Trump's Fuel Gamble: Red Diesel, Stockpile Releases and the Limits of Presidential Power

Petrol and diesel prices in the United States have more than doubled since the US-Israel conflict with Iran began in February, a surge that has hit transport businesses, farmers and ordinary motorists alike. With critical midterm elections fast approaching, calls for action have grown louder, and President Donald Trump has responded with a flurry of comments and announcements aimed at bringing costs down. The question now is what he can realistically achieve in the few weeks remaining before election day – and whether any of it will work.

Trump's announcement of a waiver on the use of red dye diesel at a campaign stop this week underscored just how central fuel prices have become to a midterm election dominated by affordability. Public concern over the rising cost of fuel, food and other goods is widespread, and voters have tied the issue directly to Trump and his party, weighing down Republican candidates ahead of November. Polls show a majority of Americans disapprove of the president's handling of both the economy and the war in Iran, which has contributed to elevated diesel and petrol prices across the country.

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 of Hormuz for months. While the flow of crude has nearly returned to pre-war levels, the price remains above $100 a barrel, and sustained high oil prices have had a knock-on effect on diesel and gasoline. David Ruisard, pricing manager for commodities intelligence firm Argus, notes that the ongoing Russian war with Ukraine has compounded the problem. "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 says. Those higher energy prices are responsible for most of the uptick in inflation this year, according to Oxford Economics chief US economist Michael Pearce, 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 says.

While prices remain high, Patrick De Haan, head of petroleum analysis for fuel price tracking website GasBuddy, said there have been modest declines recently for both gasoline and diesel. "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.

The president announced this week that he would allow so-called red dye diesel – fuel used off-road that does not face federal taxes – to be used on US highways without facing federal levies. Ruisard said the only difference between the diesel used by truck drivers and everyday consumers and the tax-free red dye diesel is the dye itself. "The problem with that red dye is, it's extremely hard to clean it out of your tank," he explained. The difficulty arises once the temporary tax relief ends for trucking companies that have used the dyed fuel. "The fines are pretty high for having that in your fuel tank because it's considered tax evasion." A further issue with expanding the use of red dye diesel, according to Ruisard, is that people and businesses – including rail operators – usually set aside a particular amount of the product. "If suddenly people go out and they start consuming that diesel, that depletes their available supply as well," he said.

Another move from Trump has been more successful, according to analysts. Last week, the G7 countries announced they would release 100 million barrels of oil and diesel from stockpiles to ease supply concerns, following pressure from Trump to do so. De Haan says the announcement itself – regardless of how much has been released so far – "has worked to push prices down to some degree". Economist 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 federal tax on gasoline. De Haan said the president has also been imploring states to cut state taxes on gasoline, and several have done so, including Ohio and Georgia. State taxes form a "moderate portion" of what consumers pay at the pump, and those reductions have helped reduce prices and national averages, he said. However, suspending or reducing the federal levy on gasoline would require the cooperation of Congress. "That may be difficult to obtain ahead of the midterm elections," said De Haan. It is also a costly measure. De Haan estimated that in Indiana, which cut its tax on gasoline in May, it has cost the state government $1bn (£760m) in lost revenue.

Trump has also previously supported calls for a ban on diesel exports from the US. While that would provide partial relief in the Gulf and Midwest, according to Pearce, he adds it would 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," he said. "That would raise prices of other energy products, including gasoline."

De Haan believes the president has "basically pulled all of the small levers that a president can pull, and we're still seeing prices very elevated". "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 – issues that, Pearce said, cannot be directly controlled by the White House. Even if those conflicts are resolved, Ruisard said that due to damage to facilities in the Middle East caused by military strikes, it would still take production 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."