No, Banning Diesel Exports Won't Lower Gas Prices
· Reason
It is one of those bad ideas that seem compelling at first: If you're running low on an essential item, why sell what little you have?
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And few items are more essential to a modern economy than diesel fuel. It powers trucks, trains, and boats, all of which are vital to moving goods from place to place. As diesel gets more expensive—it has never been more expensive than it is right now, in nominal terms—everything that must travel via truck, train, or boat gets more expensive too. This is no fun for anyone.
Some Republicans think they have hit upon an easy solution: stop exporting diesel.
"High diesel prices ARE KILLING FARMERS INCOME," Sen. Chuck Grassley (R–Iowa) posted on X on Saturday, as he called for President Donald Trump to embargo diesel exports. Others have now followed Grassley's lead, including Rep. Ashley Hinson (R–Iowa), who is involved in a tightly contested Senate race.
So far, the White House has not taken action. That's good. Despite how it might seem, a ban on diesel exports would likely worsen an already bad situation by driving diesel prices higher.
That might seem counterintuitive. After all, wouldn't hoarding America's supply of diesel fuel translate into lower prices at the pump?
In reality, a ban on exports would actually push prices higher, according to American Fuel and Petrochemical Manufacturers (AFPM), a trade association that represents the fossil fuel industry. American refineries produce more than 5 million barrels of diesel every day, but America consumes only about 3.6 million barrels. If exports are taken off the table, refineries would quickly run out of space to stockpile the excess and would cut production. Less production means less supply, and thus higher prices.
That's not all. Because diesel is traded globally, removing American supplies from the market would force the global wholesale price of diesel higher—and that "will boomerang back on portions of the country that rely on imports, namely the East Coast and to a lesser extent the West Coast," wrote Garrett Golding, an energy sector analyst at the Dallas Federal Reserve, in a series of posts on X.
Golding co-authored a 2022 paper that examined the potential consequences of a ban on crude oil exports—which would unfold in much the same way as a ban on diesel exports. In that paper, the Dallas Federal Reserve researchers concluded that such a ban would be "not only ineffective, but also counterproductive."
There are other potential consequences that would be more difficult to predict. New "controls on exports would be chilling, sending an unmistakable signal to the market," warns Patrick De Haan, a petroleum analyst. Similarly, the AFPM notes that any export ban implemented by the United States could cause other countries to do the same, creating long-term turbulence in the market.
The Trump administration seems to be aware of that risk. Interior Secretary Doug Burgum told reporters last week that restrictions on exports could invite retaliation from other countries that would exacerbate the problem.
An export ban would "disrupt supply chains and hurt American producers," Jason Isaac, founder and CEO of the American Energy Institute, told Forbes. "Diesel is a global commodity, and restricting American exports won't insulate us from global market dynamics."
High gas prices are painful, and the downstream consequences of diesel prices will be felt throughout the economy. With the midterm elections approaching, it is certainly understandable why Republican politicians would want to try anything to ease gas prices that have skyrocketed this year due to the Trump administration's illegal and unpopular war with Iran.
But, as a matter of economics, those higher prices are "working exactly as they should," writes De Haan. "Prices for diesel are rising because diesel isn't as plentiful (globally, mainly)—which causes demand to start being reduced."
Politically, the feedback loop is less efficient, but the end result is likely to be the same: reduced demand for the political party that caused this mess.
In the meantime, give the White House credit for resisting the allure of this bad idea.
The post No, Banning Diesel Exports Won't Lower Gas Prices appeared first on Reason Magazine.