Should the US lift its oil-export ban?

With the recent precipitous drop in oil prices, you would think that there is further impetus for the government to lift the crude oil export ban which was instituted back in 1975, when the energy landscape was much different than today. But although the economic and national security arguments make sense for lifting the ban, the current politics still do not.

oil barrels
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Congress legislated the ban on crude-oil exports as a direct result of the adverse economic repercussions of OPEC's oil embargo against the United States in 1973-74. Given America's heavy on reliance on oil imports at that time, the ban represented a confluence of political, economic, and national security concerns.

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But the United States is now on pace to become the largest global oil producer this year. With the limited market here at home to refine the light sweet crude that has become abundant as a result of the shale oil revolution — most domestic refiners can only process heavy crude — compounded by declining production margins due to the dramatic fall in oil prices in recent months, exploration and production companies are keen on being able to sell their crude overseas. In contrast, refiners and petrochemical firms would prefer to maintain the ban to prevent inflation of a key input price for them.

Despite these parochial business interests, allowing the export of crude oil would generally be a net macroeconomic positive for Americans. Most notably, the Energy Department's independent research arm, the Energy Information Administration (EIA), recently determined that exporting oil may drive up the price of U.S.-based West Texas Intermediate oil, but that the influx of more crude globally would drive down the price of Brent crude, the predominant oil traded in international markets. And the EIA found that gas prices at the pump are driven by Brent, meaning that allowing crude oil to leave the United States would actually lower the cost of one of the most inelastic consumer expenses here at home.

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From a national security perspective, driving down global oil prices also would increase pressure on many of our potential adversaries which rely predominantly on energy revenues to finance their governments. Iran, Russia, and Venezuela are just a few such examples.

However, the domestic political impact of lifting the ban does not yet jibe with the economic and national security benefits. The issue will undoubtedly get more attention as the Republicans assume full control of Congress next month. In particular, Senator Lisa Murkowski from the oil-rich state of Alaska, who is ascending to the chair of the Senate Energy and Natural Resources Committee, has been a leading proponent of removing the crude ban. And former House Energy and Commerce Chairman Joe Barton from the oil-abundant state of Texas introduced a bill this week to lift the ban, even though Congress will have no time to consider it given that it plans to adjourn by week's end.

But several of their fellow Republicans have not yet fully committed to the cause, as they are concerned that their constituents would still blame them if gas prices at the pump increased in the future. Among those in this more cautious camp is the powerful current chairman of the House Energy and Commerce Committee, Representative Fred Upton from manufacturing-heavy Michigan, who has simply said, "the time is ripe to reconsider" the ban. These fence-sitters believe more research and education is necessary before taking action. Thus, a House subcommittee will hold a hearing on the topic this Thursday. Further complicating the legislative process, moderate Democrats from oil-producing states like Louisiana and Alaska just lost their re-election bids last month.

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Even without legislation, the Obama administration, under the authority of the Commerce Department, theoretically has the ability to unilaterally suspend the ban. But most Democrats, who have a strong environmentalist contingent among their base, downright oppose removing the ban.

Environmentalists are unified in their opposition to allowing crude oil exports. In fact, John Podesta, who serves as Counselor to President Obama and has strong credentials within the environmental lobby, called for an import tax on oil imports — which is inconsistent with being in favor of lifting the crude export ban — when he was still chairman of the Center for American Progress, a progressive think tank that is influential with the Obama administration.

At best, those lobbying to end the crude ban could see policy guidance issued from the Commerce Department in the coming months that allows for increased export of a lightly refined product known as oil condensate (ironically, only crude exports are subject to the ban, while refined products, such as gasoline, are not bound by any export restrictions). Any further progress, however, will have to wait at least until after the next presidential election, leaving the export ban stuck in a slick of crude politics.

Commentary by Stephen A. Myrow, managing partner of Beacon Policy Advisors LLC, an independent policy research firm based in Washington, DC, and served as Chief of Staff to Deputy Secretary of the Treasury Robert M. Kimmitt in 2008-2009. Follow him on Twitter @smyrow.

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