DONALD TRUMP is running out of options to cushion the energy shock from the Iran war. The American president has tried to press allies into assembling naval escorts, overseen the largest-ever release of strategic oil stocks and toyed with selling oil futures to drive prices down. None of it is working: the price of Brent crude, the global benchmark, is above $110 a barrel. That has pushed average petrol prices to nearly $4 a gallon in America, from $2.90 on February 27th.
There is one thing Mr Trump has yet to try: suspending oil exports. Insiders say this is not yet on the table. But Brent could hit $120 by the end of March, buoying petrol towards $4.50 a gallon—months before the midterm elections. So the temptation to keep supplies at home will only grow. What happens if the world’s third-largest oil exporter stops exporting depends on what any restrictions would cover: crude, refined products or both.
A crude-export ban would trap 4m barrels per day (b/d) from America—9% of global seaborne flows—creating a vast domestic surplus while squeezing America’s main buyers: Europe and Asia. That would drive a huge wedge between West Texas Intermediate, the American price benchmark, and Brent, dislocating global oil markets, says Janiv Shah of Rystad Energy, a consultancy.
It would also present American refiners with a lot of cheap feedstock. It would not be their preferred kind: their refineries are best suited to “heavy” (viscous), “sour” (high-sulphur) Latin American crude, which yields plenty of diesel and jet fuel, rather than light, sweet domestic stuff, which yields more petrol. But with fat margins on offer, they should easily recoup the cost of any adjustments through exports of refined products. The domestic market for petrol could be flooded, bringing down prices at the pump.
Not for long, however—any excess petrol would quickly be shipped abroad. Meanwhile America would find itself short of the diesel and jet fuel it normally gets from processing heavy crude, forcing it to compete for ultra-scarce global supply. Prices for these would surge.
A ban on product exports alone would do little better. Swathes of Latin America, which receives most of America’s 2.7m b/d of fuel exports, would quickly face shortages. Europe, already lacking diesel from the Gulf, would be doubly squeezed.
Within America, prices would be severely distorted. The Midwest and the Gulf coast, home to most of the country’s refineries, would enjoy cheaper fuel. But the populous east coast relies on gasoline supplies from Europe, while the Pacific coast, which is not linked to the national pipeline network, usually imports from Asia and the Middle East. In both regions prices would stay high, especially if trading partners retaliate with their own export bans. Keeping them supplied would mean ferrying vast volumes by sea—pushing freight costs, already eye-watering, even higher.
The margins of domestic refiners would be crushed by rising crude costs and depressed product prices. Most would cut output within weeks, reckons Michael Haigh of Société Générale, a French bank, dampening the price benefit.
Banning crude and product exports might protect their profits. But it would strangle the world economy, which would boomerang back to America. Worse, it would destroy the country’s reputation as a reliable supplier, deterring investment in its oil-and-gas industry, says Bob McNally, a former energy adviser to President George W. Bush. In 2020 America became a net petroleum exporter for the first time since the 1940s. It is within Mr Trump’s means to ruin that achievement. ■
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