In late September I filled up the car. Here in Germany diesel was €2.60 a liter. About ten euros a gallon. Around eleven and a half dollars. That is what this fuel squeeze looks like at the pump.
The US midterms are in November. Nobody wins an election with expensive fuel at the pump. And Washington has one lever it thinks can work fast. Keep American diesel at home. An export ban could pull the price down in the US at first.
It also pulls the floor out from under everyone who was buying that diesel. The barrels don’t disappear. They just stop leaving. Prices in the rest of the world go the other way. On September 22, in New York, the President of the United States said this about American diesel.
“I’ve said let’s not send out the diesel. We make a lot of diesel. I’ve called for it. I’ve called for it within my people.”
Most of Europe scrolled past it. Washington did not. Chuck Grassley, senator from Iowa, on X on September 20.
"If our government can embargo chips to China, it can embargo diesel to help American farmers and truckers."
By September 22 he was saying it on the Senate floor. John Thune, the Senate Majority Leader.
“If we have the supply in this country and we’re exporting it right now, that might be one way of getting at it.”
And Scott Bessent, the Treasury Secretary, standing next to Trump.
“We’re examining that, whether it’s feasible in terms of the overall refining capacity and whether a full or a partial ban would work.”
That is the party of free trade, six weeks before an election, with farm diesel above six dollars in the middle of harvest.
Yes, the other side exists. On September 23, Energy Secretary Chris Wright said the US would not stop diesel exports. The White House also called the report of a 90 day ban “not true.” But on the rumor alone, American diesel futures fell more than 6% and European diesel futures rose as much as 7%. Same day. The market already knows which side of the Atlantic pays for this.
I hope they do not do it. But this is a world where a president says “let’s not send out the diesel” at the UN and the market moves 7%, so who knows.
The world burns roughly 27 million barrels of diesel a day. Almost all of it stays in the country that refined it. Only about seven million barrels a day are traded by sea, and those seven million set the price for everyone.
Russia used to supply about 800,000 barrels a day. Refinery attacks and export restrictions have sharply reduced that flow. The United States used to supply about 1.3 million. In August it shipped a record 1.6 million a day. India supplied about 60% of the 200,000 barrels a day that crossed Bab el Mandeb toward Europe in August. India is also a target of American pressure on countries refining Russian crude.
And Europe? The EU depends on imports for nearly all its crude, arriving by ship and pipeline. So take the seven million barrels traded by sea. Cut Russia. Threaten India. Now restrict the largest supplier of all. The market can still clear. At a price that forces somebody to drive less, haul less or shut down.
Brent is around $100, and that is only half the crisis. Diesel has nearly doubled since the war began while crude is up about 45%. In mid September American diesel reached about $220 a barrel.
That gap exists because crude is only the beginning. Somebody still has to refine it. Refining can be a terrible business for years, and when margins finally get fat, politicians call you a profiteer and threaten to take your exports away. Europe has been closing refineries. The ones left cannot run harder forever. Exxon’s Joliet refinery in Illinois went dark in September because a pump flooded.
When a refinery stops, it buys less crude and produces less fuel. That puts pressure on crude and tightens diesel supply. Oil in a tank does not move a truck until somebody turns it into fuel.
That is why an American ban can make things worse. S&P Global ran the numbers for a full ban. Trap the diesel at home and the storage tanks fill up. Refiners could cut crude runs by nearly two million barrels a day. Then they also make less gasoline and jet fuel, putting pressure on those prices. The bill does not stop at the American border.
If Washington restricts diesel exports, the first move could be cheaper diesel at home and dearer diesel abroad. After that, refiners adjust. Europe, Australia and Latin America would be fighting over fewer available barrels. That raises the cost of moving food and freight. Push it far enough and demand breaks. That is how a fuel shock can feed a recession.
This is a stress test. Not of the world. Of my portfolio.
To be clear, this is the dark scenario, not my forecast. I am running it because a stress test with a mild recession tells you nothing. If the companies survive this version, they survive the real one.
I own two coal miners, one offshore driller, a shoe company and a car dealer. Below the line I run each of them through a recession.
