Gas subsidies are politically attractive but risk increasing inflation by stimulating spending.
Key takeaways
U.S. energy export bans worsen supply shocks and in the end raise prices.
A better solution is to let consumers adjust their behavior on their own.
The surge in energy prices has generated a lot of loose talk about how to mitigate the impact on American consumers.
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, they bring real trade-offs that demand discussion.
Contact RSM for help navigating this challenging environment.
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 cost 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?
Here is a simplified example: With gas costs rising, households drive less, whether by working at home, carpooling or taking public transportation.
By driving less, a consumer reduces outlays on gasoline to $40 from $50 per week. They then capture a $20 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 $20, that spending helps create an artificial stimulus of aggregate demand, pushing inflation higher than it would have risen otherwise.
A better outcome, in our estimation, would be for policymakers to let prices and consumer behavior adjust naturally.
A U.S. export ban?
A subsidy is not the only remedy 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 ban on U.S. exports 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 ban on U.S. exports of oil, natural gas, condensates and other liquids are unlikely 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, the supply shock in Europe and Asia will only worsen. Prices would then rise, including in the U.S.
In addition, ending exports of U.S. energy would cut off U.S. export revenue from petroleum products, currently estimated to exceed $1 billion per day.
Petroleum-derived exports range from crude oil shipped from the Gulf Coast to nations better able to refine various grades of crude, to the liquefied natural gas shipped to the Netherlands that has replaced Russian piped 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 exports are strong …
The Netherlands is the top purchaser of 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 they are 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 liquefied 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 energy 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.
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