Trump’s recent “Diesel Deal” with Russia mathematically can’t work, and that doesn’t matter to him. To provide some background, on Friday 9 October, Trump announced that he had made a deal with Russia to lift sanctions and allow 300,000 metric tons of Russian diesel to be imported into the US and global markets, with a further 500,000 being released in November and another 1,000,000 tons “immediately thereafter.”
The face-value thought behind that deal being to flood the market with Russian diesel, in response to the major spikes in diesel prices as a result of the Iran War, which, theoretically, should cause a downward shift in prices. The problem is that 300,000 tons of diesel represents only 14 hours of diesel use in the US alone.
The numbers simply don’t work whatever way you put it, and they aren’t meant to. Trump’s trying to signal to voters that he’s the only one who cares about their pain; that he is willing to take the most radical action to cut the price of diesel. He wants to position himself, in contrast to the Democrats, as the one guy whom they can rely on to sacrifice anything—including international alliances and the core values of US foreign policy—to cut the price of diesel at their local pump. So, if people want that number to go down, the only course of action they can take is to vote Republican in the upcoming midterm elections. An election which, forecasts suggest, could result in a shift of power in both the House and the Senate towards the Democrats.
There’s a major flip side to this signal, however. When Trump signed a sweeping Russian sanctions law, just weeks ago, aimed at Russia’s energy industry, he made a commitment to Moscow and the markets that the pressure would last as long as the war. Much like central bank inflation targets, sanctions only work when they’re credible. By now easing those sanctions, while under pressure from an almost entirely self-inflicted Iran War oil price spiral, he has spent the credibility of his commitments. Moscow now has reason to think US sanctions will last only until they become domestically inconvenient. Beijing and Tehran are watching closely.
Worse than that, it appears he squandered his credibility for nothing. Although diesel prices fell about four per cent, to $4.73 on 9 October, by 13 October, they rose back up four per cent to $4.93. Now they are at $4.90— roughly the same as it was prior to the announcement. That shouldn’t surprise anyone either; announcements only move expectations if they’re credible, and a president who has just demonstrated his willingness to bend commitments under pressure can’t reasonably ask markets to treat his next one as binding, least of all when the are details vague, the volumes of oil small, and with Congress already moving to stop it.
Trump has gained precisely nothing from this announcement thus far, and it’s not likely to change electoral outcomes either, because voters associate Trump with the root cause of the energy price spikes, which is the Iran War.
In defense of Trump, one may suggest that his approach here is a veiled iteration of Richard Nixon’s “madman theory,” whereby seeming irrational and volatile could lead adversarial nations to make concessions they wouldn’t otherwise make, for fear of the worst. While it’s undoubtedly true that the madman theory can work, it seems that Trump, given his prior volatility, has his ‘madman-ness’ already priced into any negotiation he goes into with an adversarial nation, and here the volatility only seems to be leading to concessions toward Russia.
Trump spent his credibility to buy a promise the market didn’t believe and now expects voters to perceive his action as a gallant, radical attempt to save them money at the pump. The problem is, voters don’t see him as a diesel-powered Lancelot.
“Donald Trump Signs The Pledge” by Michael Vadon is licensed under CC BY-SA 2.0.
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Trump’s pump and dump: The ineffectiveness of the Diesel Deal
Trump’s recent “Diesel Deal” with Russia mathematically can’t work, and that doesn’t matter to him. To provide some background, on Friday 9 October, Trump announced that he had made a deal with Russia to lift sanctions and allow 300,000 metric tons of Russian diesel to be imported into the US and global markets, with a further 500,000 being released in November and another 1,000,000 tons “immediately thereafter.”
The face-value thought behind that deal being to flood the market with Russian diesel, in response to the major spikes in diesel prices as a result of the Iran War, which, theoretically, should cause a downward shift in prices. The problem is that 300,000 tons of diesel represents only 14 hours of diesel use in the US alone.
The numbers simply don’t work whatever way you put it, and they aren’t meant to. Trump’s trying to signal to voters that he’s the only one who cares about their pain; that he is willing to take the most radical action to cut the price of diesel. He wants to position himself, in contrast to the Democrats, as the one guy whom they can rely on to sacrifice anything—including international alliances and the core values of US foreign policy—to cut the price of diesel at their local pump. So, if people want that number to go down, the only course of action they can take is to vote Republican in the upcoming midterm elections. An election which, forecasts suggest, could result in a shift of power in both the House and the Senate towards the Democrats.
There’s a major flip side to this signal, however. When Trump signed a sweeping Russian sanctions law, just weeks ago, aimed at Russia’s energy industry, he made a commitment to Moscow and the markets that the pressure would last as long as the war. Much like central bank inflation targets, sanctions only work when they’re credible. By now easing those sanctions, while under pressure from an almost entirely self-inflicted Iran War oil price spiral, he has spent the credibility of his commitments. Moscow now has reason to think US sanctions will last only until they become domestically inconvenient. Beijing and Tehran are watching closely.
Worse than that, it appears he squandered his credibility for nothing. Although diesel prices fell about four per cent, to $4.73 on 9 October, by 13 October, they rose back up four per cent to $4.93. Now they are at $4.90— roughly the same as it was prior to the announcement. That shouldn’t surprise anyone either; announcements only move expectations if they’re credible, and a president who has just demonstrated his willingness to bend commitments under pressure can’t reasonably ask markets to treat his next one as binding, least of all when the are details vague, the volumes of oil small, and with Congress already moving to stop it.
Trump has gained precisely nothing from this announcement thus far, and it’s not likely to change electoral outcomes either, because voters associate Trump with the root cause of the energy price spikes, which is the Iran War.
In defense of Trump, one may suggest that his approach here is a veiled iteration of Richard Nixon’s “madman theory,” whereby seeming irrational and volatile could lead adversarial nations to make concessions they wouldn’t otherwise make, for fear of the worst. While it’s undoubtedly true that the madman theory can work, it seems that Trump, given his prior volatility, has his ‘madman-ness’ already priced into any negotiation he goes into with an adversarial nation, and here the volatility only seems to be leading to concessions toward Russia.
Trump spent his credibility to buy a promise the market didn’t believe and now expects voters to perceive his action as a gallant, radical attempt to save them money at the pump. The problem is, voters don’t see him as a diesel-powered Lancelot.
The violence of radical nationalism
“Donald Trump Signs The Pledge” by Michael Vadon is licensed under CC BY-SA 2.0.
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