The surge in energy prices has generated a lot of loose talk about how to mitigate the impact on American consumers.
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On March 20, Georgia enacted a tax holiday on gasoline and diesel (33 cents and 37 cents, respectively). It’s one example of many measures aimed at providing relief for consumers that have been adopted or are under consideration.
While we understand the political appeal of such measures, there are real trade-offs that demand to be discussed.
The poverty of energy subsidies
Should gasoline prices continue to rise, subsidies to reduce costs for consumers will be put forward by political actors ahead of the midterm elections in November.
A gasoline subsidy works something like this: Gasoline prices rise 20%, causing the average fuel costs for commuters to increase from $50 to $60 per week. Then, to offset that increase, the government offers a $10 subsidy to taxpayers.
That sounds good in principle and may prove to be politically popular. Yet it would most likely result in a persistent increase in inflation.
Why does a gas subsidy raise prices?
To take an oversimplified example: With gas costs rising, households drive less, whether it is by working at home, carpooling or taking public transportation.
By driving less, a consumer reduces outlays on gasoline to $40 from $50 per week. That change in behavior captures a net increase in disposable income: $10 from the change in behavior plus an additional $10 subsidy. That money is then redirected toward broader consumption, savings and the retirement of debt.
If a consumer spends that money, that spending helps create an artificial stimulus of aggregate demand that pushes up inflation more than what would have otherwise occurred.
A better outcome in our estimation would be if policymakers let prices and consumers adjust their behavior on their own.
The end effect is that the subsidy unintentionally causes more inflation than otherwise would be the case.
A U.S. export ban?
A subsidy is not the only remedy that is being considered. Take the idea of banning U.S. exports of oil and natural gas. In our estimation the Trump administration wisely eschewed the possibility of a U.S. export ban of oil and energy products.
But that was before attacks in the Middle East damaged regional energy production and refining capacity, which will take years to repair and result in higher energy costs.
As these costs rise, calls for a U.S. export ban of oil, natural gas, condensates and other liquids are not going to fade.
Like the gas subsidy, the idea is, on the surface, appealing. It conceivably would increase U.S. supplies of energy and reduce gas and electricity prices for American households.
But the U.S. is part of a global economy. If the U.S. reduces the supply of energy to its trading partners, it would only worsen the supply shock in Europe and Asia. Prices would then rise, including in the U.S.
In addition, ending exports of U.S. energy would cut off U.S. revenues from exports of U.S. petroleum products now estimated to exceed $1 billion per day.
Petroleum-derived exports range from crude oil shipped from the Gulf Coast to other nations better able to refine various grades of crude to the liquified natural gas shipped to the Netherlands that have replaced Russian piped natural gas in Western Europe.
Closer to home, natural gas is piped from the U.S. to Canada and Mexico, while other petroleum-derived products are shipped across the global economy.
U.S. oil producers have a willing buyer in the Netherlands…
The Netherlands is the largest destination for U.S. crude oil, buying $323 billion of crude in 2025 and accounting for 22% of total U.S. crude exports. The top 13 buyers of U.S crude account for 85% of total U.S. crude exports.
… and exports of crude are only increasing…
It’s the same with natural gas….
Natural gas exports to Canada and Mexico are piped, accounting for 39% of all U.S. natural gas exports. Exports of liquified natural gas are shipped predominantly to Europe and Asia, with the top 14 recipients accounting for 82% of U.S. LNG exports.
… which is part of the booming U.S. trade
Total petroleum exports include crude oil, natural gas and other petroleum-derived products. The top 12 destinations in 2025 accounted for 67% of all U.S. petroleum exports, with Mexico and Canada receiving a combined 24% of U.S. exports and China and Japan receiving a combined 18%.
The takeaway
It is easy to understand why the political authority would want to mitigate the oil and energy shock.
But steps like gasoline subsidies and export bans ultimately cause more damage than warranted by any benefits they obtain.
Most important, cutting off U.S. petroleum exports would only worsen the energy shock for trading partners, which are still reeling from higher tariffs. A drop in global supplies would only result in higher prices both in the U.S. and abroad.
