Trump's red dye diesel waiver tests executive power limits

President Donald Trump’s red dye diesel waiver, announced at a campaign stop this week, is the latest test of how far executive authority can stretch in the drive to bring down fuel prices that have more than doubled since the US-Israel conflict with Iran began in February.

The waiver allows so-called red dye diesel, a fuel used off-road and normally exempt from federal taxes, to be used on US highways without facing federal levies. The move underscores how central fuel prices have become in an election dominated by affordability concerns, with voters tying the cost of fuel, food and other goods to the president and his party ahead of November’s midterms.

But the waiver carries compliance complications. David Ruisard, pricing manager at commodities intelligence firm Argus, noted that the only difference between the diesel used by truck drivers and everyday consumers and the tax-free red dye diesel is the dye itself, which is extremely hard to clean out of a tank. That creates a problem for trucking companies once the temporary tax relief ends: fines for having the dyed fuel in a tank are high, because it is considered tax evasion. Ruisard also flagged a supply concern, explaining that people and businesses, including rail operators, usually set aside a particular amount of the product, and sudden consumption would deplete available supply.

The political pressure on the White House is considerable. Polls show a majority of Americans disapprove of Trump’s handling of both the economy and the war in Iran, which has contributed to elevated fuel prices, and that disapproval is weighing on Republicans running in November. Against that backdrop, the president has made several comments and announcements intended to get costs down, though analysts question how much any administration can achieve in the few weeks remaining before election day.

A more successful lever, according to analysts, has been diplomatic pressure. 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. Patrick De Haan, head of petroleum analysis at fuel price tracking website GasBuddy, said the announcement itself, regardless of how much has been released so far, has worked to push prices down to some degree. He added that modest recent declines in both gasoline and diesel prices are likely due in part to the manoeuvres the Trump administration has employed over the last couple of weeks.

Economist Michael Pearce, chief US economist at Oxford Economics, agreed the release has helped but warned it is only a temporary solution. As long as energy exports from the Gulf remain disrupted, he said, stocks will need to be drained further to supply the market, and the need to refill those stocks will mean energy prices remain elevated for a period even when disruption in the Middle East clears.

Meanwhile, the structural cause of the price spike sits largely beyond executive action. Global oil supplies have been restricted since the conflict effectively halted the usual flow of oil and refined products through the Strait of Hormuz for months. While the flow of crude is nearly back to pre-war levels, the price remains above $100 a barrel, and sustained high oil prices have had a knock-on effect for diesel and gasoline. Ruisard estimates that the increase in diesel from about $3 a gallon to $6 a gallon is 60 percent connected to the Strait of Hormuz and 40 percent connected to the Russia-Ukraine conflict, which has also impacted oil supplies. Pearce said higher energy prices are responsible for most of the uptick in inflation this year, pushing up interest rates, with the combined impact squeezing household budgets and adding to firms’ costs.

Other proposals face institutional hurdles. Trump said earlier this week he was “thinking about” suspending the federal tax on gasoline, but such a move would require the cooperation of Congress, which De Haan said may be difficult to obtain ahead of the midterms. Suspending or reducing fuel taxes is also costly: De Haan estimated that Indiana, which cut its gasoline tax in May, has lost $1bn (£760m) in revenue. State tax cuts, which the president has implored governors to enact and which several states including Ohio and Georgia have done, form a moderate portion of pump prices and have helped reduce national averages.

Trump has also previously supported calls for a ban on diesel exports from the US. Pearce said that would provide partial relief in the Gulf and Midwest but be of little benefit to the Northeast and West Coast, and risks backfiring by encouraging stockpiling, which as storage runs out would force refineries to cut production and 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 meaningful way out, he said, is to resolve one or both of the geopolitical tensions causing high prices, meaning a deal with Iran and a facilitated agreement between Ukraine and Russia, issues that Pearce noted cannot be directly controlled by the White House. Even then, Ruisard said, damage to facilities in the Middle East caused by military strikes means production would take four to six months to return to normal. His message to consumers and industry: high prices are here to stay for a little while at least.