Diesel Price Surge Fuels GOP Attacks Ahead of Midterms

Record-high diesel prices, driven by escalating conflict in the Middle East, are rattling Republican candidates as the midterm elections approach and prompting calls for potentially drastic measures. The surge in diesel costs, which impacts everything from agriculture to transportation, is being leveraged by Democrats to highlight economic anxieties and the costs of overseas conflicts.

Diesel fuel, essential for powering much of the U.S. economy, has seen its price climb significantly. On Wednesday, a gallon of diesel cost $6.52, a 73% increase from $3.77 before the conflict in the Middle East intensified, according to AAA. This rise affects not only those who drive diesel vehicles but also consumers through increased costs for goods, as diesel powers the trucks that transport them and generators that produce electricity.

Republican candidates in key agricultural states like Iowa and Michigan have proposed halting U.S. diesel exports to bolster domestic supply. Former President Donald Trump has indicated support for such a measure. However, U.S. Energy Secretary Chris Wright stated that a "blanket ban" on exports is not under consideration, though other options are being explored to lower prices.

"The price of diesel touches everything in our economy that needs to move," said Joseph Brusuelas, chief economist for RSM. "That includes the thing we buy the most of, groceries."

Democratic candidates are seizing on the issue, linking the rising costs to the ongoing conflict and the broader economic concerns of voters. Adam Hamilton, a Democratic Senate candidate in Kansas, noted that farmers are struggling to make ends meet due to higher diesel prices. Elaine Luria, a Democrat running for a House seat in Virginia, also cited the elevated cost of diesel as evidence of an expanding economic crisis stemming from the conflict.

Republican Rep. Ashley Hinson of Iowa has called for an immediate cessation of hostilities and a ban on overseas diesel sales, arguing that Iowans should not bear the cost of the conflict. Senate Majority Leader John Thune has expressed openness to the idea, and Senator Chuck Grassley has become a vocal proponent, drawing parallels to export controls on computer technology.

Despite these calls, economists and industry groups warn that banning diesel exports could have unintended negative consequences. The American Petroleum Institute cautioned that such a ban could actually lead to higher prices for Americans. According to S&P Global Energy, U.S. refineries could face a surplus of diesel if exports are halted, potentially forcing them to reduce production. This reduction would impact the supply of other refined products like gasoline and jet fuel, driving up their prices as well.

"That will result in Americans taking a one-two punch for food and fuel prices that just don't stop," Brusuelas said.

The current diesel price surge is attributed to a confluence of factors. The Middle East conflict has disrupted the supply of crude oil used for refining diesel, a region disproportionately contributing to global diesel production. The closure of the Strait of Hormuz during the conflict removed a significant portion of global oil from the market. Additionally, attacks by Ukraine on Russian refineries have further reduced the daily supply of diesel by an estimated 800,000 to 1 million barrels, according to S&P Global Energy.

William Stern, CEO of a small business lender in San Diego, noted that the rapid increase in diesel prices over the past two weeks has caught many businesses off guard, leading to a spike in loan requests. "The last few months eroded everyone's cushion, but the last few weeks? Diesel went from under $6/gallon to over $6.53. Again, that was just in the last two weeks. You tell me what business, small or even large, budgeted for that," Stern wrote in an email.

Energy economists warn that a U.S. export ban could disrupt global supply chains and potentially increase the likelihood of a global recession. Phil Verleger, an energy economist, suggested that while an export ban might temporarily lower prices, it could damage the U.S. fossil fuel industry's long-term reliability as a global supplier, drawing parallels to the 1973 soybean export ban that led countries to shift their sourcing to Brazil.