What would a US diesel export ban mean for global fuel prices?

Diesel prices have hit record highs as the tensions between the United States and Iran, along with the war between Russia and Ukraine, disrupt key oil and fuel trade routes.

On Friday, the average price for a gallon (3.79 litres) of diesel was $6.50, up from $5.61 a month earlier, according to the American Automobile Association (AAA), which tracks fuel prices daily.

The spike has prompted the administration of US President Donald Trump and Republican lawmakers to consider restricting US diesel exports ahead of upcoming midterm elections.

A Reuters/Ipsos poll conducted in August found that 47 percent of voters said the cost of living was the single most important factor in deciding how they would vote in the midterms — more than twice the share who cited the next-most important issue, “democratic values and norms”.

A new Marist poll also found that Americans have more confidence in Democrats than Republicans to handle the economy, with 42 percent choosing Democrats compared with 34 percent for Republicans.

Amid that voter sentiment, US Energy Secretary Chris Wright said on Thursday that he was in touch with major oil refiners to gauge interest in a potential voluntary restriction on diesel exports, according to the Reuters news agency.

That followed remarks by Trump on Tuesday that he supported restricting diesel exports from the US, the world’s largest diesel exporter.

Energy analysts and industry groups have warned that an export ban could have unintended consequences, potentially pushing up fuel prices in the US and abroad.

Why are diesel prices so high?

Even though the US is the world’s largest diesel exporter, diesel is traded on a global market.

Disruptions to refineries in Russia and the Middle East have reduced the amount of fuel available worldwide, putting more pressure on US producers to fill the gap. In Russia, for example, drone attacks have damaged major refineries, forcing a cutback or halt in production.

“While US refineries are running at full tilt and higher than normal, the global gaps remain,” Rachel Ziemba, senior adjunct fellow at the Center for a New American Security, told Al Jazeera.

It comes as US diesel supplies are also shrinking. As of September 11, inventories had fallen to 107.9 million barrels, the lowest in more than four decades, according to the US Energy Information Administration.

With global supplies tightening, diesel prices have risen around the world — including in the US. Because American producers can sell their fuel into the global market, they are drawn to the soaring global prices rather than simply setting a lower price for domestic consumers.

Why is the US considering an export ban?

In Washington, DC, leaders have flirted with the idea of pushing US companies to stop or slow exporting diesel.

Republicans have been pushing for a slowdown or outright ban of exports in an effort to lower costs for consumers ahead of the pivotal midterm elections, where cost of living is becoming a critical issue.

Such a move, they hope, would reduce local diesel prices, which is significant as diesel is used in trucks to haul food and most products, Ziemba said, adding that US diesel exports are equivalent to about 40 percent of domestic consumption.

On Tuesday, Chuck Grassley, a Republican from Iowa, called on the president to put in place a temporary halt on exports.

“I encourage President Trump to put a temporary embargo on diesel exports through executive action,” Grassley said.

Republican Senator Dan Sullivan of Alaska made a similar call: “The cost of diesel is just too damn high. I’m calling for a temporary pause of American diesel exports so that we can rebuild our reserves ahead of winter,” Sullivan said in a statement on Tuesday.

In the House of Representatives, Congressman Tim Burchett of Tennessee introduced two bills that would restrict US diesel exports: One would impose a ban through January 2027, while the other would restrict exports if the national average price reaches $5 a gallon.

The administration has not made any official policy announcements, and the White House told Al Jazeera that the president is evaluating all options.

Oil and gas industry experts say that a ban could drive up prices rather than bringing them down.

“Diesel trades on a world market, just like corn. farmers don’t sell cheaper to Americans, and refiners can’t either since they buy crude at global prices. force a lower price and they’ll make less diesel. less supply means higher prices, not lower,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a post on X.

How would an export ban work?

A ban would prevent or restrict US refiners from selling diesel to buyers overseas, theoretically leaving more fuel available in the domestic market.

Analysts at Wood Mackenzie, a research and consulting firm, say that keeping more diesel stateside would ultimately fill up US storage tanks but also force refineries to cut production. That could affect other markets that rely heavily on US fuel, including Latin America and Europe, forcing them to compete with other global buyers for supplies and driving up prices for the global market.

Wood Mackenzie says China is the only major producer with enough spare refining capacity to potentially make up much of the shortfall.

“China is currently the only country with material spare refining capacity that could cover the loss of US refinery throughputs. However, China may well decide it is not in its interest to intercede,” analysts said.

Wood Mackenzie has warned that a ban could quickly fill US diesel inventories, forcing refiners to cut crude runs and potentially increasing US petrol imports.

That was also the view of an S&P Global analysis, which found that a complete ban could also mean that production would be reduced as storage capacity is filled up with unsold diesel. According to the analysis, that could lead to production cuts of as much as 750,000 barrels a day, which could put the US into being a net importer of petrol in the fourth quarter of this year.

Who would an export ban affect?

An export ban would affect US refiners and consumers, as well as countries that rely on US diesel.

“They [export bans] may provide temporary relief, but diesel is a global commodity. Treat one part of the system, and the effects travel elsewhere. Trade-offs are inevitable. Refiners are unlikely to cheer a blanket ban. Voluntary, controlled export reductions would generally be less disruptive in the short term,” Maksim Sonin, visiting scholar at Stanford University’s Precourt Institute for Energy, told Al Jazeera.

Disruptions to US exports could reduce the amount of fuel available on the global market. Wood Mackenzie analysts say countries in Europe and Latin America that rely heavily on US fuel could be forced to compete with other producers for supplies.

“If implemented, it would lead to European and Asian product prices increasing as the buyers of US fuel, mostly in Latin America, scramble to find new supplies, bidding up supplies. European crack spreads could widen, and overall we might see more disruptions,” Ziemba added.

“Given these issues, the US may opt for a mixture of carrots and sticks aiming to incentivise refineries to keep producing, perhaps including penalties if they cut production. There may be voluntary export quotas rather than a formal ban, and there may be exemptions for countries that provide crude oil to the US, like Mexico,” Ziemba said.

That could put pressure on consumers not only at the petrol pump but in the skies as well.

Airlines for America, an airline industry trade group, has also warned that an export ban could lead to higher prices for airlines and travellers, according to the Reuters news agency. The trade group did not respond to Al Jazeera’s request for comment.

The broader concern from analysts is that restricting exports could reduce US refinery production rather than simply redirecting diesel to US consumers, potentially putting upward pressure on fuel prices both domestically and internationally.

“It’s unlikely to help US consumers much given how it fails to solve underlying problems and could backfire if refineries hold on to production. The best way to address this is to end the conflicts prompting the shortages,” Ziemba said.

Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: aljazeera.com