Truck drivers are unlikely to see substantial financial relief from President Donald Trump’s recent executive order permitting the use of off-road diesel fuel on public highways without federal penalties, according to industry analysts. The move addresses surging fuel costs but falls short of a permanent solution, with critics noting the underlying tax obligations remain intact.
Off-road diesel, commonly dyed red to distinguish it from taxed on-road fuel, is traditionally exempt from federal and state excise taxes because it is designated for construction equipment, agricultural use, railways, and home heating. Currently, the federal government imposes an excise tax of 24.4 cents per gallon on on-road diesel. Under the new directive, truckers can utilize the cheaper, untaxed red diesel without immediate fear of federal enforcement, though this effectively postpones rather than eliminates the tax liability.
Andy Lipow, president of Lipow Oil Associates, highlighted the temporary nature of the reprieve. “While it might be deferred, it may not disappear entirely,” Lipow said. “Maybe you save a little bit of money up front, but you might have to pay it to the government later.” The order directs Treasury Secretary to explore methods to erase the deferred debt entirely by year’s end.
A White House official, speaking on condition of anonymity, stated that the Treasury Department is drafting guidance to clarify obligations for both sellers and users of dyed diesel. The official emphasized that the IRS retains enforcement discretion and will only pursue the deferred taxes if specifically directed by the Treasury secretary and the president. The agency is currently evaluating whether dedicating resources to fuel tank inspections and sampling is the most efficient use of its budget.
However, the executive order cannot suspend state excise taxes, which often exceed the federal rate. With the national average state tax standing at 35.5 cents per gallon, some states have independently moved to assist diesel users. Despite the federal waiver, state laws technically still prohibit the use of red-dyed fuel on highways. Lipow noted that while state troopers may not actively inspect every vehicle, the potential for harassment remains a concern for drivers.
The policy shift occurs amid intense political pressure ahead of the November 3 midterm elections, particularly in competitive agricultural states like Iowa where Republican candidates face tough races. Retail diesel prices reached record highs in September, averaging $6.30 per gallon nationally according to AAA. In September, Trump briefly considered banning diesel exports but abandoned the plan after facing opposition from the oil industry and major business groups, acknowledging concerns that such a ban could inadvertently raise gasoline prices.
Market reactions were mixed. Diesel futures initially dropped following the announcement but rebounded, rising more than 1% by Wednesday. Lipow attributed this volatility to the lack of viable alternatives for the administration. “What it shows you is there are no good options for the administration or any administration to bring down the price of fuel, because the bottleneck is refineries,” he explained.
Global diesel prices remain elevated due to supply disruptions caused by the war in Ukraine, where Russian refineries are being targeted, and by Iranian and allied strikes in the Middle East that have taken production capacity offline. In response, G7 nations led by France agreed to release strategic diesel reserves, though the specific volumes remain unclear. Jeff Currie, CEO of Real Macro and a senior advisor at Carlyle, told CNBC that allies are “pulling every lever they can,” but he dismissed Trump’s executive order as unlikely to have a profound impact on prices.
Lipow suggested that the only effective measure would be a geopolitical resolution. “End the conflict,” he said. “The Strait [of Hormuz] reopens, oil flows, those refineries in the Middle East start kicking up runs, more refined products make it to the market.” He concluded that the market’s reaction to such a development would be immediate and significant.
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