Why do Americans need Russian diesel? Trump’s deal with Putin from the economists’ point of view

Negotiations on the possible parameters of a peace agreement between Ukraine and the United States with the participation of European countries began on October 9 — and already in the evening Donald Trump announced that he had reached a “major deal” with Russia on emergency supplies of Russian diesel fuel to the United States. “Russia will immediately supply more than 300,000 tons of diesel fuel, then another 500,000 tons in November, and right after that — another 1 million tons, and another 3 million, depending on the condition of their diesel refineries”, he enthusiastically wrote on his social network Truth Social, and then added in an official statement: “This is a major deal. Our country will receive a very massive volume of oil and fuel. And, frankly, I am grateful to President Putin”. Words were immediately followed by action: OFAC temporarily, for six months, lifted sanctions on supplies of Russian diesel to world markets.

Zelensky is not needed

Russian pro-government media were overflowing with delight over the weekend: the deal was the result of a one-and-a-half-hour conversation between Trump and Putin, when neither wanted to end the call first! This is a breakthrough! Further sanctions relief lies ahead! European and American media were not so ecstatic, but most of them, including many pro-Republican outlets, expressed displeasure — from polite bewilderment to outright accusations of betraying Ukraine. The Ukrainian delegation, which by that time had completed the first day of negotiations, left Miami ahead of schedule — although Steve Witkoff, who led them on the U.S. side, optimistically said that this was only because the talks had been productive and everything had been discussed on the very first day.

And as if that were not enough: Trump said at a briefing with journalists that Ukraine needs another president:

“You know what I suggest? I suggest they find a new leader who can make a deal, because he could have settled this war many times, many, many times. And he prefers not to do it. It’s very difficult... I think it’s time for Ukraine to get a new president”.

Perhaps such a shocking statement (although, it would seem, what could be shocking after the “diesel deal”!) prompted Trump’s reaction to the Ukrainian president, who called the deal “an investment in war”, as well as an “unfair” and “weak” decision. Perhaps it was that Zelensky stubbornly refused to stop strikes on Russian refineries without Russia giving up strikes on Ukrainian infrastructure. Perhaps because a few hours after Trump’s statement, the Ukrainian Armed Forces struck a major oil terminal in Rostov-on-Don that handled transshipment of petroleum products for export. Or perhaps Trump simply really dislikes Zelensky and really likes Putin.

The main thing on which all experts now agree is that U.S.-Ukraine relations are now at their lowest point, the worst since the shouting match in the Oval Office at their first official meeting. And although many express hope that after the U.S. midterm elections on November 3 Trump will be reined in by the new Congress, this month still has to be somehow survived — taking into account the intensification of Russian attacks and the (so far) denied threats to deprive Ukraine of American intelligence data. And if you consider that Elon Musk supported Trump’s statement about a new president for Ukraine — then the connection of Ukrainian military forces to Musk’s Starlink satellites is also under threat.

But let’s move on to economics.

Everything you need to know about this diesel

Trump himself announced the “diesel deal” as a remedy for high diesel prices — in the United States it is used to fuel farmers’ vehicles and many pickup owners. However, economists have doubts that supplies of Russian diesel fuel — which still somehow has to make it to America — will lower fuel prices in the United States.

This was best explained by economist Sergei Aleksashenko. According to him, the United States, as one of the largest export players, itself sends 1.5 to 1.9 million barrels of petroleum products daily to foreign markets, while domestic daily diesel consumption in America is about 3.8-3.9 million barrels. The promised volume of the first shipment from Russia, 300,000 tons (about 2.23 million barrels), cannot significantly affect the American market. Nor can the subsequent shipments.

From a logistics standpoint, transporting Russian diesel from Russia to the United States is unprofitable: it is better to take it in Ust-Luga and sell it in Rotterdam to the same Europeans.

The problem of expensive diesel in the United States is not that there is too little of it there — in reality, the United States produces far more diesel than Russia promised. The problem is that global supplies of petroleum products are now hindered by Iran’s blockade of the Strait of Hormuz and the Houthis’ blockade of the Bab el-Mandeb Strait — and these are two supply routes for petroleum products, above all to Europe.

And although American convoys escort tankers through the Strait of Hormuz, the continuing danger of their being damaged by Iranian forces (and this happens quite regularly) greatly raises transport costs. Prices for petroleum products, including diesel fuel, are rising in Europe — American producers are supplying more diesel there and raising its price on the domestic market. There is no price-smoothing mechanism like in Russia, where the state compensates producers for keeping domestic prices low, in the United States.

But in recent days Trump has repeatedly said that diesel in the United States is becoming more expensive not because his own “Iran in three days” special operation failed, but because Ukraine is striking Russian refineries.

This is not true, if only because strikes on refineries hurt gasoline production more than diesel fuel. First, due to the peculiarities of the chemical composition of Russian oil, twice as much diesel is produced as gasoline. Second, Russia is now switching to winter diesel — and it needs to get rid of its summer fuel stocks somehow before Ukrainian drones burn them up. After the European embargo, Brazil became one of the largest markets for Russian diesel.

