Key Takeaways
The Trump Administration has worked to reduce the cost of diesel, which has risen more than other petroleum products after military conflicts and refinery closures.
President Trump signed an executive order to allow ‘red-dyed diesel’ to be tax-free.
Red-dyed diesel is used in tractors and off-road machinery and is dyed red to help law enforcement detect tax evasion if operators use the fuel on roads.
President Trump waived the off-road requirement for red-dye diesel, making it available temporarily tax-free to lower diesel prices. The new executive order directs federal authorities to expand access to tax-exempt diesel, the red-dyed fuel used in tractors and off-road machinery, to help law enforcement detect tax evasion if operators use it on roads. The red fuel is now temporarily approved for on-road use, lowering hauling costs by 24.4 cents per gallon. The lower fuel prices are estimated to save truckers about $100 each time they fill up; lower the costs of other goods, including groceries; and collectively reduce farmers’ operating costs by millions of dollars in the short run. However, that number is closer to $60 if the relief is only at the federal level and states do not participate.
The October 5, 2026 executive order temporarily allows off-road dyed diesel to be used on highways and directs the Treasury Secretary, in consultation with the Secretary of War, to defer the federal excise tax on that on-road use through December 31, 2026, without interest or penalties, and to explore ways to eliminate the deferred tax obligation. It also directs the Transportation Secretary to coordinate with states, industry, and labor on access to dyed diesel, and the Agriculture Secretary to protect farmers’ access in high-demand areas and encourage states to take matching steps. It does not cancel the 24.4-cent-per-gallon federal tax, and it does not override state dyed-diesel restrictions or state diesel taxes.
The Treasury Department is instructed to review federal diesel taxes for cost-reduction opportunities, and the Transportation Department will negotiate with states on temporarily waiving road-diesel taxes. To slow rising prices, Transportation Secretary Sean Duffy announced last month that the Transportation Department would ease rules governing how many consecutive hours fuel truck drivers can work. The temporary adjustment is set to last 90 days.
Diesel prices averaged $6.30 per gallon on October 7, down from $6.52 per gallon on September 22. Prices are up more than $2.60 per gallon from the same time last year. Diesel prices escalated due to Ukrainian drones striking Russian refineries, prompting Russia to ban exports beginning in July and continuing through this month; the conflict in Iran, resulting in only 20% of the normal flow of refined products moving out of the Strait of Hormuz; low fuel stocks; and the global closure of refineries as part of the climate movement that has limited refinery capacity in recent years. California has also recently closed two refineries due to its anti-oil and gas policies, forcing the state to import.
Since the Iran conflict began on February 28, the price of a gallon of diesel in the United States has risen by more than 70% – far more than the almost 45% increase in Brent crude oil and the 50% increase in unleaded gas prices over the same period.
Nebraska Governor Jim Pillen declared a state-level emergency on September 24, citing the distillate fuel shortage, and signed two executive orders to reduce fuel costs for harvesting and hauling after diesel costs topped record highs. His orders remain in effect until December 23 unless he takes further action to codify them.
G-7 Release Diesel Stocks
G-7 leaders agreed to release 100 million barrels of emergency diesel and oil stocks over four months, including a substantial diesel release in the first 20 days. While Middle East oil exports have recovered, refined-product flows remain severely constrained, particularly diesel. According to the International Energy Agency, the group has released about 325 million of the 400 million barrels it pledged under its March collective action. The group also agreed not to restrict energy exports between member countries. The G-7 members are France, Canada, Germany, Italy, Japan, the United Kingdom and the United States.
The Trump administration has been pressuring Europe to release diesel stocks as an alternative to the U.S. imposing an export ban. The U.S. supplied around half of the EU’s diesel imports in August, according to the International Energy Agency, underscoring the bloc’s exposure to a potential U.S. export ban. According to Energy Secretary Chris Wright, the “United States and Japan are delivering on their commitments,” but “several European member countries have released only a fraction of the crude oil and petroleum products they pledged.”
According to the Department of Energy, 800,000 barrels of oil were recently released from the U.S. Strategic Petroleum Reserve, with releases during September marking the smallest total in six months. The DOE said the reserve held 283 million barrels, the lowest since October 1982, and was near bottom tank levels.
OPEC+ Keeps Oil Output Steady
Seven members of the Organization of the Petroleum Exporting Countries and its allies, including Saudi Arabia and Russia (OPEC+), agreed to keep oil production levels steady in November after modest increases this summer. Saudi Arabia is loading oil from both its Persian Gulf and Red Sea coasts as regional exports recover. Saudi oil shipments through the Strait of Hormuz increased from around 1.4 million barrels a day in late August to around 4.1 million barrels a day recently. The Saudi’s East-West pipeline has returned to flows of around 5.5 million barrels a day after being shut in mid-September following drone attacks, leaving about 4 million barrels a day available for export from the Red Sea port of Yanbu.
Conclusion
To lower diesel prices, which have risen 70% since the Iran conflict began, President Trump signed an executive order making ‘red-dyed diesel’ tax-free. Red-dyed diesel is used in tractors and off-road machinery and is dyed red to help law enforcement detect tax evasion if operators use the fuel on roads. Truckers are estimated to save about $100 each time they fill up, which can lower the cost of other goods, such as groceries. In addition, more diesel should become available, as the G-7 leaders agreed to release 100 million barrels of emergency diesel and oil stocks over four months, including a substantial diesel release in the first 20 days.
