Everything is politics, and after blaming the previous administration for higher fuel prices, the current one is struggling to explain why the massive increase in the cost of diesel fuel isn’t their fault, and doing so on the eve of an important midterm election. The solution being floated is a temporary diesel ban, which would probably lower the cost of the fuel for a while for some people, but at what cost?
The Morning Dump this morning will shed its usual hopefulness temporarily as I pause to consider what could happen if the pursuit of a short fix leads to long term problems. Not that it would be bad for everyone. An export ban could be great for China, and the timing is wonderful now that China’s President is en route to the United States. In addition to meeting with American political leaders, GM CEO Mary Barra will reportedly also be in attendance.
While no reasonable person wants a military conflict between the US and anyone (especially China), GM Defense is ready to supply some more trucks to the Department of War, just in case. Speaking of China, our neighbors to the north are gearing up to send a lot more business that way considering they no longer trust the US as a partner.
The Price Of Lowering Diesel Prices Could Be A Global Recession And A Stronger China
The chart above comes from my buddy FRED, and it shows just how high diesel fuel prices have gotten. Going all the way back to 1994, the price of diesel has never been above $6 a gallon on average, and it’s now closer to $7 a gallon. Not great.
While this is a real and present risk for people who use a lot of diesel–farmers in particular–this is viewed as a major political problem for the GOP. As Nate Silver observes, the places where diesel price shock is the strongest also happen to be places where Democrats seem to be polling better than usual:
In Iowa, for instance, the combined price shock is 62 percent instead of 48 percent. It’s 63 percent in Nebraska, 62 percent in Michigan, and 61 percent in Kansas and Texas. And the diesel adjustment moves Maine and Alaska up substantially, to 54 percent from 42 and 30 percent, respectively. What these states have in common, of course, is that they all have competitive Senate races.
This is one of those cases where the charts pretty much tell the story, so I’ll leave it at that. But it helps to explain why Democrats’ polling has been especially strong in the heartland.
What’s a ruling political party supposed to do about it? The global energy crisis was caused by President Trump’s ongoing war with Iran, and the main reason why regular gasoline prices aren’t worse is because of China’s decision to use its strategic reserves to, seemingly, avoid creating a global recession. Remember that, because it’s going to come back again quickly.
I’m not going to get into the complexity of crack spreads, gravity, et cetera, but just be aware that the amount of diesel, gasoline, jet fuel, or other petroleum products you get from a refinery depends on what kind of raw crude is going into it. Right now, the United States produces a lot of diesel, and it does so for both internal and external customers, and many of those internal customers happen to be farmers.
You can see where this is going. There’s a growing movement to put a temporary export ban in place, as Politico notes:
Sen. Chuck Grassley (R-Iowa) posted over the weekend that high diesel prices are “KILLING FARMERS INCOME” and urged Trump to “put an embargo on diesel exports like presidents in the 70s put embargoes on ag products bc food prices were inflated.”
Rep. Ashley Hinson (R-Iowa), who is running for the Senate, called Monday morning for using “every option at our disposal to provide some relief from high prices,” including suspending diesel exports and the federal gas tax.
Would it lower the cost of diesel in some agricultural states? Yeah, probably. That’s the good news. The bad news is everything else that happens when you attempt a quick export ban. That bit about the ’70s embargoes on agricultural products Sen. Grassley mentions is interesting because this paper from the University of Illinois makes the case that this ultimately hurt producers in the US:
The embargo raised questions about the U.S. as a reliable supplier of staple commodities. In particular, Japan responded to its over-reliance on the U.S. by introducing the concept of food security and initiating policies to address it. Maybe the most far-reaching of these actions began in 1974 when the Japan International Cooperation Agency was formed and began a large-scale investment in the development of the Cerrado region in Brazil for soybean production; underway from 1979 to 2011 it helped push Brazil into a leading export role in the world soybean market (Akihiko 2017). Also in response, the European Community—another major customer of U.S. soybean exports—began dishing out large subsidies to increase production of oilseed crops in Europe (Madigan 1994).
As energy economist Philip Verlger points out, the possible outcomes of this are far worse than merely lowering your potential customers over time:
Initially, a diesel ban would send global prices skyrocketing. Today, the US exports around 1.4 million barrels per day to countries that require diesel imports. Our shipments may account for as much as 20% of the market. A ban could raise world prices by as much as 100%, given the fuel’s low price elasticity of demand.
Nations hit by the price increases would suffer economic recessions or worse. They would not forget the experience, just as Japan did not forget the soybean embargo.
Also, if you live on the East or West Coast there’s no great way to get you heating oil or diesel fuel from American producers so, as Marketplace reports, the global increase in prices would make things way way worse for you:
Diesel is a global market, and if the U.S. pulled its exports out of that market, “you would see global prices for diesel skyrocket,” said Bob McNally, founder and president of Rapidan Energy Group.
That would immediately push prices up on the East and West Coasts, where most diesel is imported. Even though the U.S. produces plenty of diesel, there’s no good way to transport it across the country.
