U.S. President Donald Trump has cribbed many things from former President Richard Nixon, among them tariffs; price controls; and now, apparently, government interference in energy markets.
Soaring energy bills are a concern for any sitting president (see the early 1970s or the mid-2020s), and energy prices are skyrocketing. Gasoline in the United States now averages $4.47 a gallon, but more to the point, diesel is now $6.52 a gallon on average, up from $3.69 from one year ago. That is absolutely hammering truckers and farmers.
U.S. President Donald Trump has cribbed many things from former President Richard Nixon, among them tariffs; price controls; and now, apparently, government interference in energy markets.
Soaring energy bills are a concern for any sitting president (see the early 1970s or the mid-2020s), and energy prices are skyrocketing. Gasoline in the United States now averages $4.47 a gallon, but more to the point, diesel is now $6.52 a gallon on average, up from $3.69 from one year ago. That is absolutely hammering truckers and farmers.
That is why there is now a stampede on Capitol Hill, seconded by Trump, to curb U.S. exports of diesel fuel, in the hope that the invisible hand, if made visible, will somehow make the market work better. It’s an idea that is both misguided and alarming. In New York City on Wednesday, Trump’s energy secretary said a diesel export ban would not work and would lead to higher prices as refiners cut back output.
It’s easy to see why Trump, who keeps blaming Ukraine and its strikes on Russian energy targets for the higher prices, might be tempted by an export ban. The United States does produce a lot of refined petroleum products, and it exports a lot as well.
But any ban on U.S. exports would be a bad idea. Any short-term price relief—and there would be on the Gulf Coast, where most U.S. refineries are located—would be offset by higher prices elsewhere, mostly on the other coasts but also everywhere else in the world. And once the closure hits the export outlet, which makes up about 12 percent of the output of the United States’ refineries, which are running flat out, those refiners will throttle back. Currently, refiners are enjoying a historically large “crack spread,” the difference between the price of crude and the price of actually useful refined products. If the idea is to incentivize production of gasoline and diesel to make those fuels cheaper, then this is the wrong way to go about it.
“The U.S. Gulf Coast would get a temporary pump price dip, at the cost of likely higher coastal prices [elsewhere] and eventually, higher prices for everyone as investment gets scared away,” said Bob McNally, the founder of Rapidan Energy Group and a former White House energy advisor.
A decade ago, the United States didn’t even export oil or oil products. That was because of the government interference in the 1970s that sought to manage energy markets and ended up making them worse.
Today, the picture is different, in large part because the United States became the largest producer of oil and natural gas in history over that same time frame due to the fracking revolution. But only a portion of what the United States exports is diesel; a good part is crude; a large chunk is propane; some is gasoline and aviation fuel; and the rest, about 1.4 million barrels a day, is diesel. The United States consumes more than 20 million barrels of oil per day.
There is another problem with the proposed export ban, which has to do with the kind of oil that the United States produces (light and sweet) and the kind of oil that its massive refinery complex is built to handle (heavier and sour). Restricting exports would force refiners into bidding wars for the heavy stuff, or into trying to make do with suboptimal goods. Either way, it’s a bad outcome.
It’s true that the Russian war on Ukraine, and Kyiv’s reprisals in the form of long-range strikes on Russian refineries and other oil facilities, have not eased a global energy market that is having a bad year.
But the bigger problem remains the partial closure of two of the world’s biggest energy chokepoints—the Strait of Hormuz and Bab el-Mandeb—which are a consequence of the war against Iran that Trump began in February and from which he has yet to find an exit. The associated damage in the region, including to refineries, was exacerbated by waves of Chinese restrictions on refined exports. An American ban won’t help that, but it will make it all worse.
“Russia is hurting, but the Middle East is worse, and China shut down,” said Sergey Vakulenko, a former Russian energy executive at the Carnegie Russia Eurasia Center. “What the world is short of is refining capacity.”
