Analysts forecast diesel prices will keep driving inflation until wars end

Trump drops diesel export ban push, cites Europe release of 100 million barrels

President Trump said late Friday he is no longer seriously considering a diesel export ban, and analysts told NPR that rising diesel prices will keep driving inflation until the wars in Iran and Ukraine end. Both developments came less than a month before the November midterms.

The U.S. average diesel price hit a record $6.52 a gallon a few weeks ago, has eased a bit since, and remains about $2.60 higher than a year ago, according to AAA. Diesel powers much of the industrial supply chain, from agricultural equipment to trucks transporting goods from warehouses to grocery stores, NPR reported. Analysts told NPR the only real fix for diesel prices will be ending the wars in Iran and Ukraine.

The broader oil market has been constrained by fewer ships transiting the Strait of Hormuz, NPR reported, but the diesel supply chain has been uniquely hit. Ukrainian strikes have taken many Russian refineries offline, and Russia has throttled its own diesel exports. China has cut back as well, NPR reported.

Trump’s earlier response to high diesel prices was an executive order signed this week allowing red-dyed diesel — a fuel normally reserved for off-road farm and construction equipment — to be used on U.S. highways through the end of 2026 without the usual IRS penalty. The red color identifies the fuel as off-road-tax-exempt and helps catch highway use, said Will O’Neill, principal analyst at S&P Global Energy. Chemically, the dyed product is almost identical to the diesel sold at most filling stations; it’s a different color because it’s used, and taxed, differently. “Red-dyed diesel is diesel with red dye in it. That’s it,” O’Neill said. Using red-dyed diesel is “effectively a form of tax evasion,” O’Neill said, because drivers avoid the federal excise without being eligible for the off-road exemption. Drivers who use it on highways are subject to an IRS penalty of $1,000 or $10 per gallon, whichever is more expensive.

The order could save frequent diesel users about 60 cents a gallon by exempting them from a federal excise of 24.4 cents a gallon and, in some states, from state diesel taxes averaging about 35 cents a gallon. Technically, the order will increase the total amount of diesel that people could use. Even with the savings, drivers will still pay more than a year ago, because regular diesel is about $2.60 more expensive. The fuel is also hard to find: red-dyed diesel is not stocked at most retail gas stations, said Jaime Brito, executive director of oil markets at Dow Jones Energy. “When was the last time that you went to a pumping station and you saw that one of the stations gave you the possibility to feed red diesel into your truck?” Brito asked. Drivers would need wholesalers or rural stations to access it, he said.

Over the past month, some U.S. politicians had floated a diesel export ban as a parallel remedy. Refiners pushed back, arguing that a ban would reduce refinery throughput across the board as U.S. storage filled. Jacques Rousseau, a managing director with Clearview Energy Partners who focuses on oil, natural gas, and refined products, said the economics do not favor a ban. “Then it’ll start going into storage. And then once your storage gets filled, then you have to reduce the overall production of your refinery. So then you just start producing less of everything else too because you have nowhere to put this diesel,” Rousseau said. Ultimately, that could lead to prices for refined oil products, like gasoline and diesel, going up.

White House spokesperson Taylor Rogers said in an email to NPR that Trump wants to see prices fall and is taking “historic measures” to alleviate oil supply disruptions. The executive order said the change would put money directly into the pockets of diesel users “to support their vital service to our Nation.”

Analysts told NPR that the longer-term fix for diesel prices is not a domestic policy lever. “There’s no silver bullet,” O’Neill said. “There’s no way to snap your fingers and end up with $4 diesel before the election.” Asked under what conditions prices could fall, O’Neill said: “Barring the rapid and credible conclusion of the wars, I don’t think that happens.”