban or zero exports of diesel.” Interior Secretary Doug Burgum said earlier in September that such a ban would not lower prices in the long run.
That said, there is considerable political calculation behind support for an export ban. Republicans are in danger of losing control of both chambers of Congress in the November midterm elections, and increased costs do not make for a winning message. Moreover, higher diesel prices could discourage farm producers—generally a reliable GOP voting bloc—from supporting Republican candidates, or casting a ballot at all. Some Iowa lawmakers have been particularly vocal in their support for an export ban, including Representatives Zach Nunn and Marianette Miller-Meeks, both of whom are locked in tight reelection battles.
But if the Trump administration wants to ban or restrict diesel exports with the goal of easing prices, there isn’t much time left to act. The election is just over one month away, and lower diesel prices would not be immediately reflected at the grocery store, for example.
“They’re running out of time for it to matter to voters,” said Johnston. “It takes time for it to hit the wholesale market, then from there it takes time to hit the retail market.”
