Commentary: A diesel export ban is a bad idea. Trump needs it anyway
It would be a short-term fix for Trump’s largely self-inflicted problems, at the expense of US energy production and security, says Liam Denning for Bloomberg Opinion.
FILE – Diesel prices are displayed at a gas station as prices hit a record high in the US, Sep 4, 2026, in Minneapolis. (AP Photo/Ellen Schmidt, File)
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NEW YORK: The US is not short of diesel but Republicans’ odds for the midterms appear ever longer. So a ban on diesel exports, terrible idea though it is, now looks more likely.
I suggested last month that, despite deep affinity between Big Oil and President Donald Trump, his declining support amid high energy prices might lead him to turn on the industry.
Various Republican politicians or officials have signalled openness to or outright support of an export ban, most recently Senators John Thune and Chuck Grassley. The president added his own distinctive voice on Tuesday: “Let’s not send out the diesel.”
Trump says a lot of things, obviously, but the real tell was a missive sent out that same evening by the American Petroleum Institute, usually a reliable fan of this administration, pushing back on the idea. Alarm bells are ringing in Houston.
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A QUICK FIX
The idea has gathered momentum because diesel prices hit an all-time record of almost US$6.53 a gallon on Monday (Sep 21). This is bad for farmers (hence Grassley’s call), homeowners using heating oil and inflation in general. It can also be fairly blamed on Trump’s signature project in 2026, the Iran war; although the Ukraine war also plays a starring role.
With the GOP facing a possible hammering in November, and Trump’s own polling gone subterranean, a quick fix is sought.
US refineries produce about 5.2 million barrels of distillate fuel oil, which is largely diesel, per day. Domestic demand is about 3.5 million to 4.0 million barrels a day. Roughly another 1.5 million barrels a day, fluctuating up and down around that figure, get exported. So there is no shortage.
Diesel is expensive because it is a globally traded commodity and much of the rest of the world is short, bidding up the price of available barrels, including US ones.
An export ban, or, alternatively, a quota system that restricts exports below a certain level, aims to break that linkage. Bottled-up barrels of diesel would no longer flow overseas but into US storage tanks instead.
The price of diesel inside the suddenly glutted US would drop, probably significantly, if unevenly due to logistical constraints between Gulf Coast refineries and East and West Coast markets. Trump would get his win.
RAMIFICATIONS OF A DIESEL BAN
Nothing comes for free, though, and the ramifications of a ban would be pernicious and lasting.
News alert: Oil refiners are commercial entities that like to make money. If diesel margins collapse, refiners will find ways to produce less of it.
One way is to alter their intake of different grades of crude oil and proportions of the fuels that come out of them: More gasoline and jet fuel rather than diesel, say.
Or they could simply dial back production altogether. Having run unusually hard this summer, chasing those margins, a ban might herald a bout of maintenance shutdowns. Trump could, in theory, invoke emergency powers to force refineries to run, but at the risk of even deeper damage to his ties to the industry.
So after the initial rush of diesel prices dropping at the stroke of a pen, diesel production would start falling to rebalance things and support those prices, as is the usual way with any traded commodity.
Other forces would be set in motion, too. The ban would create a two-tier market with depressed prices inside the US but soaring prices elsewhere now that critical US barrels were unavailable. Even as American refiners took a hit to profits, European and Asian ones would get a further windfall as margins blew out.
That would blow back on the US in the form of higher imported inflation, since diesel is the fuel of commerce, and a possible recession in export markets succumbing to even higher energy costs.
REPUTATIONAL AND DIPLOMATIC BLOWBACK
The bigger blowback would be reputational and diplomatic.
The Trump administration has talked of expanding US refining capacity; always a big ask, it would be even harder if refiners thought a brand new plant might get caught up in some lingering or future intervention in the export market.
Allies, who hardly need further evidence of America’s newfound unreliability, would get yet more anyway. They, and other countries, would have even more reason amid the current turmoil in traded oil markets to shift away from dependence on now questionable US exports and fossil fuels altogether.
Diesel’s ripples would extend to the burgeoning US liquefied natural gas sector, which needs other countries to trust its reliability in order to sign multi-decade supply contracts.
It would be ironic if “energy dominance”, Trump’s mantra built around the leverage offered by rising US oil and gas exports, should degenerate into a form of energy expedience that blocks those exports.
Faced with the dilemma of getting a short-term fix for his largely self-inflicted problems but at the expense of long-term damage to US energy production and security, though, what do you think Trump would choose?
Source: Bloomberg/el
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