The coming oil shock

There is a time bomb lurking in the American economy. It has the potential to make almost everything even more expensive and some experts say it's about to explode. You see it every time you gas up your car, but you probably ignore it, diesel. The price of diesel has gone up and up and up since the war with Iran started. Diesel powers the American economy, and in about a month, it will almost certainly power Americans to vote in midterm elections, where they say high cost of living is their biggest concern. Aware that a wipeout is possible for Republicans in November, President Trump is up to his old tricks trying to meddle in the U.S. economy. Coming up on today, explained from box. "Well, it's I ran this and I ran that. Well, I ran out of damn money, tried to start selling pictures of my feet. I might not have money for food or to hang out with my friends, but I always have money for candles. Hey, everybody, Cassidy Hubberth here. This week on Ann Mom, we spoke with Grammy Award-winning musician Karin Bailey-Ray about taking her kids on tour, becoming a widow at 29 and how she felt about having a home birth. Check out the latest episode of Ann Mom, wherever you get your podcasts. I am talking with comedian Amber Ruffin. We dig into all the twists and turns of her journey from losing the White House correspondence dinner and missing out on SNL to becoming a writer for Seth Myers and getting her own Peacock TV show. Plus, I'm giving you a behind the curtain look on Rebecca Hunt's documentary About Me. Check out the latest episode of Why Are You Like This, Wherever You Get Podcasts, and on YouTube. I'm Nathan Bohemian, I'm a business reporter at Axios, an author of Axios Closer or Daily News There and All Things Business. What is diesel? Diesel is essentially a fuel made from another fuel. Diesel is made from crude oil and it's basically refined into a liquid that essentially powers the economy. And so diesel is primarily used in trucks and in farming equipment and in industrial machinery that essentially allows us to ship things from place A to B. Diesel is a fuel that I think a lot of people just don't pay attention to until something goes bad. And that's what we're facing now because the price of diesel has spiked and that affects trucking in particular and most products in America are shipped along the road via trucks. It seems like every single week we start the video saying the same shit fuel prices again hit a record high. I'm like a damn auctioneer over here in my head trying to figure out how much money this truck is going to take them. Hit the high, hit the high. Oh, apparently it's $175. This is getting redeemed. Diculous. Okay, so we are talking about serious rises in prices here. What is actually happening with diesel? Why is this going on? Obviously, there was one major geopolitical event this year that disrupted the entire energy economy, which is the US and Israel attacking Iran. Right from the beginning, we projected four to five weeks. Iran is, of course, at the headquarters of the oil economy in some ways. But primarily the thing you have to look at is the closure of the straight apart moves and then the jockeying over it that's happened in the months since then. The war now passing 200 days, Iran claiming it struck an oil tanker trying to transit the straight apart moves. As President Trump rejects Iran's proposal for a seven days cease fire to reopen the critical waterway. Once they close that straight, that disrupted the entire global energy economy because that straight handles a substantial portion of the shipping that basically where they bring the supplies out of the Middle East and ship them to other people. So that affected diesel prices, gasoline prices, jet fuel, effective, effectively, everything that is based on crude oil. I don't know how much more they can take, but you know, whatever it is, it doesn't matter. And I'm not affected by the election. Who are the people right now that are profoundly freaked out about the cost of diesel? Well, first off, I think certainly truckers are freaked out because their cost of doing business is going much higher. Well, nationwide word of a possible truck driver's strike is spreading. And I think also farmers are freaked out because they're already facing real pressures from the trade wars that are going on that President Trump started from things that are totally out of control, like climate issues that have caused their costs to go higher. And all of a sudden, the price of diesel affecting farmers as well so that then eventually affects the price that they charge, which ultimately gets to the consumer because it ends up costing more to pay for things like an ear of corn. We're in the middle of a harvest, the time that we use the most diesel, so it's really hit in us. I mean, we don't make any more for a bushel of corn, a pound of beef, so yeah, that comes straight out of our pocket. How stark do you think this might be like in a month or two months? Do you think I could go down to the Walmart and I see that something I buy all the time is now a dollar more expensive or there's like a sign saying diesel expensive, so we're adding a, you know, a 10% surcharge. Like, what do you think this actually might look like? I think that the impact is imminent. Oh, this flows through very quickly usually. Now, we're not talking about months, we're talking about weeks. If not days before people will start to notice increases, especially in the grocery aisle. I think that's the first place people will notice it because fresh food has to be shipped on a weekly basis. And so I think diesel prices are going to have a big effect on food inflation. This is coming off of, of course, several years of food price increases