How a diesel ban could burn US credibility
· Yahoo NewsPresident Donald Trump's threat to curtail diesel shipments abroad comes with a risk: the perception that he's reneging on his promise to shower the world with U.S. fuels.
That move would inflame tensions between the U.S. and Europe while jeopardizing American credibility as a trading partner, energy experts and administration allies said. And it could compel nations to seek other suppliers, limiting Trump's ability to wield energy as a negotiating tool in the future, they added.
"This is going to damage our reputation," said an external adviser to the Trump administration, who was granted anonymity to discuss private conversations. "The whole premise of energy dominance was that the United States would be able to supply our allies around the world. Curtailing that is going to raise question marks."
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Plans to limit U.S. diesel exports are under discussion at the White House as the fuel's price soars because of oil supply disruptions stemming from the Iran war. The Trump administration is considering different options, from a full-scale 90-day export ban to incremental limits on outbound diesel. The idea is fiercely opposed by the oil and gas industry over worries that it could make them less competitive in overseas markets.
The effort to corral fuel prices comes less than six weeks ahead of midterm elections that threaten strip control of Congress from Republicans — and break Trump's unfettered influence over the Legislative branch.
A White House official said Trump is evaluating all his options to lower diesel prices, which have soared from $3.74 a gallon to $6.52 over the past year.
The European Union has increased U.S. diesel imports to record levels because of the Iran war, with imports rising by 1.5 million barrels a day in August, a 50% increase since the conflict began in February, said David Jorbenaze, a senior oil analyst at commodities intelligence firm ICIS.
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According to S&P Global Energy, U.S. diesel now accounts for 10% of the continent's consumption.
Finding replacement supply would be extremely difficult, with refineries around the world already operating at maximum capacity, Jorbenaze said.
"Removing that source would pull away the leg Europe has been leaning on hardest," he said, adding that a ban would result in increased global competition for cargoes from a "shrinking pool" of suppliers, a drop in output of other crude products, and higher prices across the board.
The logical endpoint is demand destruction, according to Debnil Chowdhury, a senior fuel analyst at S&P Global Energy, with the cost falling on consumers to preserve fuel for agriculture and industry. "Europe will have to drive less; Europe will have to fly less," he said.
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It could also bring political blowback for the U.S., said Landon Derentz, vice president of energy and infrastructure at the Atlantic Council.
"Not too many people are connecting the dots here — this is one more element of concern with international partners about the reliability of U.S. supply," said Derentz, who worked on energy security policy in the Obama, Trump and Biden administrations. "You can't avoid some level of this leading into the broader aspects of further investment into the U.S. energy sector."
However, there are already signs that Europeans' trust in the U.S. is beginning to fray.
"If they're not listening to their own people, why would they listen to us?" said one Eastern European energy official who was granted anonymity to describe internal discussions, referencing the U.S. oil industry's pushback against the ban.
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The official argued that outreach through official channels was fruitless thanks to a broader diplomatic breakdown.
"With this administration, official channels tend to be a slow waste of time," the official said. "And yet that's exactly why official channels are supposed to work. If everyone tries to get in through the back door, the back door becomes the front door."
Another official from a mid-sized European country said the government was caught off guard by reports of a 90-day ban and was now scrambling to understand the risks — highlighting the country's growing awareness of the dangers it faces from depending on U.S. imports.
"Nobody has really done any … risk analysis for [scenarios that last more] than two weeks," the official said.
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Other countries say the diesel issue is emphasizing the risks of being reliant on the U.S. as a fuel provider.
"We have a huge dependency on the United States — we have to do everything to become more independent," Austrian Industry and Economy Minister Wolfgang Hattmannsdorfer said at a press conference on Thursday, in response to a question from POLITICO.
He said it was a sign that Europe needs to deepen its engagement with other exporting countries like Libya, Nigeria and Kazakhstan, while boosting its own output.
Others said if the U.S. curtails diesel shipments, it could undermine trust in American energy markets by continuing a trend of scattershot export policies, such as former President Joe Biden's pause of new liquefied natural gas terminals.
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The U.S. advantage with global buyers is that private companies execute deals, said Ben Cahill, director for energy markets and policy at the Center for Energy and Environmental Systems Analysis at the University of Texas at Austin. Trump meddling in private sector markets would be akin to the risks of dealing with state-run companies beholden to political leaders, he said.
"An action like this would definitely undermine the reputation of the United States as a reliable exporter and trade partner," he said.