Trump’s red-tinted diesel plan is more attractive for midterm elections than gas price solution, experts say
Diesel fuel prices are hitting record highs above $6 a gallon amid the Iran war, but energy analysts and trucking industry groups say the Trump administration’s new strategy is less of a viable solution than an act of political posturing.
President Donald Trump signed an executive order this week deferring taxes on the use of red-dyed diesel, a type of fuel typically used only by farmers and truckers. Since this type of fuel is exempt from road fuel taxes, it is illegal to use it on public roads. The red dye also allows a highway inspector to detect if a trucker is avoiding taxes by using the fuel on highways.
The tax deferral, which would theoretically increase the supply of fuel truckers had access to by temporarily easing the tax burden by 24.4 cents per gallon, is in effect until the end of the year.
Rather than rejoicing at the prospect of more fuel with fewer strings attached, experts and stakeholders don’t see much benefit from the change. Instead, they argue, it’s a way for the Trump administration to try to save face as approval ratings continue to slide. A Reuters/Ipsos poll released this week found a 32% approval rating for the president, with Americans citing the cost of living as their top concern.
Trump has proposed a suspension of the federal gas tax before the midterm elections, although the move would require congressional approval, and has drawn widespread criticism due to concerns that it would create an additional debt burden, as tax revenue would have to come from elsewhere in the federal budget. Patrick De Haan, head of oil analysis at GasBuddy, sees delaying the tax on red-tinted diesel as a way for the White House to circumvent Congress while giving the public the impression that it was addressing concerns about soaring fuel costs.
“This dyed diesel waiver does not increase supply globally. It does not improve the reasons that led to high prices,” De Haan said. Fortune. “It would look more like lipstick on a pig.”
White House spokesperson Taylor Rogers said in a statement Fortune the executive action will “rapidly reduce diesel costs and put money directly back into the pockets of America’s truckers,” saving them more than $100 per fuel refill.
The ramifications of a tax deferral on red-tinted diesel
The main concern among industry stakeholders is that a tax deferral is not the same as a tax break, which would likely result in truckers or drivers having to continue paying for the use of red-tinted diesel down the line.
“We do not expect most reputable diesel retailers and fuel distributors to do this,” the Society of Independent Gasoline Marketers of America and the National Association of Truck Stop Owners said in a joint statement to their members. “First, the tax is still due, so the upside potential is limited.”
David Russell, global head of market strategy at TradeStation Group, said the deferrals put truckers on alert because of the possibility they will still have to pay taxes down the road. Trump has asked Treasury to explore ways to eliminate the carryover, but the agency has provided no guidance.
“You’re in an unusual situation where they’re basically saying, ‘We’re going to try not to impose a tax for a while, and we’re going to hope that Congress later blesses this action,'” Russell said. Fortune. “And if not, then we could be held liable, or we could create a situation where the gas stations would have to repay that tax to the government later.” So that creates a lot of uncertainty.
Even without the potential tax issues, red diesel represents only a fraction of the total fuel – about 30% – used by commercial vehicles, De Haan said. Red-dyed diesel is generally only used in specific contexts like agriculture, and is not widely available at many truck stops. The White House said more than 4,000 retailers in the United States distribute tinted diesel.
“It’s rarely truck stop fuel,” he said. “Even if you wanted to find that, it might be a bit like a diamond in the rough to find.”
Solving U.S. Fuel Supply Problems
Analysts agree that solving the U.S. fuel shortage would require greater geopolitical stabilization, such as ending the wars in Iran and Ukraine. Russell said that if the worst of the Middle East conflict was over, bottlenecks could ease – and, combined with some disruptions to U.S. domestic oil production due to a mild hurricane season so far, that could mean diesel prices could actually fall on their own.
“The real solution to this situation ultimately lies in supply and demand in the market,” Russell said. “It would not be because of this measure with red diesel. It would be the result of the improvement of the situation and normal seasonal dynamics.”
De Haan, however, fears a possible spike in gas prices if Ukraine repeats its attack on Russian oil refineries – something Trump has attributed the rise in gas prices to – and suggested that the best way to increase global oil supplies is for the president to keep his word to end the war in Ukraine. Otherwise, deferring the tax on red-tinted diesel would have limited impact because the actual supply of the fuel would not increase.
“Apart from resolving the underlying geopolitical issues, I don’t think there’s a big quick victory here,” De Haan said. “The president is scrambling before the midterms to do something, but I just don’t know if it’s really a topic of change in my mind.”
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