So at most this could be about redirecting flows — and about cheaper transportation due to the absence of the need to get clever with a “shadow fleet”.

And finally, Russia has never exported significant amounts of diesel: even before the strikes on refineries, these volumes did not exceed 2.5-3 million tons per month. That is 9.5-12% of the world market for diesel fuel and only 620,000 — 746,000 barrels per day — several times less than U.S. daily consumption and its own daily exports.

Hype and long-term consequences

I cannot say how much the deal with Putin will help Trump in his desire to win the election. On the one hand, even members of his own party are condemning this move by the U.S. president: under the leadership of Republican congressman Brian Fitzpatrick, a group of Republicans and Democrats is now preparing a draft “Ronald Reagan Peace Through Strength Act” to completely ban supplies of Russian oil and petroleum products to the United States. On the other hand, the bill may not make it through before November 3, and Trump’s core electorate seems ready to greet with applause anything he does or says.

However, the longer-term consequences of Trump’s play into Putin’s hands are quite clearly visible.

Let me start from afar. Right now the U.S. debt market is in turmoil: the yield on 30-year government bonds rose to 5.7%, which is a record since 2002, and it is possible that it will rise to 6%. Rising yields mean that the bonds themselves are getting cheaper. Why? Because many are already bothered by America’s national debt, which has exceeded $40 trillion, and just servicing it costs the U.S. Treasury more than $1 trillion a year. Because inflation stubbornly refuses to move toward the 2% target, and the new Fed chair Kevin Warsh turned out to be even less accommodating than Powell, and now the question is whether the Fed will leave the rate unchanged until the end of the year or raise it. Because the largest holders of U.S. government debt are selling it off: from China to Japan, which is now facing its own debt crisis.

U.S. government debt is an avatar of the American dollar. Nobody buys actual cash dollars except for the convenience of cash circulation; everyone buys U.S. government bonds — Treasuries. A fall in demand for Treasuries is equivalent to a fall in demand for the dollar.

Meanwhile, the U.S. dollar is the main export product of the United States. Not iPhones, not AI, not social networks, not jeans, and not Hollywood movies. A huge number of financial transactions pass through the dollar at one stage or another. Oil trade is conducted in dollars. Companies, stocks, and cryptocurrencies are sold and bought for dollars. No “BRICS currencies” and no “settlements in national currencies”, which Russia and sometimes China like to boast about, can shake the power of the dollar: this is only an attempt to hide sanctions evasion from the all-seeing eye of OFAC. By the way, that is why American sanctions are much more painful than European ones, despite all the efforts of the latter.

And what does the dollar rest on? No, not only on the Bretton Woods system, which made the dollar the world’s main reserve currency, and the Jamaica system that replaced it. The dollar rests, above all, on recognition of U.S. leadership — in the economy, in political power, and in military power. But not simply on recognition of the “right of the strong”: that recognition is based primarily on the idea of the United States as a “world policeman” ready to establish order in any part of the world — even if according to its own notions.

Trump’s behavior before the current deal with Putin had already raised doubts about whether the United States continues to play this role. To be fair — this did not begin with Trump, and previous presidents also caused such doubts: from the Vietnam War to the disgraceful flight from Afghanistan. But it was Trump who voiced the new doctrine: the United States no longer wants to play this role. And perhaps, as the conflict with Iran showed, it cannot.

But if the United States is no longer the guarantor of peace and order, why should the world pay the United States for using its dollar?

This has happened in the world before. Before World War II, the world’s main currency was the British pound. And afterward it lost its significance. And not only because Britain was bled dry by the war. Disillusionment with British power came much earlier: when British Prime Minister Neville Chamberlain made a “good deal” with Adolf Hitler, saying that he had “brought peace to Britain”. Alas, as future Prime Minister Winston Churchill prophetically noted, those who choose disgrace instead of war get both disgrace and war. It is said that this quote is not exact, but that the “good deal” was called the Munich Agreement — absolutely. As is the fact that such behavior by a country wearing the leader’s jersey is unforgivable.

P.S. On Sunday afternoon (European time), Trump on X announced an energy ceasefire between Russia and Ukraine. Zelensky said he had not been informed about the reached agreement and is waiting for clarification from the American side“. In an interview he said that if a ceasefire with a complete halt to fire is announced for 60 days, Ukraine will hold elections. However, a few hours later, after the U.S. president announced the immediate entry into force of the energy ceasefire between the two countries, Russia continued to strike Ukraine’s energy facilities. According to Zelensky, after Trump’s statement a Russian Shahed drone struck a power plant in Kyiv, causing blackouts in many parts of the city. Later, strikes were carried out on energy facilities in the Kharkiv region. In particular, Russian forces attacked CHP-5 in Kharkiv. As of late evening on October 11, the Russian side had still not confirmed any peace agreements with Ukraine.