The original management guru, Peter Drucker, famously warned: "There is nothing so useless as doing efficiently that which should not be done at all."
Midterm elections, paired with inflation and the optics of an oil price surge tied to the war with Iran, is stoking the kind of response Drucker was so faithfully opposed to: banning the export of diesel fuel as its prices rise to record highs.
"I've called ?for it within my people," President Donald Trump told reporters Tuesday when asked about a possible ban. "I've said 'let's not send out the diesel'; we make a lot of diesel."
This is certainly true: The U.S. produced 5 million barrels of diesel each day last year, compared with the 4 million barrels a day from China and more than double the annual tally of India, the world's third largest market.
But prices have soared since the first U.S. attacks on Iran in late February, rising more than 73% to a record high of $6.52 a gallon this week. The closing of the Strait of Hormuz has disrupted global crude markets in the past eight months, raising all oil and petrol product costs significantly.
Diesel could be headed for a national average of $7 in the coming weeks, according to some estimates.
That's a huge problem for the economy, which relies on diesel to power its truck and transport network, and for Republican lawmakers facing backlash over energy prices and foreign policy decisions when voters go to the polls in November.
And, inevitably, it has triggered calls for action.
"Why doesn't Pres Trump put an embargo on diesel exports like presidents in the 70s put embargoes on [agriculture] products [because] food prices were inflated," Sen. Chuck Grassley, an Iowa Republican, posted on social media over the weekend.
Well, as Drucker may have put it, because it isn't likely to work for very long.
Converting a barrel of oil into refined products is a specific exercise, and is hard to adjust for changes in price and demand. That means that if a ban on diesel exports is enacted, it wouldn't take long for the extra capacity-60% is currently sold abroad-to overwhelm domestic storage facilities.
"It's hard to be precise on timings, but diesel storage in the [U.S.] Gulf could rise to pandemic-era highs-which corresponded with a sharp fall in refinery utilization-within a matter of weeks, said David Oxley, chief climate economist at Capital Economics.
After that, refiners would have little choice but to stop making other products, such as gas, heating oil, and jet fuel, as they cut their runs of diesel production to adjust for the smaller market.
That's likely to stoke domestic gas prices-already at a national average of $4.47 a gallon and up more than 40% from this time last year-into the midterms.
And that wouldn't do much for diesel, with the economy humming along and capacity still constrained.
Then, to make the picture even murkier, Russia, is looking to extend its own ban on diesel exports through October, and attacks from Ukrainian drones have hammered production runs.
Those dynamics will stoke inflation. Higher diesel costs are already wreaking havoc with core prices, which the Federal Reserve keenly watches.
Diesel crack spreads, which effectively measure the gross margin a refinery makes when it turns a barrel of crude into diesel fuel, are trading at a record high of 78.56 points and have more than tripled since late February.
"Normally, margins this high would lift diesel output and rebuild inventories," said Ed Yardeni, founder and CEO of Yardeni Research. "This time is different. High margins can't pull additional barrels into the market if spare refining capacity and crude supply aren't available."
If the Iran war drags on, if Russia extends its diesel export ban, and if production stays near capacity, Yardeni said, inventories could stay low.
"That would keep diesel crack spreads and retail prices elevated even when crude prices normalize," he said
And that would mean inflationary pressures linger.
Torsten Sløk, chief economist at Apollo Global, says that unlike the surge in gas prices, which land on consumers, diesel price increases create "an intermediate input embedded in the delivered cost of nearly every physical good, from freight and rail to agriculture and construction."
Bond markets seem alive to the risks of faster inflation. The the 2-year Treasury note rose to a fresh high of 4.894% on Tuesday after S&P Global activity data showed prices rising at the fastest pace in four years, largely tied to fuel and transport costs.
The benchmark 10-year yield traded at 5.09%, its highest level in almost a decade.
And CME Group's FedWatch tool is pricing in a 64% chance of a Fed rate hike in October. The odds for a December increase are pegged at more than 92%.
Drucker said the greatest danger in times of turbulence is to "act with yesterday's logic."
Banning diesel exports might seem expedient, especially given the political and economic pressures its surge has created, but it is a flawed idea.
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