With rising diesel fuel prices threatening the profitability of agriculture, transportation, construction, and other heavy industries, there’s been a lot of political talk about banning diesel exports. But Energy Secretary Chris Wright explained that an export ban won’t work. He said, “The blunt tool of banning diesel exports definitely doesn’t work.”
Wright was discussing the issue at an event hosted by The Economist magazine. He continued, “If you can’t export the diesel that comes out of our refineries, you run out of places to store it, and you have to reduce US refining, which would put upward pressure on gasoline prices and jet fuel prices.”
The problem facing many industries, including agriculture, is that higher diesel prices will eat into profit margins so much that they no longer exist. But even farm-focused economists are warning against a diesel export ban. Dr. Greg Ibendahl, an Associate Professor at Kansas State University’s Department of Agricultural Economics, explains that a diesel export ban would mean “cheaper diesel within a month, and a refining problem by Christmas.” He continues on his Substack:
A ban would work, for about two months. Retail diesel would fall roughly 50 cents per gallon within a month and about a dollar by week eight, measured against where prices would otherwise have been.
Then it stops working. The mechanism that delivers the cut — barrels piling up in domestic storage — runs out of tanks in seven weeks. Holding inventories at that ceiling requires cutting U.S. crude runs by 32 percent, and that takes gasoline down with the diesel. The diesel decline flattens at that point and gasoline starts climbing.
Government actions, mandates, and restrictions on market activity rarely happen without side effects. The diesel price spike itself is the result of the war with Iran, another government action.
Action Line: The long-term solution to the diesel price spike is a resolution of the war with Iran and a resolution of the war between Russia and Ukraine. As Energy Secretary Wright explains, making bad choices in the short term may make things worse before they get better. Click here to subscribe to my free monthly Survive & Thrive letter.
