Last week, President Donald Trump and Russian President Vladimir Putin reached an agreement for Russia to supply a few million tons of diesel fuel to the United States and global markets to help lower soaring fuel prices. The agreement involves an immediate supply of over 300,000 tons of diesel, followed by an additional 3 to 5 million tons from Russian refineries.
Since the beginning of the Iran war, the price of diesel has increased dramatically, putting pressure on America’s truck drivers, farmers, and countless other people who rely on diesel fuel for their livelihoods. But this deal will only embolden American enemies, including Russia but also Iran and China. Those countries now know that Trump is more interested in political power than he is in securing the safety of the country.
Yet, what is so damaging about this deal is that it will have little to no effect on the price of diesel in the United States. According to the U.S. Energy Information Administration, there are about 7.4 barrels in a metric ton of diesel. So, if Russia does release 300,000 tons of diesel, that would amount to only about 2.2 million barrels. That is a minuscule amount compared with the approximately 30 million barrels of diesel that the global economy consumes each day. Moreover, even if Russia does increase the supply of diesel on global markets by up to 5 million tons, that level of increased supply would be unlikely to reduce the market price.
As noted, each day the global economy consumes about 30 million barrels of diesel fuel. Five million tons of diesel equals around 36 million barrels, or just over one day of global consumption. A 1% increase in supply will not move the needle on either domestic or international markets. There is another major problem with this agreement. Will Russia actually deliver an increased supply of diesel, or will Putin merely redirect fuel that would otherwise be exported to existing customers? Changing a cargo’s destination does not by itself increase the global supply of diesel. Just reshuffling Russian exports would provide little sustained price relief for American consumers.
SIX SENATORS DEMAND TRUMP ‘IMMEDIATELY REVERSE COURSE’ ON RUSSIAN DIESEL DEAL
Markets respond to facts about physical supply. Over time, empty rhetoric does not change the price of diesel at the pump.
The strategic cost of this deal is clear. The sanctions against Russia’s energy sector are designed to reduce the resources available for Putin’s war-fighting machine. Relaxing the sanctions for the sake of political expediency dramatically reduces the pressure on Putin to stop the war and initiate peace negotiations with Ukraine. With his phone call to Putin, Trump is making the sacrifices of the Ukrainian people meaningless and emboldening Iran and other enemies of the United States.
James Rogan is a former diplomat who later worked in law and finance for over 30 years. He writes a subscription-based daily note on markets, economics, politics, and social issues. His email is roganjames8202@gmail.com.
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[ H/T Washington Examiner ]
