With the US awash in energy due to the rewards of fracking, oil company lobbyists have renewed their efforts to lift the four-decade-old ban on exporting crude oil. Currently, firms that want to export must go through a cumbersome approval process that critics say is opaque and results in ad hoc decisions.
Low oil prices and significant shifts in international market dynamics also make this an opportune time to review dismantling the ban. From an economic perspective, getting rid of the ban is a rational option.
Here are six compelling reasons to back a repeal of the ban:
International Market Shifts
Several significant changes have occurred in the international oil market since 1975, when the main legislative restriction was introduced. The 1973 Arab oil embargo provided the impetus for the passage of the 1975 Energy Policy and Conservation Act that instituted the ban. At that time the US was heavily dependent on imported oil.
Meanwhile, Arab members of OPEC banned oil exports to the US and other nations that supported Israel in the 1973 Arab-Israeli War, and also cut OPEC production. However, today the US is far less reliant on oil imports — its share of oil from foreign sources is around 26%.
Boosting the Energy Sector
While oil consumption in the US has declined in the last several years, oil production has risen substantially. Field production increased from 4.4 million barrels per day in September 2005 to 9.1 million in September 2015.
Moreover, crude oil exports to Canada (a notable exception to the ban) rose from 38,000 barrels in September 1993 to 12,467,000 barrels in June 2015. Thus, the ban’s repeal would provide a boost to the sector. Another likely buyer of US crude is Mexico, which just a struck a deal with the US for a crude oil swap.
Removing Market Distortions
Apart from forcing domestic producers to become more efficient, allowing the export of US crude would resolve a major mismatch in the sector. US crude is lighter, but American refineries are set up to refine heavier imported oil from the Middle East and other foreign sources.
Refining US crude incurs an additional cost. Consequently, lifting the ban would boost refinery infrastructure spending in the short-to-medium term.
Negligible Change for Consumers at the Pump
Supporters of the ban cite a rise in production costs for American oil refineries, which currently buy US oil at discounted prices, and consequent price hikes at the pump as reasons to maintain the status quo.
The International Energy Agency (IEA) and various think tanks have argued that the net effect could be negligible because a rise in domestic prices could be offset by the fall in international prices as US oil enters the global market.
Environmental Concerns Addressed
Supporters of the ban argue that overturning it would result in increased drilling. However, lawmakers could draft an adequate environmental protection policy, with input from the key stakeholders including government, oil companies, and local communities. Policies should take into account environmentalists’ concerns that address the highly sensitive issue of fracking.
National Security Protected
Political arguments for lifting the ban gained ascendancy following Russia’s threat to restrict oil exports to its European neighbors after the invasion of Crimea. If the ban is lifted, safeguards could be added that would allow the US president to curtail crude oil exports should a national emergency necessitate it.
In other words, there is a compelling case to dismantle the ban as early as 2016.
Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.