Update: since this was written, the White House has denied it is preparing a 90-day ban, and Energy Secretary Chris Wright says nobody is considering a flat ban. But Trump and Bessent have both said restrictions are being looked at, and the economics below apply just as much to a partial ban.
US diesel has hit a record $6.53 a gallon, up nearly $3 in a year. It’s feeding inflation, pushing bond yields to their highest since 2007, and alarming Republicans six weeks before the midterms. As a result, the White House has been considering a ban on diesel exports. The logic is simple: keep American diesel at home, and prices will fall.
But the market has already given its verdict. When a 90-day ban was reported, US diesel margins fell $12.70 a barrel, as intended. But gasoline margins rose $2. And when Trump first backed the idea, European diesel futures jumped 7% to over $200 a barrel.
The world is short of diesel
Normally around 95% of the world’s refining capacity is available. Today it’s just 89.6%, the lowest on record. With Hormuz mostly closed since February, Gulf refiners can’t get their fuel out, and China, Japan and South Korea have cut exports as their crude supplies dried up. At the same time, Ukrainian drones have been hitting Russian refineries, and Russia normally supplies one in nine barrels of the world’s diesel.
A US export ban would take another 1.6 million barrels a day away from the rest of the world, pushing effective capacity down to about 88%. So it’s no surprise diesel has risen much faster than crude. European diesel futures are around $200 a barrel, compared with about $103 for Brent crude.
The US isn’t short of diesel
The US isn’t short of diesel; the world is. The US produces about 5.3 million barrels a day and uses 3.6 million. The rest is exported. US diesel exports hit a record 1.6 million barrels a day in August, and the US share of world seaborne trade has risen from 12% to 20%.
US refiners are making their highest margins since 2022, and near-record profits. In the week to 11 September, the margin was $108 a barrel, compared with a median of $32 a barrel between 2023 and 2025 (based on EIA spot prices for New York Harbor diesel and WTI crude). In just 90 days, US refiners took in $25 billion from diesel exports.
Why diesel matters for inflation
Diesel matters because it moves almost everything: food, freight and the goods in every shop. In September, US firms reported their input costs rising at the fastest pace in four years, driven by fuel and transport. The Fed has already raised rates, and on 23 September the 10-year Treasury yield hit 5.1%, its highest since 2007.
In the US, diesel prices hit farmers and truckers hardest, as they rely on diesel for tractors and lorries. The logic of an export ban is that in the short term it would push down prices around the Gulf Coast. US refiners would have 1.6 million barrels a day they could no longer export, which would push down diesel prices, especially in southern and Midwest states. However, it could push up prices in California and the West Coast, which import diesel by sea.
How a ban would backfire
Some states would see a temporary fall in prices, but the ban would have unexpected side effects. If US refiners have 1.6 million barrels a day of diesel they can’t export, they are likely to respond by putting less crude oil through their refineries. Diesel is the most profitable part of a barrel of crude, so rather than build up diesel stocks they can’t sell, they will refine less crude.
But if refiners cut runs, you automatically get less gasoline and jet fuel. Ironically, an effort to reduce diesel prices could push up gasoline and jet fuel prices. US gasoline stocks are already below their five-year range for this time of year, so any cut in refinery runs would push gasoline prices higher. Estimates suggest gasoline output could fall by up to 750,000 barrels a day, meaning the US would become a net importer of gasoline.
The impact on Europe and the UK
The impact would be even greater outside the US. Taking 1.5 million barrels a day out of the 8 million traded by sea removes a fifth of all seaborne diesel. FGE’s Eugene Lindell says that, in theory, this could push prices towards $350 a barrel.
A lot of the pain would land in Europe and the UK. Europe imported 16 million barrels of US diesel in August. The UK imports about 240,000 barrels a day, around a third of it from the US. In the past month, UK petrol and diesel prices have both risen, but again it is diesel that has gone up the most. The UK diesel premium over petrol is already back up to 24p a litre, and a US ban would push it higher.
The UK used to import diesel from Russia and the Middle East, but switched to the US. If the US stops exporting, the UK will have lost its third main supplier in three years. It makes the commercial decision to close refineries like Grangemouth look short-sighted.
Argus Media, quoted in the FT, argues that Europe still has strategic stocks and won’t face a physical shortage of diesel, just higher prices. The problem is that Europe and Brazil both import US diesel, so there would be a bidding war for the diesel left on the market. Replacing suppliers from around the world is expensive and takes time.
No quick fix
In the short term, there is no easy way to increase the supply of diesel. Releasing more crude oil doesn’t solve the problem. It takes years of investment to build new refineries, and oil companies don’t want to spend the money when the world is shifting away from fossil fuels in the long term.
As global diesel prices rise, the effects would rebound on the US economy. Higher diesel prices push up global inflation and bond yields, raise the cost of US imports, and could lead to retaliation from countries whose firms have long-term contracts with US refiners.
Export bans have long-term consequences
Back in 1973, Nixon imposed a soybean export embargo to try to fight US inflation. It pushed Japan to fund soybean farming in Brazil, creating a major rival that US farmers lost out to in the long term. Carter’s 1980 grain embargo on the Soviet Union sent buyers to Argentina and Canada.
The point is that export bans tend to have long-term consequences. A diesel export ban would encourage buyers in Brazil and Europe to diversify away from US supply. It may also hasten the switch to electric vehicles and renewable energy.
A compromise is more likely
US oil companies are so worried that they wrote a letter urging the president to reject a ban. The final policy may end up being a small quota of around 200,000 barrels a day, roughly the amount the US imports, so the effects may not be as bad as the worst-case scenario.
Ironically, the best fix already exists. A waiver of the 1920 Jones Act has let foreign tankers carry record amounts of Gulf Coast diesel to the East Coast since March. But it expires on 15 November, just as the heating oil season begins.
Why the length of the shock matters
The world is already short of diesel, and anything that gives refiners an incentive to cut runs will only increase the pressure on global energy prices. And rising diesel prices really do matter.
In the past few days, crude oil has come down in price a little. But it isn’t just about the price of crude. A more important factor is how long oil and diesel prices stay high. A spike that lasts a month will have little lasting effect on inflation. But as the months pass and energy prices stay well above pre-war levels, firms increasingly pass their costs on to consumers. Then there is pressure for higher wages, and we start to get a cycle of higher inflation.
This is the concern in bond markets at the moment. The price rises are moving from a temporary shock to something longer-lasting, which will push up not just fuel prices but prices across the economy. That means higher interest rates.
Conclusion
A diesel export ban would put downward pressure on diesel prices in some US states, but the relief would probably be short-lived, and it doesn’t solve the fundamental problem of disrupted supply from Russia and the Middle East. By reducing the global supply of diesel, a US export ban is likely to be counter-productive in the long run.
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