Trump pulls fuel-price levers as midterm elections approach

Analysts say only ending wars can meaningfully cut fuel prices

Fuel costs have emerged as a defining political issue ahead of November’s midterm elections, with polls showing a majority of Americans disapprove of Trump’s handling of the economy and the war with Iran, according to BBC reporting. Trump has announced a series of measures aimed at reducing prices — including allowing tax-free red-dye diesel on US highways, imploring states to cut state gasoline taxes, and securing a G7 agreement to release strategic reserves.

The price of oil has remained above $100 a barrel even as crude flow through the Strait of Hormuz has nearly returned to pre-war levels. Global oil supplies have been restricted since the conflict in the Middle East effectively halted the usual flow of oil and refined products through the strait for months. Sustained high oil prices have had a knock-on effect for diesel and gasoline.

David Ruisard, pricing manager for the commodities intelligence firm Argus, estimated that the rise in diesel prices — from about $3 a gallon to about $6 a gallon — reflects the combined effect of two conflicts. “Our estimates are that your price increase from about $3 a gallon up to $6 a gallon [for diesel] is 60% connected to the Strait of Hormuz, 40% connected to the Russia-Ukraine conflict,” he said.

Michael Pearce, chief US economist at Oxford Economics, said higher energy prices have driven most of this year’s uptick in inflation, which in turn is pushing up interest rates. “The combined impact of higher rates and higher energy prices is squeezing household budgets and adding to firms’ costs,” he said.

Patrick De Haan, head of petroleum analysis for the fuel price tracking website GasBuddy, said both gasoline and diesel prices have nonetheless shown modest declines recently. “A lot of that is likely due to some of the manoeuvres that we’ve seen the Trump administration employ over the last couple of weeks,” he said.

At a campaign stop this week, Trump announced he would allow so-called red-dye diesel — fuel ordinarily used off-road and exempt from federal taxes — to be used on US highways without federal levies. Ruisard said the only difference between the two products is the dye itself. “The problem with that red dye is, it’s extremely hard to clean it out of your tank,” he said. “The fines are pretty high for having that in your fuel tank because its considered tax evasion.” He noted that trucking companies that use dyed diesel would face tax-evasion exposure once the temporary relief ends.

Ruisard added that expanding the use of red-dye diesel could deplete supplies ordinarily reserved for off-road users, including rail operators. “If suddenly people go out and they start consuming that diesel, that depletes their available supply as well,” he said.

A separate move has produced more measurable results. Last week, the G7 announced it would release 100 million barrels of oil and diesel from stockpiles to ease supply concerns, following pressure from Trump. De Haan said the announcement itself — regardless of how much has been released — “has worked to push prices down to some degree.” Pearce agreed but warned the release is only a temporary solution. “As long as energy exports from the Gulf remain disrupted, stocks will need to be drained further to supply the market,” he said. “And the need to refill those stocks will mean energy prices remain elevated for a period, even when disruption in the Middle East clears.”

Earlier this week, Trump said he was “thinking about” suspending the federal tax on gasoline. De Haan said the president has also been imploring states to cut state taxes on gasoline, with Ohio and Georgia among those that have done so. State taxes form a “moderate portion” of what consumers pay at the pump, De Haan said, and those reductions have helped lower national averages.

Suspending or reducing the federal levy on gasoline would require congressional cooperation. “That may be difficult to obtain ahead of the midterm elections,” De Haan said. The cost is also substantial: De Haan estimated that Indiana’s May gasoline-tax cut has cost the state government $1bn (£760m) in lost revenue.

Trump has previously backed calls for a ban on US diesel exports. Pearce said the policy would provide partial relief in the Gulf and Midwest but be of “little benefit” to the Northeast and West Coast. “The policy risks backfiring because it would result in stockpiling of diesel, and as that storage runs out, refineries would need to cut back on production,” Pearce said. “That would raise prices of other energy products, including gasoline.”

De Haan said Trump has “basically pulled all of the small levers that a president can pull, and we’re still seeing prices very elevated.” Only meaningful resolution of the underlying conflicts will produce sustained relief, he said. “The only way out of this to reduce gas prices in a meaningful way is solve one or both of the geopolitical tensions that are causing high prices,” he said.

That means reaching a deal with Iran and helping facilitate an agreement between Ukraine and Russia — which, Pearce said, are issues that cannot be directly controlled by the White House.

Ruisard added that even if those conflicts are resolved, damage to Middle Eastern facilities caused by military strikes means production will take four to six months to return to normal. “The message to consumers and industry is that regardless of what happens and whether the president is able to successfully negotiate that kind of a deal,” he said, “high prices are here to stay for a little while at least.”