The Export Ban That Raises the Price It Was Meant to Cut

In July, Ukrainian drones had knocked out nearly half of Russia's refining capacity, and Moscow did the thing any government does when its own fuel market wobbles: it banned exports of diesel, gasoline, and jet fuel, to hold the barrels at home.

The decision was made to maintain stability in the domestic fuel market — Federal Government of Russia

The readout was foreign. The day the ban took effect, US diesel futures jumped 11.6 percent to $154.71 a barrel and European refining margins set a record at $60.17 ^[1]. The reason is not subtle. Refined fuel sits in one shared global pool, and an export ban does not hold a domestic price down — it removes barrels from that pool, which reprices it for everyone, the banning country included. Two months later the same move was pitched here, aimed at the same people, a few weeks from the midterms.

Let's not send out the diesel. — Donald Trump

The verdict on the idea arrived fast, and from every direction. Goldman Sachs ran the numbers: about 25 cents a gallon of relief at first, then net inflation after two months, because gasoline is a much bigger slice of what households actually buy than diesel is ^[2].

But gasoline accounts for a much larger share of the consumption basket, so the net impact would most likely be inflationary after two months. — Goldman Sachs Group, Inc., Research Division

Energy Secretary Christopher Wright warned a blanket ban would leave a glut of diesel on the Gulf Coast and force refineries to cut output, which spikes gasoline and jet fuel ^[3]. The oil industry said the same thing in plainer words, and inside a week the ban was gone, replaced by voluntary curbs.

I think it would be unwise for the U.S. to create questions in the minds of our allies and our partners as to whether or not we will be there with reliable supply when times are difficult — and so, there are other options. — Mike Wirth

The speed is the tell. A fix that everyone who makes, ships, and sells diesel said would raise prices was dropped within days — not because the math was in dispute, but because everyone agreed on it. Which leaves the question none of those warnings answered. The ban died and the price didn't. So when diesel re-prices, who absorbs it? The answer is the least-seen number in this whole mess. Railroad fuel surcharges on US grain more than doubled in a year, to 48 cents per rail-car-mile — now 11 percent of what it costs to move corn and soybeans, up from 5 percent ^[4]. The elevators did not eat that cost. They passed it back to the farmer as a weaker "basis" — the difference between what an elevator pays the grower and what it can sell the grain for downstream. The surcharge came straight off the grower's check. Alabama peanut and cotton growers are looking at roughly $10 million in unplanned harvest fuel costs ^[5]. The arithmetic is not complicated.

I’ve estimated that there’s about $10 million to Alabama producers from these unexpected harvest costs. And that’s only to get the crop out of the field. — Adam Rabinowitz

None of it reached the grocery shelf. And the widening repeats wherever a farm buys anything. The UK cut its farm-fuel duty to ease costs, and the pump swallowed the cut within months ^[6]. The war and the near-closure of Hormuz interrupted roughly a third of the world's urea, and China piled on with its own export curbs ^[7] — at a moment when roughly 70 percent of American farmers say they cannot afford fertilizer at all ^[8]. The FAO's food price index hit 136.0 in September, its highest level since November 2022 ^[9]. That index — the price of traded food commodities, not the price on the shelf — already carries the diesel and the freight. The fertilizer part is still ahead.

If sustained, these pressures will soon pass through to consumer food prices, especially in food and energy import-dependent countries. — Maximo Torero