The Unites States Should Lift Its Ban on Crude Oil Exports
On October 9th the US House voted to lift the 40-year old ban on crude oil exports, and it seems the Senate may soon be about to do the same. The President, meanwhile, has called the legislation unnecessary, saying that Congress should instead focus “its efforts on supporting our transition to a low-carbon economy.” While the President may be right when it comes to his priorities, it would be incorrect to say that lifting the ban and reducing carbon emissions are somehow mutually exclusive. If the President is concerned about climate change than he should push for legislation pairing the liberalization of the export market with further action to curb emissions. Regardless, there are plenty of reasons why the ban should be lifted in its own right.
US crude producers have been cut-off from global markets for 4 decades now, and the resulting market distortions can no longer be justified. In reality, the argument for the ban was never all that strong. In the aftermath of the OPEC embargo advocates claimed that it would reduce our dependence on foreign energy, but refined oil (the product that consumers actually purchase) has remained a global market. The most that can be said of the ban may be that it has lowered the demand for American crude, thus creating a supply glut that has benefitted American refineries.
However, with crude prices now comfortably below $50 a barrel, US producers are struggling to earn a return on their investment. If current trends persist we are likely to see an increasing consolidation of the market, as small producers are forced to sell to larger ones, and some choose to exit altogether. This would of course be a disappointing end to what has been by all accounts a remarkable energy renaissance. Lifting the crude export ban would relieve some of the strain on these producers by allowing them access to global markets, thus enabling the continued expansion of US crude production.
What’s more, lifting the ban will increase efficiency in the market by allowing different grades of crude to be processed at the refineries that are best suited to them. Currently the market is distorted in that most American refineries are designed to process heavy, sour crude, while most US production is light and sweet. By allowing US exports to foreign refineries, lifting the ban would address this mismatch.
Finally, the geopolitical implications should not be ignored. Unlike the United States, our European allies are heavily reliant on Middle Eastern crude, which leaves them especially vulnerable to the instability and hostility endemic to that region. Lifting the ban would help to ensure a reliable supply of crude to the continent In the event of any future supply disruption, thus helping to insulate them from conflict. Aside from simply being the right thing to do for our allies, this would no doubt serve to strengthen the transatlantic alliance.
All told, expanding the export market for producers would help to preserve the job gains made in the US energy sector over the past few years, it would contribute to greater efficiency in the global energy market, and it would strengthen our relationship with Europe. While climate activists fear that lifting the ban may lead to lower prices and thus greater consumption, there are just as many reasons to believe that higher prices will actually be the result. Ultimately, temporary price fluctuations should not be weighed heavily when addressing the merits or demerits of the policy in question. Of course, if the President thinks that he can use the issue as leverage to secure more action on CO2 reduction, then perhaps he should. Yet, all the same, it would be a mistake to overlook the many advantages of liberalizing this market.