If you’re worried about how I’m going to heat up my place, please don’t. I have the ability to use natural gas instead of heating oil, which has been the way better choice lately. Other than farmers and Republicans in the middle of the country, who else benefits from this?
China. Verleger goes onto add this little tidbit:
The world’s energy consumers would also respond as Japan did, in this case turning away from the US to suppliers of renewable energy capital, primarily China, and pursuing an energy agenda and infrastructure that do not depend on the whims of an outside country. US energy exporters would see markets shrink, just as American farmers did when Brazil became the world’s go-to soybean supplier.
From a global perspective, maybe this isn’t a bad thing for the environment. A lower reliance on the US as an energy producer doesn’t necessarily mean more oil production in China. Rather, it means that countries start to adopt policies similar to what’s happening in Australia, and invite more Chinese cars, more Chinese solar power, and use less oil.
Mary Barra To Reportedly Have Dinner With China’s President
I will probably be talking about China a lot given that a delegation from the country will be meeting in Washington this week, including a state dinner at the White House tomorrow. According to Reuters, GM CEO Mary Barra is going to be there.
Will any other car execs be elbowing up to the buffet? Maybe not:
Barra will not be joined by Stellantis CEO Antonio Filosa, who is out of the country, two sources said. Ford declined to comment on if CEO Jim Farley would attend the dinner. The automaker recently came under fire from US Transportation Secretary Sean Duffy for its business partnerships with Chinese companies.
It’s an odd spot for Farley, given Sec. Duffy got so mad at Ford for working with China, and then the White House invites you for a nosh with Xi Jinping. I wonder what they’re going to talk about…
GM Defense Scores $700 Million More For Enclosed Trucks
GM Defense’s Colorado-based Infantry Squad Vehicles seem to be growing in popularity with the US military, and the company just got a new order to modify the vehicles for colder weather operations.
The $697.7 million modification brings GM Defense’s contract with the government to make vehicles “cumulative face value” to $915,597,166, the military agency said Sept. 21.
Erica Mitchell, a spokeswoman for GM Defense, told the Detroit Free Press that the company is the prime contract holder for the ISV-Utility variant and the winch solution.
The engineering changes in the updated contract include the addition of a windshield, heater and defrost system as well as options for a full crew enclosure kit.
I wonder where the vehicles would need to go that’s cold?
Canada Trying To Make It Easier To Import From Asia And Europe
I don’t imagine there’s any future where Canada and the United States aren’t major trading partners, but let the lessons above be instructive about what the future could bring. Specifically, a future wherein the ongoing trade war encourages Canada to get closer to Asia and Europe.
A new proposal from the Canadian government would have the country invest in port infrastructure with a pretty obvious bent, as Bloomberg reports:
“It’s really inspired by this imperative to diversify our overseas markets, to diversify away from the United States,” Transport Minister Steven MacKinnon said in an interview, alluding to the tariffs and other trade disruptions imposed by US President Donald Trump.
“There’s a very discernible east-west pattern in this, when we talk about corridors,” he said.
Let’s just say we’ve met MacKinnon in a very Chinese time in his life.
What I’m Listening To While Writing TMD
Our own Peter is going to see Squeeze tonight, and while I’m on record stating that “Up the Junction” is the best Squeeze song, “Cool for Cats” is also pretty good.
The Big Question
When was the last time you’ve heard a car backfire? Have you ever had a car that backfires badly?
Top photo: DepositPhotos.com
Almost everything this administration has touched has turned turds. I hope somebody in the WH gets someone’s ear before they pull the trigger on messing with diesel and jet fuel.
It’s been 50 years since I’ve heard a backfire and that was when I was futzing with my Datsun’s distributor without a dwell meter.
I was driving my friends 1978 F250 that had a slightly janky ignition switch through town one day and the ignition cut out while passing the cop hiding in the trees. The engine kept turning and drawing fuel through the carb then pumping those vapors down into the muffler so when the ignition cut back in, the resulting explosion sounded like a gunshot, a noise that the cop didn’t take to kindly to.
Good thing he didn’t unload his mag into you, like the cop who got scared by the falling acorn.
I wonder where the vehicles would need to go that’s cold?
Mars.
Had a 1978 FIAT 131 Station Wagon back in the day that would loudly backfire when we lifted the throttle. Also produced a nice bright fireball that was particularly noticeable at night. Good Times.
Reading as I wait to see Squeeze, Adam Ant and Haircut 100 at the TX Trust Arena. Sounds like I’m in good company!
Adam Ant must have gotten word there were Autopians in house: Car Trouble was played.
The backfiring is constant in my neighborhood due to the clowns in their tuned (insert Japanese car brand here) bouncing off the rev limiter going 70 in a 30 in second gear because they think the street to school is a racetrack and their parents think paying taxes for cops is communism.
I hear that… literally.
Although I’ve also noticed a fair number of German brand cars that have been modded and do the same thing.
You need to get with the times. The Grand Imperial Stomper has decreed that we now call diesel Patriot Juice and gasoline is Ballet Box Preservative. Superior Intelligence at work.
