Calls Grow for a U.S. Diesel Export Ban - But Economists Express Caution

As fuel prices continue to rise amidst the ongoing Hormuz crisis, and the U.S. midterm election approaches, the idea of a diesel fuel export ban is gaining currency on the campaign trail - especially in farming states in the Midwest, where diesel pricing is a hot-button issue. Energy analysts say that an export ban would likely suppress diesel prices for a short period in refining regions of the South and Midwest, though the knock-on effects for the nation and for global energy markets could be significant.

"Place a temporary embargo on diesel exports. American energy should provide relief to American families first," argued Mike Rogers, the Republican candidate for a closely-contested Michigan senate seat, in a campaign ad aired Monday.

"We need to use every option at our disposal to provide some relief from high prices," said Rep. Ashley Hinson (R-IA) in a social media statement Monday. She called for "pausing diesel exports" and "creating a diesel relief program" for truckers and farmers.

"Why doesn't President Trump put an embargo on diesel exports like presidents in the 1970s put embargoes on ag products," added Sen. Chuck Grassley (R-IA). He was echoed shortly after by Rep. Zach Nunn (R-IA), who called for a plan to "sell American energy to Americans first."

Last week, Senate Majority Leader John Thune (R-SD) said that he was "open to considering" a diesel export ban.

While there are calls for a ban from the campaign trail, the consumer benefits would be short-term and geographically uneven, according to Bob McNally of Rapidan Energy Group, speaking to Bloomberg on Monday.

"You would have an abrupt collapse in prices in Texas, Louisiana, maybe the Upper Midwest. . . . But then refiners would reduce runs and prices would rise again," said McNally. "Prices for diesel abroad would skyrocket, and since the northeast of the United States and the West Coast of the United States price their diesel off of imports, coastal prices would likely rise, not fall." (The West Coast does not have pipeline access to Gulf Coast products, nor sufficient refinery capacity of its own.)

If refiners cut runs to deal with excess diesel production, output of gasoline, jet fuel and bunker fuel would also decline, analyst Andy Lipow of Lipow Oil Associates told the Wall Street Journal.

Rapidan maintains a 35% risk probability that a diesel export ban gets enacted, even though McNally says that such a restriction could have longer-term effects on investor confidence.

If actualized, an export ban would add to a growing list: Russia, one of the world's leading distillate exporters, has a ban in place on diesel sales because of Ukrainian attacks on its energy industry; Mideast distillate exports are constrained by war and infrastructure damage; and China could choose to restrict exports again as its inventories decline.