that we experienced in the wake of the pandemic. And then we're also now barreling toward the holiday shopping season and holiday shopping season is going to be affected by this as well. Zipa toy, for example, is made with some sort of resin that is affected by the cost of crude oil, which also affects the cost of diesel. And then it's shipped over the road to Walmart through a truck that uses diesel. All of these things add up and ultimately are going to probably lead to higher prices. We've also got an issue with heating oil, which is a fuel that is used primarily by households in the Northeast, where essentially they're using that to heat up their home. And heating oil and diesel and all of these, you know, these oil-based products are caught up in this vortex right now. That ultimately is not something that the ordinary person can do that much about. Okay, this is super interesting because it is everything. Powers the US economy, like you said, when something is this crucial, one wonders if there are like alternatives. Do the industries that rely on diesel have any other options? There's definitely alternatives to diesel, but in many cases, they're not alternatives that can be switched too quickly because if you think about the trucking industry, you know, they're invested heavily in these big rigs that are taking products from places aid to places be. And so if you are invested in a truck, yes, you could theoretically switch, but you're going to be basically scrapping this huge investment you've made. So, you know, diesel trucks are not really going anywhere and immediately. Also, a lot of times, they're simply still the best way to get somewhere and because you can switch to rail, for example. So railroads are definitely a competitor to trucking, but really only best for certain types of products. Now, there are other types of trucks that you can buy. Certainly, maybe a compressed natural gas or liquid natural gas, LNG is alternative fuel for some trucks and biodiesel in some cases can actually be good. And then, you know, maybe down the road, hydrogen or something, that's really more of a futuristic thing. Now, in the short term, there is the possibility of using electric trucks that is starting to become more realistic. In fact, just in recent days, Tesla began major production of the Tesla semi, which is an electric semi truck that we've been waiting for four years. So this is really going to be a game changer truck and also it's going to make a ton of sense economically because the cost of electricity per mile is much less than the cost of diesel, especially in these crazy times. I remember covering this in 2018 when Tesla debuted the Tesla semi, and we all thought this was going to be coming out soon. Production begins 2019. Well, it's taken nearly a decade for this to finally become a reality in large proportions, but the Tesla semi is an electric truck that could be an alternative for some. And then, you know, there's other companies that are making electric trucks too. So that could be sort of viable. But the problem with electric trucks is that the battery is so heavy that ultimately it's still tough for electric trucks to compete with diesel on shipping heavy items. It was often joked that when the Tesla semi first debuted, the very first thing that shipped was a bunch of bags of cheetos because cheetos was so light and they couldn't handle any extra weight. And so, you know, they had that deal with PepsiCo and I'm sure PepsiCo needed those trucks, but it wasn't ready at the time to ship anything expensive. It's a lot better now. But again, the issue still is with because of how heavy electric truck batteries are going to be that is still going to make them somewhat limited in their capacity, but I do think that you're seeing some demand for the Tesla semi that indicates maybe it will become a more competitive with diesel because of the price of diesel now. Okay, so when prices are high, generally, somebody somewhere is benefiting from high prices. Who is it in this case? I think that the people who are benefiting here from diesel prices being so high are these refineries, which a lot of people don't really think about that much because they're sort of the middle person, you would say, in this entire process. They're the ones who essentially take the crude oil and turn it into usable diesel for a pickup truck or for a semi truck or for a farming equipment. And when that refinery business is experiencing such high demand right now, there's limited capacity to do this. And I think because of some of these issues in Russia, where Ukrainian drone strikes are heading critical energy facilities, and in Iran, of course, and in other places throughout the world, there's just limited diesel refining capacity right now, which means that there's just not really anywhere else to do this and therefore they can charge higher prices. So that means higher profits for the refineries. Okay, so all of this is shaping up to potentially mean a really ugly winter. One thing I think about a lot is that American consumers will accept a lot of pain. Like we had COVID, the inflation, the shortages of literally everything. Then we had the war in Ukraine and prices go up again. People still have our keep spending money, even as we predict, like, oh God, this one's going to get bad. People still go to the store and they spend money. And maybe they gripe, but it's not like we're out in the streets. Do you think that this coming diesel shock, imminent your words, is going to be different? Well, I will say that, and I'm not an economist, but there is this interesting phenomenon emerging in the economy where consumer sentiment is rock bottom, but consumer spending is actually really strong. And so