If the US bans diesel exports, Europe will be the biggest victim.

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

Trump recently expressed support for the idea of banning diesel exports. According to a report released by Morgan Stanley on September 23, a comprehensive export ban would lead to a significant increase in both domestic gasoline prices and overseas diesel prices. The report also assessed that the probability of a complete ban remains low, but some restrictions or temporary control measures are a realistic possibility.

Europe will be the first to be affected. Morgan Stanley analysts Martijn Rats and Charlotte Firkins point out that Northwest Europe imports about 250,000 barrels of diesel per day from the United States, and even under the baseline scenario without an export ban, inventories in the region are already declining rapidly, expected to reach their lowest level since 2018 as early as November this year. Once this supply source is cut off, European diesel prices will be forced to find new demand-disrupting factors, a situation mirroring the 2022 European LNG market crisis.

Why have diesel prices soared to historic highs?

Global diesel supply shortages have persisted for months, with price pressures converging from two main sources.

The Middle East's refining capacity of approximately 1.5 million barrels per day is effectively underutilized—partly due to its location within the Strait of Hormuz hindering exports, and partly due to disruptions caused by damage—resulting in a year-on-year decrease of about 500,000 barrels per day in diesel exports. Meanwhile, Russia's refining capacity of approximately 3.5 million barrels per day was shut down due to drone attacks, leading to a further year-on-year decrease of about 800,000 barrels per day in diesel exports. The combined supply gap between Russia and the Middle East reaches 1.3 million barrels per day, representing approximately 15% of the global maritime trade market's average daily supply of 8 million barrels.

In terms of price, on September 15, NYMEX heating oil futures contracts hit a record high of $5.26 per gallon (equivalent to $220 per barrel), while the average retail price of diesel in the United States also reached a record high of $6.52 per gallon. Measured relative to WTI crude oil, the current U.S. distillate crack spread is approximately $105 per barrel, four times the median value over the past 15 years.

In response to price pressures, the U.S. government has taken a series of measures, including a temporary exemption from the Jones Act (the exemption period ends on November 15), multiple exemptions from EPA fuel standards, a nationwide exemption from federal truck driving time limits, and a large-scale release of strategic petroleum reserves.

How will the comprehensive ban be transmitted to the US domestic market?

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

The U.S. refining system processes approximately 16.5 million barrels of crude oil per day, producing about 5.1 million barrels of diesel. Domestic consumption is 3.9 million barrels per day, with the remaining approximately 1.2 million barrels entering the international market as net exports—specifically, exports of about 1.4 million barrels (mainly from the Gulf Coast) and imports of about 200,000 barrels (mainly flowing to the U.S. East Coast).

Morgan Stanley's calculations indicate that if diesel exports of 1.4 million barrels per day were completely halted, domestic supply would initially improve, and consumption could rebound by about 200,000 barrels per day to near the five-year average. Under the assumption that the Jones Act exemption continues and East Coast import demand is filled by the Gulf Coast, there would still be a surplus supply of about 1 million barrels per day, concentrated along the Gulf Coast (PADD 3).

The region has only about 23 million barrels of spare diesel storage capacity, and at this rate, that capacity will be exhausted in about three weeks. Once storage space is depleted, refiners will be forced to cut diesel production.

The ban may actually lead to higher gasoline prices.

Cutting diesel production means refiners need to adjust their product mix, but there is very little room for maneuver.

Currently, the US refining system is operating at maximum distillate production, with a distillate yield of approximately 30.6%, nearing the upper limit of its historical range. Morgan Stanley estimates that if domestic consumption recovers from 3.9 million barrels per day to 4.1 million barrels per day, and the distillate yield is reduced from 30.6% to 28.1%, the total crude oil processing capacity of the entire refining system will have to be reduced from the current approximately 16.5 million barrels per day to approximately 14.5 million barrels per day, a decrease of about 2 million barrels per day.

Meanwhile, the gasoline yield could be slightly increased from the current 49% to approximately 51%. Even so, gasoline supply would only be around 7.45 million barrels per day, down from the current level of approximately 8.1 million barrels per day, resulting in a shortfall of about 650,000 barrels per day. This means the United States will have to import large quantities of gasoline in an already tight global market.

The conclusion is therefore clear: the diesel export ban will not simply lead to lower fuel costs for American consumers; on the contrary, it may push gasoline prices even higher through the transmission mechanism of the refining system.

Europe: Supply gaps coupled with limited room for maneuver

Of all the potentially affected regions, Europe is the most vulnerable.

Northwest Europe has long been a net importer of diesel fuel globally, but since the outbreak of the Middle East conflict, it has transformed into a net exporter, with current net exports near zero—a balance achieved by offsetting approximately 250,000 barrels per day of imports from the United States with exports to other regions. Morgan Stanley's supply and demand model indicates that even if current import levels from the United States remain unchanged, Northwest European diesel inventories will still fall to their lowest level since 2018 in November of this year, and will continue their downward trend into 2027.

Once the US export ban is implemented, Europe will be cut off from its supply source of 250,000 barrels per day. To fill the gap, Europe will be forced to attract supplies from other parts of the world at higher prices, thus spreading price pressures to a wider market and triggering demand destruction in other regions. This mechanism is highly similar to the evolutionary path of the 2022 European LNG crisis.

Citi Research, on the other hand, focuses on the exposure risks of Central and Eastern European economies from another perspective. According to a report released by Citi Research on September 24, Poland's vulnerability in terms of diesel strength and price transmission is the most prominent in Central and Eastern Europe —its diesel economic strength is higher than the EU average, diesel has a relatively high weighting in the HICP (Harmonized Index of Consumer Prices), and it has limited fiscal space and low real interest rates. Citi Research believes that if the diesel price shock continues, the Polish Central Bank (NBP) may face pressure to raise interest rates to curb inflation overshooting.

A complete ban is still not the baseline scenario, but market volatility will continue.

Morgan Stanley explicitly stated that all the above calculations are based on the assumption that the United States will implement an export ban, and are scenario-based rather than baseline forecasts.

The report argues that, considering the series of repercussions of a complete ban—rising domestic gasoline prices, increased energy costs in Europe, and spreading global inflationary pressures—this extreme measure remains far removed from the US government's policy benchmark. A more likely path now is partial restrictions or time-limited control measures.

However, the fact that Trump has publicly expressed his support for the ban is enough to keep the market highly vigilant. Morgan Stanley noted in a report that as long as this issue remains under policy discussion, the oil market should prepare for continued price volatility. ICE diesel futures (Gasoil) prices are already near historical highs, and if discussions about the ban intensify, there is still room for further upward movement in the short term.

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