Global diesel prices have climbed to record highs, and the US government is weighing a diesel export ban, a potential policy shift that would profoundly reshape the global energy market landscape.

Trump recently voiced support for the idea of banning diesel exports. According to a Morgan Stanley research report released on September 23, if a full export ban were implemented, US domestic gasoline prices and overseas diesel prices would both rise sharply. The report also assessed that the probability of a full ban taking effect remains low, but partial restrictions or temporary control measures are realistically possible.

Europe would be hit first. Morgan Stanley analysts Martijn Rats and Charlotte Firkins noted that Northwest Europe imports about 250,000 barrels per day of diesel from the US Even under a baseline scenario without an export ban, inventories in the region are already accelerating their decline and are expected to hit their lowest level since 2018 as early as November this year. Once that supply source is cut off, European diesel prices would be forced to seek a new demand destruction point, mirroring the European liquefied natural gas market crisis of 2022.

Why diesel prices have surged to historic extremes

Tight global diesel supply has persisted for months, with price pressure converging along two main fronts.

About 1.5 million barrels per day of refining capacity in the Middle East is effectively unusable — partly because some facilities are located inside the Strait of Hormuz and difficult to ship out, and partly because some have been damaged and shut down — cutting the region's diesel exports by about 500,000 barrels per day year on year. At the same time, about 3.5 million barrels per day of Russian refining capacity has been idled by drone attacks, pushing its diesel exports down by another roughly 800,000 barrels per day year on year. Combined, the supply gap from Russia and the Middle East totals 1.3 million barrels per day, about 15% of the roughly 8 million barrels per day of seaborne trade supply globally.

On the price side, the NYMEX heating oil futures contract hit a record high of $5.26 per gallon ($220 per barrel) on September 15, while the US average retail diesel price also set a record high of $6.52 per gallon. Measured by the spread relative to WTI crude, the US distillate crack spread is currently about $105 per barrel, four times the median of the past 15 years.

Facing price pressure, the US government has taken a series of countermeasures, including a temporary waiver of the Jones Act (through November 15), multiple waivers of EPA fuel standards, a nationwide waiver of federal truck driving-hour limits, and large-scale releases from the Strategic Petroleum Reserve.

How a full ban would transmit to the US domestic market

To understand the potential impact of an export ban, it is first necessary to clarify the structure of US diesel supply and demand.

The US refining system processes about 16.5 million barrels per day of crude and produces about 5.1 million barrels of diesel. Domestic consumption is 3.9 million barrels per day, leaving about 1.2 million barrels that enter international markets as net exports — specifically, exports of about 1.4 million barrels (mainly from the Gulf Coast) and imports of about 200,000 barrels (mainly into the US East Coast).

Morgan Stanley's estimates show that if 1.4 million barrels per day of diesel exports were fully halted, domestic supply would initially improve and consumption could recover by about 200,000 barrels per day to around the five-year average. Assuming the Jones Act waiver continues and East Coast import demand is filled by the Gulf Coast, there would still be about 1 million barrels per day of surplus supply, concentrated in the Gulf Coast (PADD 3).

The region has only about 23 million barrels of spare diesel tank capacity, and at that pace storage would run out in about three weeks. Once storage space is exhausted, refiners would be forced to cut diesel output.

The ban could instead push gasoline prices higher

Cutting diesel output means refiners would need to adjust their product slate, and the room for that is extremely limited.

The US refining system is currently in "max distillate" mode, with a distillate yield of about 30.6%, already near the upper end of its historical range. Morgan Stanley estimates that while domestic consumption recovers from 3.9 million barrels per day to 4.1 million barrels per day, if the distillate yield were cut from 30.6% to 28.1%, crude throughput across the refining system would have to be compressed from the current roughly 16.5 million barrels per day to about 14.5 million barrels per day, a decline of about 2 million barrels per day.

At the same time, the gasoline yield could be nudged up slightly from the current 49% to about 51%. But even so, gasoline supply would be only about 7.45 million barrels per day, below the current level of about 8.1 million barrels per day, leaving a gap of about 650,000 barrels per day. That means the US would have to buy large volumes of gasoline imports in an already tight global market.

The conclusion is therefore clear: a diesel export ban would not simply bring lower fuel costs to US consumers, but could instead push gasoline prices further higher through the transmission mechanism of the refining system.

Europe: a supply gap compounded by limited room to maneuver

Among all potentially affected regions, Europe is in the most fragile position.

Northwest Europe has long been a net importer of diesel and shifted to a net exporter after the Middle East conflict broke out, with net exports now close to zero — a balance that depends on about 250,000 barrels per day of imports from the US offsetting exports to other regions. Morgan Stanley's supply-demand model shows that even if the current scale of imports from the US is maintained, Northwest European diesel inventories will still fall to their lowest level since 2018 in November this year and continue declining into 2027.

Once a US export ban is imposed, Europe would be cut off from that 250,000 barrels per day supply source. To fill the gap, Europe would be forced to attract cargoes from other parts of the world at higher prices, spreading price pressure to a broader market and triggering demand destruction elsewhere. This mechanism is highly similar to the path of the 2022 European liquefied natural gas crisis.

Citi Research, meanwhile, focused from another angle on the exposure risks of Central and Eastern European economies. According to a Citi Research report released on September 24, in terms of diesel intensity and price transmission, Poland's vulnerability is the most prominent in Central and Eastern Europe — its diesel economic intensity is above the EU average, diesel also carries a relatively high weight in HICP (the harmonized index of consumer prices), and its fiscal space is limited with low real interest rates. Citi Research believes that if the diesel price shock persists, Poland's central bank (NovaBridge Biosciences) could face pressure to raise rates to curb an inflation overshoot.

A full ban is still not the baseline scenario, but market volatility will persist

Morgan Stanley explicitly stated that all the above calculations are based on the assumption that the US implements an export ban, and are scenario analysis rather than a baseline forecast.

The report argues that, taking into account the chain of follow-on effects triggered by a full ban — higher domestic gasoline prices, rising European energy costs and spreading global inflationary pressure — this extreme move remains far from the US government's policy baseline. The more likely path at present is partial restrictions or time-limited control measures.

However, the very fact that Trump has publicly backed the direction of a ban is enough to keep markets highly alert. Morgan Stanley noted in the report that as long as the issue remains in the policy discussion stage, the oil market should prepare for continued price volatility. ICE diesel futures (Gasoil) prices are already near record highs, and if ban discussions heat up, there is still room for further upside in the near term.