there's this gap emerging between what people say they feel and between what they're actually doing, which is in this case, they're still actually spending. Now maybe it's sort of yolo spending, they're thinking like, well, you know, my, I really don't got much going for me. Maybe keep spending, you know, I mean, I've experienced that a little bit, so hey, I don't blame anybody. You know, hey, at the end of the day, I think that the numbers matter a little bit more than what people say they feel. But I do think people are going to hit a breaking point at some point, because they simply can't continue this level of spending if the underlying fundamentals of the economy start to collapse. Axios' Nathan Bomi coming up next, President Trump's wild idea to lower diesel prices. Support for the show comes from Quinn's fall is the perfect time to pull out some of those items of clothing that just work with everything from the sweater that's perfect for when the temperature drops to the coat that goes with everything. These are the clothes that make getting dressed easy, and that's exactly what Quinn's does best. 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I'm Arima Khrase and on this is uncomfortable, we talk about the emotional side of money, what it does to our relationships, our sense of self, and the choices we make. Each week I talk with real people and experts, about the parts of money we usually keep to ourselves. Tune in every Thursday to hear conversations and stories about life and how money messes with it. Listen to this is uncomfortable on your favorite podcast app. It seems like every single week we start the video saying the same shit. Today I explain. To get on hit or record high, when is this going to stop? This is absolutely crazy. Paul and Eaton covers the oil and gas industry for the Wall Street Journal. Colin's been reporting on an idea that President Trump has floated a diesel export ban. So a diesel export ban would basically stop shipments of diesel to overseas customers. And it's unclear at this point whether it would be compulsory or voluntary. Last Tuesday, Trump said he's in favor of banning American exports of diesel. Over the weekend he told reporters again, they're seriously considering it. So what about an export ban on diesel? Well, we're thinking about it very seriously. Basically, yeah, they think that they can inject some juice into the arm of agriculture by lowering diesel prices ahead of the midterms and that might shore up some boats for them. That's in turn states. And there's something to that Goldman Sachs said that they estimate banning diesel exports would bring prices down about 25 cents a gallon each week that the ban is in place. But that's really just a temporary effect. Let me get just a bit more detail on the actual logistics of what a ban would mean. The United States sells diesel wear in the world. How does it get there? What would this mean if I am a consumer in one of the places where the U.S. sells diesel to? So the U.S. oil refineries, they send diesel on gigantic tankers to Europe, to Asia. And they have a lot of global customers. The United States is actually one of the last major suppliers of diesel right now because Russia and refineries in the Middle East are unable to get supplies out. And Russia, Ukraine has struck refineries with long-range missiles and in the Middle East Iran has hit some refineries in neighboring countries and as close as the trade reform moves. So what this means is that the U.S. imposing restrictions on diesel exports would essentially bring prices higher for overseas countries because right now we are a major supplier for the world essentially. Okay, so we think of big oil companies as some of the more powerful operators in the American economy. This sounds like the president of the United States potentially saying, "Hey, I want you to sell less overseas or not sell overseas." It's like the president is telling the oil companies what to do. What are you hearing from the oil companies themselves? Oh, I mean, the oil companies hate the idea of banning diesel exports. I mean, they've been worried since the Iran war started in late February that the admin would implement some sort of restriction on exports to help shore up prices. So yeah, we were surprised because I think if anything, it provides just temporary relief. An export band would actually potentially raise fuel prices for American farmers and American consumers. They push back on it a lot with the admin. They got reassurances several times from the administration that they weren't considering it. And then last week at the United Nations General Assembly, Trump says he's in favor. They've sort of clarified their position, energy secretary Chris Wright spearheading the details on this and he's saying it could be a voluntary pullback in diesel exports rather than in outright ban rather than a, you know, government rule and Post on these companies, but the industry has been concerned that this could look like collusion this could look like You know market manipulation to bring down prices or raise prices Overseas some have noted that there's nothing on the books that would prevent them from colluding in a way that would harm markets overseas Wow, I think they have it built in any time someone suggests sort of a voluntary multi-company effort to bring prices up or down it sounds like market manipulation to them and they're just worried about the after effects of that So you mentioned energy secretary Chris right we know that President Trump is openly saying he's considered What are the other people surrounding the president telling him about this? Do we know it's unclear exactly where the support for a diesel ban is coming from but we are hearing that