KUTTNER ON TAP

The political economy of diesel

Trump is trying every possible short-term trick to cut diesel prices. None of it will work; he might as well command the tide to recede.

As much as any other factor, the disproportionately high price of diesel is killing President Trump’s political support and by extension that of other Republicans. This particularly threatens Republicans in the Midwest, where farmers rely on diesel for tractors and harvesting, with close Senate races in Ohio, Iowa, Kansas, and Nebraska.

Since home heating oil is a variant of diesel, the high and rising prices also whack New England, a heavy heating oil user, with two very close Senate races in chilly Maine and New Hampshire. In Maine last night, Democrat Troy Jackson did a lot better than expected in the first of four debates against Republican incumbent Susan Collins, who ineptly tried to blame “Augusta,” the state capital where Jackson was state Senate president, for high prices made in Trump’s Washington.

Vehicles used in construction also rely almost entirely on diesel, increasing those costs. High diesel prices are killing Trump and other Republicans with truck drivers, a demographic that was often supportive of Trump in elections past. A trucker with an 18-wheeler now pays just under $1,000 to fill a 150-gallon tank, compared to about $500 a year ago.

High diesel costs cycle into all consumer goods moved by truck. In general, it is laughable for Republicans to embrace the theme of affordability when the price of something this basic is going through the roof due to Republican war policies.

Diesel now retails for about $6.30 a gallon, compared to $4.37 for regular gasoline. Since the Iran war began, retail diesel prices increased by about 70 percent, compared to around 40 percent for gas. Since both are distilled from crude oil, why the disproportionate rise in diesel?

There are four basic explanations, all rooted in the Iran war. While we think of the Middle East as exporting mainly crude oil, in fact the Persian Gulf states have built lots of refinery capacity. Middle East refining capacity now stands at 13 million barrels per day, not far below the U.S. capacity of 18 million barrels. These exports of refined product are disproportionately diesel, since oil pumped in the Mideast tends to be heavier than U.S. crude oil. But the Iran war has drastically cut Mideast exports, including retaliatory attacks by Houthis on Saudi facilities.

Second, U.S. refining capacity is running at almost 100 percent, so there is little ability to shift from gasoline to produce more diesel. U.S. oil companies have not built a new refinery in three decades.