Trump's Diesel Export Ban Threat Would Backfire on U.S. Oil

U.S. diesel prices hit an all-time high of $6.52 per gallon on Sept. 23 — and President Donald Trump is now backing a temporary ban on diesel exports that analysts say would backfire on the American oil industry and global fuel markets.

"I've said let's not send out the diesel. We make a lot of diesel. I've called for it," Trump said late Tuesday at the U.N. General Assembly in New York.

Farm-state Republicans, led by Sen. Chuck Grassley of Iowa, are pushing the idea as harvest season collides with record fuel costs. "High diesel prices are killing farmers' incomes," Grassley said. Senate Majority Leader John Thune, R-S.D., has also expressed openness to a ban. Oil-state Republicans have pushed back, splitting the party and leaving the decision to the White House.

The logic seems simple: keep diesel at home, and prices fall, sparing farmers, truckers, and inflationary pressure on all Americans. Analysts say that is not how it would work. Prices might drop for about a month — conveniently timed with the midterm elections — and then the unintended consequences would take over.

Instead, analysts say, a ban would unwind much of the U.S. oil and refining industry, push already sky-high gasoline prices higher, and strip the rest of the world of U.S. diesel supplies they depend on — a dependence that has grown since the U.S. initiated the war in Iran and triggered the global energy crisis. Diesel costs might fall somewhat, but only in geographic pockets such as the U.S. Gulf Coast, where most of the fuel is produced.

Here is how analysts say the chain reaction would unfold. If the U.S. energy sector is forced to keep its diesel at home, a domestic glut builds and storage fills to the brim. Refineries cut operations, reducing not only diesel output but also gasoline and jet fuel, because there are no individual switches for each fuel type. Oil producers then curb drilling to avoid a domestic crude glut as refineries stop taking their barrels. The result: higher oil, gasoline, and jet fuel costs, and worse diesel prices globally — where fuel is already more expensive than in the U.S.

"If diesel exports get banned, [gasoline] prices could rise toward record levels," said Patrick De Haan, head of petroleum analysis at GasBuddy. "The U.S. is not short of diesel. The world is. A potential export ban treats the global price problem as if it was a U.S.-only problem, and the cure would be far worse than the disease."

The numbers behind the pressure are stark. The U.S. diesel average of $6.52 per gallon is a record, still climbing after first crossing the $6 threshold. California's average has reached $8.43 per gallon, with some stations reportedly maxing out retail displays at $9.999. The U.S. gasoline average of $4.47 per gallon is a post-July record high.

The crisis is a fuel problem more than an oil one. Brent crude sits just over $100 per barrel — elevated by historical standards but relatively muted compared with pump prices. The Iran war is disrupting Middle Eastern refineries, while Ukrainian drone strikes have knocked out roughly 40% of Russia's refining capacity. At least 10% of global refining capacity is offline, making the world more dependent on U.S. fuel supplies than ever.

The U.S. currently supplies about 20% of the world's diesel exports, according to the American Petroleum Institute, which is sharply opposed to a ban.

"Restricting U.S. exports would hit an already-tight market with another supply shock," said API CEO Mike Sommers. "The priority should be keeping fuel moving and refineries running, not adding new barriers."

Sommers pointed to a further API statement calling the consequences "catastrophic": "Removing that much fuel from the global market would exacerbate the very global refining crisis that is increasing prices here in the U.S. And the impacts could extend far beyond pain at the pump, to dire consequences for international supply chains, agriculture, shipping, manufacturing and the entire global economy."

Trump is focused on so-called U.S. energy dominance, and an export ban flies in the face of that, said Dan Pickering, founder of Pickering Energy Partners. "Why would you want to undermine that?" Pickering said. "What's bad for the world isn't good for the U.S."

Even Trump's own cabinet is divided. Energy Secretary Chris Wright on Wednesday agreed a ban would hurt U.S. refining and push up most fuel prices, offering potential support for voluntary restrictions or an export cap instead. A week earlier, at a G20 meeting in Houston, Interior Secretary Doug Burgum dismissed the idea, arguing it wouldn't lower prices.

De Haan warned of lasting diplomatic and commercial damage: "The U.S. spent years becoming the world's backstop for diesel supply. Telling every buyer from South America to Europe that American supply is politically conditional pushes them to diversify away from U.S. refineries and U.S. supplies, softening long-term demand for U.S. product and foregoing political leverage."

There are alternative levers. The Jones Act — the 106-year-old law requiring U.S.-built, flagged, and manned ships to move cargo between U.S. ports — limits domestic fuel movement. A waiver during the Iran war has allowed more ships to move fuel from the Gulf Coast through the Panama Canal to California, which has dealt with newly shuttered refineries. De Haan urged the White House to simply extend that waiver beyond its Nov. 15 expiration. "The Jones Act waiver is already doing a lot of work here, moving the surplus to where it's needed," he said.

Strategic reserves offer little cushion. The U.S. has drawn its Strategic Petroleum Reserve of crude down to 44-year lows during the Iran war, and it holds no strategic reserves of gasoline or diesel. Europe keeps most of its strategic reserves in refined fuel, though smaller in size, and French President Emmanuel Macron is pressing EU nations to coordinate inventories and consider releasing more reserves — pressure that Trump's threats could intensify.

The U.S. last briefly banned exports during the 1970s Arab oil embargo, when it was far less of an energy exporter. Pickering puts the odds of a ban actually happening below 50%. "It's maybe another thing that Trump talks about and doesn't do," he said — though if Trump did act, Pickering suggested he might even extend a ban to gasoline exports, deepening the global fallout.