Tim Burchett’s Export Ban Would Likely Raise Prices, Not Lower Them

The president’s tariffs have cost the average American household about $2,000. His war with Iran has pushed gasoline and diesel prices to record highs. Together, these will likely cost the republicans the House and possibly the Senate. It’s no surprise that the republicans are panicking and feel they must do something — anything. But few are willing to confront the president over the policies that created the problems in the first place. So they need someone else to blame. When it comes to fuel prices, the obvious target is the big refiners.

And so, in a strange reversal of roles, it is republicans who are eager to show voters they feel their pain, calling for a ban on diesel exports and pinning the blame on the market and not on the president, where it belongs. The president considered an export ban himself and, at last check, decided against it. Nevertheless, the idea is widely accepted by republicans including our own representative, Tim Burchett who actually introduced two bills on the matter. 

Tim (we’re on a first-name basis) and I go way back. On January 11, 2022, on the House floor he gave me recognition when the University of Georgia announced the naming of its new freshman dormitory in my honor – along with two others.    https://www.congress.gov/congressional-record/volume-168/issue-7/house-section/article/H19-1

But the congressman and I differ on some issues including this one. When he went after the oil companies, he sounded more like a liberal democrat rather than a Reagan republican accusing the major refiners of making record profits by shipping American diesel to European buyers instead of prioritizing fuel for Americans. “Price gouging by greedy oil companies is causing hardworking Americans to struggle to fill their tanks,” he said. “President Trump has already called on the Department of Justice to open an investigation into this abuse.” Sure sounds like a liberal to me. I am somewhat surprised that no one has called for a freeze on diesel prices. Now that would really make Bernie proud!

The first of Burchett’s bills would impose an outright, temporary ban on diesel exports through January 2027. The second would create an automatic trigger: if the national average price reaches $5 a gallon, overseas diesel sales would stop, and the restriction would remain until prices stay at or below $4.50 a gallon for 30 consecutive days. 

The question is whether either bill would actually lower the price of diesel. Industry experts and economists say no. In fact, the opposite could happen. Before I get to their arguments, if the congressman had asked me — and he obviously didn’t — I would have told him we already have real-world evidence of what an export ban does. Look at Russia, which has banned diesel exports due to its war with Ukraine. Its refineries cut output, and prices went up! If that happens in a tightly controlled economy like Russia’s, why do republicans think that the outcome would be different here, with output rising and prices falling? 

Much of our diesel comes from the Gulf of Mexico, is refined on the Gulf Coast and moved to other states by pipeline. States without pipeline connections on the East and West Coasts import diesel instead, because the Jones Act makes shipping it from the Gulf expensive more expensive than importing it. The president has at least temporarily suspended the Jones Act. In the North, fuel is imported from Canada.

The United States is the world’s largest producer of crude oil and exports about 4 million barrels a day. Even so, the country still imports more crude than it exports, both to meet demand and to match refinery specifications that call for “heavy” crude. About 60% of the crude processed in US refineries comes from domestic production, with the remaining 40% coming from imports. Canada supplies over 60% of crude oil imports approximately 4 to 4.7 million barrels per day via pipelines from Alberta and Western Canada. Mexico ranks second at roughly 8-10% of imports, followed by Saudi Arabia at about 7%.

I haven’t read Tim’s bills, but I wonder whether if he also calls for more imports to lower prices, which would run counter to the president’s mercantilist policies? After all, prices fall only when demand drops or supply grows. And the problem isn’t a shortage of diesel. Individual stations may run out now and then, just as they sometimes run out of a grade of gasoline, but no shortage is driving up the price of diesel fuel in the US. Diesel is expensive worldwide, largely because of Iran and, to a lesser extent, Russia. And Russia has shown that an export ban can reduce refinery output and raise prices rather than lower them.

Then there are the regions that import their diesel. We don’t have the supply chains to deliver fuel to them in volume, so they would still depend on imports, which the president’s whimsical tariff policies could make more expensive. At best, diesel prices might fall temporarily in states served by Gulf Coast pipelines, because refiners don’t have the storage to hold fuel they can no longer export. After that, expect output to drop and prices to rise.

A ban could also raise the price of the things we import. Take Mexico. It is the largest buyer of U.S. diesel, and it is also our largest supplier of agricultural produce. If the U.S. stopped exporting diesel, Mexican growers and shippers would have to buy fuel at higher prices, and those higher costs would find their way back into the food Americans buy from them.

One analysis put it this way:

“U.S. refineries do not produce only the amount of diesel Americans consume. Gulf Coast refineries in particular have been built around access to international markets. They process crude oil into a slate of products that includes gasoline, diesel, jet fuel, propane, and other petroleum products, then sell those products into the markets. S&P Global Energy CERA modeled a complete export ban from October through December. Its analysts estimated that U.S. refiners would have to absorb or eliminate about 1.48 million barrels per day of expected exports. Once commercially usable storage filled, they estimated refiners might have to cut crude processing by roughly 1.9 million barrels per day, or about 12% of total U.S. refinery throughput. That would have impacts well beyond diesel. A refinery cannot cut crude throughput by 12% and continue producing the same amount of gasoline and jet fuel. Lower refinery runs mean less production of all those products. Thus, a policy intended to reduce diesel prices could eventually tighten supplies of gasoline and jet fuel as well, putting upward pressure on those prices.”

Export markets allow the “greedy” refiners to run at high utilization rates and sell the diesel that exceeds domestic demand. Closing off those markets would quickly depress Gulf Coast refining margins, leading refiners to cut production and, in the end, pushing domestic prices even higher. That would be the real effect of Congressman Burchett’s bills. The solution is to increase the world’s supply, not reduce it. That means reopening the Gulf, something the congressman and his colleagues need to pressure the president to change the policies that caused the problem in the first place. 

Still, the bills show that the congressman is trying to do something, even if that something ends up making the situation worse. I can’t call this “unintended consequences” since the consequences in this case are well known. But these two bills, like so many of those passed by the congress end up creating more harm than good. Someone once said that the only laws that the congress tries to repeal are the laws of supply and demand. This is just another example of the truth of that axiom.