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September 29 2014

Unleashing American Oil Exports

Rachel DiCarlo Currie

Reuters correspondent Edward McAllister reports on the growing number of federal lawmakers from Texas -- America’s biggest oil-producing state -- who believe it is time to jettison the Ford-era ban on U.S. crude exports: “Even representatives of districts that include large oil refineries, the owners of which have expressed strong opposition to exports for fear it would increase the price of crude, told Reuters that they would support the shipment of oil overseas.” Enacted in 1975, following the first global oil shock, the 39-year-old ban seems more than a bit anachronistic in the Age of Shale, during which the United States has become the planet’s top oil producer. Moreover, the export ban is now a significant obstacle to key U.S. foreign-policy goals.

Back in March, for example, after Russian forces invaded Crimea, Harvard scholar Meghan O’Sullivan -- who served as a deputy national security advisor in the Bush administration -- noted that the most potent short-term energy weapon to use against Vladimir Putin would be U.S. crude-oil exports, rather than U.S. natural-gas exports. “Russia’s real vulnerability lies in the price of oil, not in the realm of gas,” she explained. “Revenue from gas sales abroad make up 8 percent to 9 percent of the Russian budget, while oil revenue accounts for a much heftier 37 percent to 38 percent.”

In the current issue of National Review, historian Arthur Herman makes the larger economic and strategic case for scrapping the 1975 export ban:

“[T]here are sound economic arguments for lifting the ban, including creating new jobs and increasing government revenue, as well as using American sales of crude to stabilize world prices. But even more important from an energy-security standpoint, the United States would then be free to use its oil exports to support our allies in times of economic or geopolitical crisis, for example if Iran closed the Strait of Hormuz or China cut off shipments of oil to Japan and South Korea via the Strait of Malacca.

“We could use exports not only to stabilize prices but also to exert a steady downward pressure on them. A new Brookings Institution–sponsored study by NERA Economic Consulting predicts that lifting the export ban could lower world crude prices by as much as $6 a barrel just in the first year. That would mean significantly less revenue for despots and terrorists, even as our exports made the market more efficient and responsive to normal supply and demand instead of to the whims of countries such as Iran, Venezuela, and Saudi Arabia.

“Indeed, U.S. exports could prevent OPEC from ever again using the threat of an oil cutoff to blackmail our allies. At the same time, American tankers carrying oil to developing countries in Africa and Asia could make ‘energy diplomacy’ as integral a part of America’s foreign policy as ‘Chinook diplomacy’ is today -- but in a less symbolic and far more potent form.

“Critics of lifting the ban have argued that allowing U.S. crude exports would force domestic gasoline prices up at the pump because there would be less oil to refine. This claim, however, misunderstands the nature of the current North American oil market. Domestic refineries in the Midwest and on the Gulf Coast are geared for refining a heavier crude than the light crude from today’s shale production. The latter -- known as ‘tight oil,’ since it is fracked from tight shale formations -- is ideally suited, however, for refineries in Europe. And if the Keystone pipeline is completed, American refineries will have plenty of heavier oil flowing in from Canada.

“Far from raising gas prices, U.S. exports would -- by raising the amount of crude available to be refined worldwide -- actually push prices down at home by as much as twelve cents a gallon, according to an estimate by the Houston-based firm Cambridge Associates. This would save consumers some $420 billion a year.

“America’s oil weapon will work according to a simple economic formula: supply and demand. By keeping world supply up, the United States can put downward pressure on prices. This not only would promote economic growth around the globe and especially in emerging economies, but also would squeeze the revenues of OPEC and Russia, the key sponsors of terrorism and aggression worldwide, as their share of the global market shrank.”

IIndependent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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