US Diesel Export Ban Would Hit Latin America, Ultimately Raise US Gas Prices, Goldman Sachs Warns

A potential U.S. ban on diesel exports would have a limited direct effect on global growth but would most acutely impact Latin America, while any initial price relief for American consumers would likely be short-lived and ultimately inflationary, according to a recent analysis by Goldman Sachs.

The investment bank's research note addresses rising concerns over a possible export ban as refined product margins have widened significantly since March.

Latin America Most Exposed

Goldman Sachs identified Latin America as the region most vulnerable to a sudden halt in U.S. diesel supplies. Using global input-output tables, the bank's analysts estimate that such a cutoff could reduce GDP in the region by approximately 1%.

However, the report notes that this impact would likely be dampened by existing inventory buffers and increased exports from other global suppliers. Outside of the Americas, Goldman Sachs foresees small direct effects on economic activity, given less reliance on U.S. imports and the expected rapid reallocation of global supply.

Inflationary Boomerang for US Consumers

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While a ban might offer temporary relief at the pump, Goldman Sachs projects it would ultimately lead to higher prices for U.S. consumers. The bank's commodity strategists outlined a two-stage process:

• Initial Price Drop: An export ban would initially lower U.S. retail diesel prices by an estimated 25 cents per gallon for each week it remained in place. This would create a modest drag of 2 to 3 basis points on headline U.S. inflation after one month.
• Subsequent Price Spike: This disinflationary effect would likely reverse after about two months. Once U.S. diesel storage capacity is exhausted, the bank estimates each week of a ban would raise U.S. retail gasoline prices by $0.30 per gallon, making the policy inflationary overall.

Global Market Adjustments

Because diesel markets are global, Goldman Sachs expects supply chains to adjust quickly to a U.S. export ban, leaving higher prices as the primary economic consequence. The bank's analysts believe the main global impact would be inflationary.

They estimate that for every sustained 10% increase in diesel prices, global headline inflation rises by 0.1 percentage point, and core inflation increases by 0.03 percentage points. The effects would be more pronounced in emerging Asia and Europe.