TBQ. if by car you mean Administration, then ongoing backfires for the last 21 months and they are getting louder.
Man did you confuse me. You quoted a person saying banning the export of diesel would raise prices on both the east and west coast because there is no easy way to get US produced diesel there. If they can’t transport diesel to either coast just where are they shipping the export diesel out of?
«When was the last time you’ve heard a car backfire? Have you ever had a car that backfires badly?”
thanks to a few wiped cam lobes my Olds used to do that all the time. Not so much now,as the engine is in a thousand pieces for the moment.
My Austin Healey Sprite backfires on demand.
I heard it back fire on my way home from dinner.
From PM Mark Carney’s speech to the EU Parliament six days ago, that future is happening already.
https://www.ctvnews.ca/politics/article/read-carneys-full-speech-to-the-european-parliament/
And the whole diesel embargo shenanigans will continue pushing more countries away.
Way to win…
The Fiata can backfire when driven the correct way with a catback. It doesn’t do it often but I enjoy the occasional pop when banging to the speed limit-ish with minimal traffic. Pop & burble tunes are all over the place here and they’re both obnoxious and annoying 101% of the time, but besides that it’s usually a (GM) car with a mad exhaust leak.
If carb backfires count I burned a great deal of facial hair messing with engines over the years. I do occasionally hear them on our RR when the tuner kids are out playing.
The U.S. federal gas tax is
18.4 cents per gallon for gasoline and
24.4 cents per gallon for diesel.
Average of total state taxes gas 33.27 and
diesel 35.50
source: U.S. Energy Information Administration
Off-road diesel is exempt from federal and state highway excise taxes the same in most states as is home heating oil.
13ish years ago I had a CJ7 with a hole in the side of the muffler. If you revved it and then suddenly let off the gas, the resulting backfire would send a fireball sideways rolling like a mushroom cloud as you drove down the road. It was fantastic!
More recently, one of the antique firetrucks I work on likes to backfire. Apparently that was a feature, not a bug, in 1924.
Yeah, a ban on US Diesel exports due to prices going up which the US caused?
Great way to piss off everyone else on the planet – and issue the final deathblow to American Hegemony.
If it’s a bad idea, it’s almost guaranteed the Republicans and the Pedo-Felon Regime will do it.
“I wonder where the vehicles would need to go that’s cold?”
Greenland?
Canada?
Alaska?
Maine?
Michigan?
Ohio?
New Hampshire?
Ukraine?
Fall is here, time to start preparing for invading Russia! All the LOW ENERGY LOSERS who did it before are just stupid, bigly. I alone can invade Russia successfully.
TBQ: Can’t remember the alst time it was a car, probably the Squareback project I had a few years back. Prior to that it was a golf cart that I could get to back fire on command. Story was it had been rolled over at least once, allegedly twice, so something with the carb wasn’t right, so a pair of quick light throttle taps would do it.
“When was the last time you’ve heard a car backfire?”
Regularly…. almost daily. All the recent V8 Mustangs, various tuned BMWs and others do the stupid popping/backfiring sounds by design… straight the OEM in some cases.
If I had a car that did that by design, I’d take it to a tuner shop and have that stupid feature turned off.
Same.
It’s the stupidest thing about new Mustangs and tuned BMWs.
The BMWs especially annoy the shit out of me, a couple have appeared in the neighborhood recently. You’re driving a highly refined, German engineered product, you morons, it’s not supposed to sound like that! Tuned up Mustangs or Civics or whatever don’t bother me as much for some reason.
I drove a friend’s M2 a while back and all of the popping just sounded stupid in that car.
Some BMWs come from the factory programmed to do that. My buddy had an F82 M4 and in certain drive modes it would make the exhaust pop and crackle on decel, but it sounded like crap to me.
TBQ: In my RX8, when I do a track day I swap out the cat for a test pipe and it will pop out a fireball when shifting at redline.
I was going to ask if crackle tunes counted
They most certainly do… and I hate them.
I hope Xi lobbies Barra for more investment in China. Right in front of Trump and his cabinet. A good time would be just as the second course is being served.
Somehow “lobbies” got turned into a very different word in my head when I read that, leading to a very different Eyes Wide Shut kind of evening.
EEEWWWWW!!!
You know, the first thought I had when I read about a potential diesel export ban earlier this morning was, “These things usually turn out to be a lot more complex then they first seem”. Thanks, Matt, for filling in the details. Normally, you’d expect the president and his people to consult with experts to get some understanding of the ramifications of a policy like this. Given that the only consultation this administration tends to listen to is of the “Brilliant idea, sir! You’re the most stably genius of all stable geniuses!!”, I’m a little worried.
Cars it’s been awhile. But my home brew efi motorcycle still has a propensity to backfire. Dropped the bike once it shook me so bad.
I’m sure there is a fix but it took so long to dial the tables in that I hate to mess with it anymore. Apparently speed density & map sensors don’t like high overlap cams and erratic vaccum at idle…
Had a few backfires on the ’62 Corvair I’m working on.