That’s why consumers are angry at its high price.
That’s why consumers are angry at its high price.
I t seems every election brings with it an issue that unexpectedly reshapes the political landscape. This year it is apparently the price at the pump, especially diesel fuel.
At a time when Green New Deal technologies such as solar and wind capture headlines, diesel is often dismissed as a smoggy, polluting remnant of the carbon age. But the energy supply crisis touched off by the Iran conflict has thrust diesel front and center as a crucial commodity that acts as the invisible lubricant of the global economy.
Diesel “is the industrial economy,” Joseph Lavorgna, the former senior counselor to Treasury Secretary Scott Bessent, told the Wall Street Journal.
That’s why it’s big news that supplies from the world’s three biggest diesel producers have either dried up or are in doubt. Wars in Ukraine and Iran have strangled global supply chains, and even the U.S., which has provided about 18 percent of the world’s refined diesel product for years, has been talking about stopping exports. Domestic price shocks in the U.S. have sent diesel prices to nearly $7 a gallon. Diesel was $3.30 per gallon in early February before the Iran conflict started. Price shocks like that act as a major tax on consumers, and they fuel headline inflation.
Patrick De Haan, the head of petroleum analysis for GasBuddy.com, noted that record diesel prices are touching “every cargo, shipment, every delivery Americans are taking.” If affordability is top of mind for voters, the price of diesel will strain family budgets so long as geopolitical tensions overseas are festering.
The cost of diesel fuel is directly linked to the price of most consumer goods. This is because a majority of the semi-trucks and trains that bring those products to the store rely on diesel. Increased costs eventually trickle down to the final consumer.
The Associated Press warned that “shoppers may feel more and more sticker shock, particularly in the grocery aisle. Perishable foods, like meat and produce, face one of the most immediate strains of expensive diesel because they need to be hauled in and restocked frequently — or may be harvested using farm equipment powered by the fuel.”
Diesel is basically a form of refined oil. It’s heavier and thicker than gasoline and appropriate for powering larger motors. In farming communities, agriculture runs on fuel-thirsty tractors and other machinery that use diesel. Steve Kuiper, head of the Iowa Corn Growers Association, said on his farm he uses about 500 gallons of diesel a day. His costs for that fuel have almost doubled in the past year — costing him hundreds of dollars more a day.
GOP Congressman Nick Begich of Alaska said high diesel prices could impact his own reelection as well as close races for U.S. Senate and governor in his state. “Many remote towns in Alaska run on diesel generators, so since you need power 24/7, you use a lot of diesel, and the price really impacts people,” he told me.
Daniel Evans, head of refining research at financial analysis firm S&P Global, said, “The timing couldn’t be worse. We’re at the point of the year where diesel demand increases by about two million barrels a day. It’s harvest season in the northern hemisphere, and people are buying heating fuels ahead of the winter.”
Republican candidates desperate to quell constituent anger are grasping for any potential lifeline that might help them make it through the midterm elections. One of them is Mike Rogers, the GOP Senate nominee in Michigan, who said the three staples of the state’s economy — agriculture, manufacturing, and tourism — are all hit hard by rising diesel costs. “The war with Iran needs to end, and quickly,” he declared in a campaign ad. In the meantime, he is calling for “a temporary embargo on diesel exports.”
At first, President Trump appeared willing to impose an export ban on the shipment of diesel fuel but pulled back from that after being shown it would disrupt markets, cripple allies during the winter, and result in higher prices in import-dependent regions of the U.S., such as the Northeast.
Energy Secretary Chris Wright said the administration “will not cease exports of US diesel, but may there be some tweak in where diesel flows out of US refineries? I think we’re going to see that because it can stop the rise in price of diesel.”
Some of the adjustments that Wright is contemplating are:
(1) Lifting limits on the sale of red-dyed diesel, a fuel that’s normally reserved for off-road use.
That could lead to a suspension of some excise taxes on diesel, including a federal rate of about 24 cents a gallon, since the dyed diesel typically used by farmers and other off-road users is tax-exempt. Farmers, truckers, and other users could then use the dyed fuel on highways tax-free.
(2) President Trump could also continue his partial suspension of the Jones Act — a 100-year-old U.S. regulation that requires that products moving between U.S. ports be transported by U.S. ships crewed by U.S. workers, adding shipping and labor costs.
Starting in February, Trump’s waiver of the act for shipments of energy products and fertilizers has helped keep prices from soaring even higher. A Massachusetts Institute of Technology study found that complete elimination of the Jones Act could reduce average East Coast diesel prices by about 80 cents a barrel.
(3) Even though the impact would not be immediate, policymakers should also accelerate permits for oil and gas development, establish firm rules for the federal leasing of public lands, and allow the construction of new pipelines.
J. Antoni, an economist with the Heritage Foundation and Unleash Prosperity, said there are ways to provide temporary and immediate relief on fuel prices by suspending gasoline and diesel taxes. “Unlike an export ban, tax relief would lower the price paid by consumers without negatively impacting supply chains,” he asserted.
“America spent years becoming the world’s go-to place to buy diesel, but an export ban would signal that we’re no longer reliable.”