US Diesel Export Ban Would Backfire, Analysts Warn
Analysts warn a US diesel export ban would raise global prices, cut refinery runs and damage ties with allies, even as Trump backs the idea.
US President Donald Trump has backed the idea of banning diesel exports to bring down record-high prices, but analysts and trade groups warn the move would backfire, raising global prices and disrupting supply chains.
Average US diesel prices have climbed to a record $6.5107 a gallon, according to AAA. Diesel powers transportation, farm equipment and the machinery that makes and moves goods, so shortages can stoke inflation by raising the cost of everything from groceries to industrial materials — a major concern for Trump and Republicans ahead of the November midterm elections.
Why prices are high
Diesel prices have surged amid supply disruptions caused by Ukrainian strikes on Russian refineries and the US-Iran war, which has disrupted or halted trade along major routes including the Strait of Hormuz. The US is a major diesel exporter, and countries have increasingly turned to it amid disruptions abroad.
The US exported a record 1.6 million barrels per day of diesel in August, up from about 1 million bpd in February before the war began. Top buyers include Brazil, Chile, Mexico, Peru, Morocco, France and the United Kingdom, according to Kpler.
US on-road diesel inventories have fallen to 96.97 million barrels, nearly 13% below the seasonal average for the previous five years, even as US refiners run at about 97% of capacity.
Market impact
Major trade groups, including the American Petroleum Institute, oppose a ban. The API said restricting US diesel exports would "wreak havoc on fuel markets at home and abroad," destabilize refinery operations and deepen a global refining crisis already putting upward pressure on US prices. It noted that Gulf Coast refineries produce more diesel than the region consumes, while geography and infrastructure constraints prevent that surplus from simply being redirected to every US market that needs it.
Analysts warned a ban would push up diesel prices globally while pushing down prices in the US and hurting US refining margins. Energy economist Philip Verleger said a ban could raise world prices by as much as 100%, given the fuel's low price elasticity of demand.
Any ban would likely push refineries to cut the amount of crude they process. If US refineries cut runs, it would also lower the amount of gasoline and other products produced and push up prices for those fuels, analysts and traders said.
Kenneth Medlock III, a fellow in Energy and Resource Economics at the Baker Institute for Public Policy, said banning diesel exports would drive refiners to cut runs because the physical market they can access would be cut, and no market participant sells product at a loss. While an export ban might have a very short-term impact that lowers price, it would not be long-lived, he said.
Political and geopolitical fallout
Some Republican Senate candidates in the most competitive races for the November 3 elections have called for the administration to implement the export ban to try to alleviate high costs for Americans.
Jim Mitchell, director of oil trading analytics at consultancy Wood Mackenzie, described the calls as "more of political soundings than actual reality." While a diesel export ban could, in theory, lower prices in the United States, it would not ease tightness in Europe, which is structurally short diesel and relies heavily on supplies from the US Gulf Coast.
"That would seem pretty damaging to some key U.S. allies," Mitchell said.
Verleger said a ban on US diesel exports, even if temporary, would have the same long-term effect as President Richard Nixon's soybean embargo: the world would no longer view the United States as a dependable source. In 1973 Nixon imposed a temporary soybean embargo that angered importers including Japan and, some analysts say, led to greater dependence on Brazil for the commodity.