Is It Time to Lift the Ban on U.S. Crude Oil Exports?
Booming domestic oil production in the United States in recent years has led to clarion calls from government officials and oil companies alike to lift the ban on crude oil exports, arguing that such a move would increase the United States’ energy security and bolster the economy. Yet opponents cite the potential for further environmental degradation and higher gas prices as reasons to leave the ban untouched. The government has sought to avoid making a decision on this contentious issue, but pressure from both sides is mounting.
Recent developments in U.S. domestic oil production and the international energy market have called into question the practicality of the United States’ current ban on exporting domestically-produced crude oil. Federal lawmakers and oil producers argue that lifting the ban would have the dual benefit of boosting the United States’ economy and overall energy security while those opposed—namely environmentalists and U.S. oil refinery workers—cite environmental degradation, loss of jobs, and higher gas prices as reasons to leave the ban untouched. The Obama administration, however, has been reluctant to overturn the ban as it continues to focus on transitioning the United States to a low-carbon economy.
Last month, the U.S. House of Representatives voted in favor of lifting the restrictions on exporting domestically produced crude oil to foreign countries, a practice that has been banned since 1975 with very limited exceptions. Two key laws—the Energy Policy and Conservation Act of 1975 and the Export Administration Act of 1979—resulted in the establishment of the ban to guard American energy security following the Arab Oil Embargo of 1973, which nearly quadrupled the price of U.S. oil imports. The export ban ensured that the United States’ domestic oil supply would stay intact in case of external shocks.
The recent plunge in oil prices has led to exponential growth in production in the United States, more than any other country in the world over the last five years. In 2012, the United States exported nearly three million barrels per day (bpd) of refined oil products, a nearly 50% increase compared to the just over two million bpd two years earlier. Increased production has led to lower oil import rates (down nearly one million bpd since 2009) and decreased U.S. vulnerability to market fluctuations. Proponents of lifting the ban say this is just the tip of the iceberg in terms of potential economic gain for the United States from global energy markets.
Advocates for lifting the ban, namely U.S. oil producers, elected officials in Congress, and a host of key energy analysts, argue that doing so would allow drillers to sell their extra oil overseas, in turn encouraging more drilling and a subsequent increase in jobs in the refining sector. Financially, some experts say the effects of lifting the ban could be immediate, with one estimate stating that crude exports could generate over $15 billion a year in revenue by 2017 at today’s prices. Additionally, a report from the American Petroleum Institute found that U.S. GDP could reach $38 billion by 2020 if the ban was lifted.
Lifting the ban would also portend international security benefits. It would enable the U.S. to take advantage of trade relationships with countries like Japan, South Korea, and Taiwan, who import 90% of their total energy needs. Access to U.S crude oil exports would allow these countries to diversify their influx of supply, in turn bolstering their own energy security. This same thinking can be applied to the United States’ neighboring countries in the Caribbean, particularly Cuba, Jamaica, and the Dominican Republic. Currently, these countries are tied to Venezuela’s Petrocaribe program and often find themselves at the mercy of that country’s unstable economic situation. Developing oil trade relationships with countries dependent on energy imports will provide an economic outlet for U.S. crude exports while simultaneously improving the energy security of U.S. allies.
Additionally, oil exports from the United States could be used as a “strong diplomatic tool.” Lifting the ban not only demonstrates Washington’s commitment to free and fair trade, but also supports Washington’s foreign policy objectives. U.S. oil exports could work to curb the use of energy as a political weapon by “energy bullies,” countries that use their energy supply as a form of coercion over other countries, such as Russia did when it cut off gas to Ukraine earlier this year as a form of political punishment. U.S.-exported oil could also provide general stability to the global oil market by reducing the impact of volatile Middle Eastern oil. For example, it would likely take a share of the market from Iran, whose oil companies will be reentering the global market when sanctions are reduced. In 2011, prior to many of the existing sanctions on Iran, the country was exporting roughly 2.6 million bpd, a majority of which went to the European Union (600,000 bpd) and China (550,000 bpd). The presence of American oil exports would decrease the potential influence of—and reliance on—Iranian oil.
While many government officials and top oil companies are in favor of lifting the ban on crude oil exports, there is also considerable resistance. Opponents of lifting the ban cite environmental and climate degradation, loss of U.S. jobs and higher gasoline prices as key reasons behind their position. Michael Brune, executive director of the Sierra Club, summarizes a common environmental argument: “The science overwhelmingly says that in order to prevent the most catastrophic effects of climate change, we must leave dirty fuels in the ground. Lifting the ban will increase the cost of oil, leading to more drilling, further worsening climate disruption.” Opponents also argue that jobs in the U.S. refining sector will be lost if the ban is lifted as margins decline in the face of new competition from overseas refineries. The final concern opponents cite—that lifting the ban will leaded to increased gasoline prices—remains the most controversial, and a report from the Energy Information Administration predicts that these prices would remain unchanged or even fall slightly as a result of lifting the ban.
So, is it time to lift the ban? Each side has made its case, and the Republican-led Congress has plans to vote on the ban this month. The Obama administration, however, has been reluctant to support lifting the ban, placing increased emphasis on renewable energy technologies and fighting climate change. To avoid taking a hard stance on the issue, they have placed the burden of decision on the Department of Commerce. White House Press Secretary Josh Earnest recently dodged the issue, stating: “We’ve got a position on this, which is this is a policy decision made over at the Commerce Department.” Last year the Commerce Department removed several restrictions for certain U.S. companies, enabling them to export condensate oil to foreign countries. If the administration will truly leave the decision to Commerce—which has clearly signaled its position in favor of lifting the ban—are we seeing a slow, albeit important change as we know it? It is too close to call at the moment, but President Obama’s recent decision on the Keystone XL pipeline suggests that the administration will not support lifting the ban—a nod to its commitment to fight climate change.
William George is a Staff Writer for Charged Affairs. He earned an MA from the University of Central Florida in Orlando and has held research positions covering U.S.- Saudi relations, terrorism, and U.S. energy policy. He recently worked as a Project Consultant for the Hollings Center for International Dialogue.
Image credit: Niel Kremer/Flickr.