President Donald Trump’s threat to stop exporting diesel is a terrible prospect for other countries that rely on the critical fuel. For Europeans, the stand-off is particularly tense, because Trump has delivered an ultimatum: dig deeper into your own reserves, or everyone will end up with less. It is not surprising that the White House wants to turn the screws on European countries. Record diesel prices in the US are becoming a political flashpoint ahead of the midterm elections in November.
Europe isn’t the only region where US diesel flows, but it is one that sits on quite sizeable stocks. In June the EU27 held 32mn tonnes of “emergency” road diesel, according to Eurostat data, as well as some commercial stocks. All told, Europe’s diesel inventories are equivalent to between two and three months of demand, Lex calculates. The Trump administration has asked for it to release 120mn barrels over six months, Reuters reported, which looks equivalent to 40 per cent of the bloc’s stockpiles.
Before acceding to this demand, the question for Europe is how credible Trump’s threat really is. Blocking diesel exports would be disruptive to the US too, because it has finite room to store the surplus that would soon result. Because of the quirks of the refining process, reducing diesel refining would mean cutting back on gasoline. Besides, some US-based industrial consumers actually import their diesel, and would have to pay the higher global price.
Even without a full ban, a US cap on exports or a tax might cut the price of domestic diesel without going as far as a full ban. Happily for Trump, Europe has reasons of its own to release more diesel. Current high prices are a political issue everywhere, and the region has weathered lower stocks. Europeans should take this threat seriously, as a sign they can no longer rely on the US being an unconditional supplier. The case for pursuing energy independence is now even stronger.
Source: Financial Times Companies · Summarized by HeadlinesBriefing