it's coming from The more politics-minded folks in the administration what we do know is that there's been sort of broad Republican support for the idea after Senator Chuck Grassley of Iowa push the idea With diesel six dollars and 57 cents in Iowa why doesn't President Trump put an embargo on diesel exports like presidents in the seventies put embargoes on ad products Because food prices were inflated high diesel prices are killing farmers income Hashtag corn watch hashtag soybean watch all right Let's talk about the Chuck Grassley of it all how much of this proposal this unusual proposal That we tell American companies when and where into whom they can sell diesel comes down to the fact that there are midterm elections in this country in five weeks and Americans are quite frustrated about being able to afford the basics. Oh, yeah, I know it's all about the midterms So lowering diesel prices in theory would make life easier for farmers in Midwestern states like Iowa In Iowa, there's a competitive race going on for the Senate seat left open by Republican Joni Ernst the Democratic nominee Josh Turek is leading in some polls and he wins He'd be the first Iowa Democrat elected to the Senate There in almost two decades Republicans are also facing some tight races in Nebraska in Kansas and Michigan all of those races they think would benefit from a short-term Diesel ban or a decline in diesel prices and The president has definitely shown that he's at least willing to consider market intervention when it serves his political needs or or that of his party Yes, President Trump has been willing to do these things But is he unique has the US ever done something like this before? The United States has never outright banned exports of diesel as a fuel Well, we have done in the past in the 1970s the US banned exports of crude under Nixon and then Gerald Ford After the Arab oil embargo, we are heading toward the most acute shortages of energy since World War two and that export ban Stuck around until the presidency of Barack Obama. They made a deal in 2015 2016 to lift that ban and That's one of the things that The oil industry fears is the longevity of a potential ban because it's politically very easy to In an emergency situation impose a ban on exports of any sort of product and it's politically difficult to lift that ban because that would mean higher prices for consumers higher prices for your constituents If you're in Congress So that's another reason that like, you know, this ban on crude oil exports lasted for 40 years It didn't need to it outlived its usefulness technically because there wasn't a Arab oil embargo going on in the 80s 90s or the 2000s some of the examples of President Trump's Meddling in the kind of free market capitalism that Americans have gotten used to over Generations are really quite stark the US government under Trump took a stake in Intel More or less nationalized US steel President Trump is not saying the United States is going to take a stake in the oil companies here But he is saying I may need to tell them what to do over and against their objections Tell me bigger picture where this export ban fits in to the kind of President Trump notion of the way the US economy should work Yeah, so it's interesting the Trump administration has largely left the oil industry alone in terms of direct market intervention They've done a ton of things around the edges to cut regulations cut environmental rules And basically make it easier for oil companies to operate this is sort of the opposite and You know the oil industry has influential lobbyists as close ties with the Trump administration There are a lot of oil donors who gave tens of millions of dollars to Trump's re-election campaign the inaugural committee And that's had some influence But this is definitely a different approach from Trump on on oil Let me ask you Leslie President Trump has made energy dominance a big part of his agenda If you're becoming more and more energy dominant I don't want to be energy free. We want to be energy dominant in terms of the world It's called drill baby drill if American oil companies Are selling less diesel overseas because the president tells them hey, we need to get prices here at home Those foreign buyers will have to get it from elsewhere Which means they will find other places to buy diesel from couldn't that in the long term undermine America's sort of status as an energy powerhouse Yeah, I could um the Oil companies are worried that buyers in Europe and Asia could lose trust in them if There's an outright diesel ban driven by politics other countries have been doing this as well But um you're right the administration has been pushing this line of energy dominance And I think you know early on in the administration one of the key things that Some of the folks on the energy side were tasked with is navigating how to maintain Energy dominance amid all of these sort of tariffs the trade war How does the country keep its position as a global supplier of oil natural gas and fuel and um It's largely done that. I mean there's been um a lot of pathways that have opened for oil and gas that I mean It just hasn't been on countries tariffs list now if it is here The oil industry is certainly worried that there could be retaliatory Bands on products shipped to the United States, which would be another inflationary Impact so yeah, it could undermine what the US has been driving For under the Trump administration and this sort of energy dominance push Colin Eaton for the Wall Street journal in Houston Miles Bryan and Avishai Artsy produced today's show It was edited by omni El Sadi fact checked by Gabriel Dunantov and engineered by David Tattishorn Bridger Dunnigan um Noelle King it's today explained