The Cable

U.S. Mulls Lifting Oil Export Ban, but a Tough Sell on the Hill

Congress keeps trying to lift the 40-year-old ban on crude exports. Politics keeps getting in the way.

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The U.S. Senate took another small step this week toward ending the 40-year ban on crude oil exports, but the whole notion of shipping oil overseas has become so politicized that it likely will die in a divided Congress.

The Senate Banking Committee passed legislation to end the ban, a limitation that was put in place in the mid-1970s after the trauma of the OPEC oil embargo led to long gas lines and soaring prices at the pump. Nominally, the measure earned bipartisan support, passing out of committee in a 13-9 vote. But that included all 12 Republicans on the committee and just one Democrat, the bill’s cosponsor, Sen. Heidi Heitkamp of North Dakota. What’s more, unrelated amendments tacked onto the bill would force Iran to use money it will earn from sanctions relief under the nuclear deal to compensate terrorism victims. Senate Democrats don’t want to scupper President Barack Obama’s Iran deal, so amendments like that all but doom the measure.

Even without the “poison pill” riders, though, oil exports are toxic in Washington, despite heaps of economic studies showing that allowing exports would boost the U.S. economy, create jobs, and bring down prices at the pump, benefiting consumers. Clearview Energy Partners, an energy consultancy, figures there is only a 15 percent chance an oil-export bill could pass Congress.

Broadly speaking, Republicans in Congress and on the presidential campaign trail want to lift the ban because it has become an anachronism at a time when the United States is one of the world’s biggest oil producers. Many see the continued prohibition on U.S. exports as especially galling right as Iran is preparing to flood the markets with its own recently liberated oil.

The House will vote next week on a similar export bill introduced by Rep. Joe Barton (R-Texas). Presidential candidates, including casino mogul and beauty-pageant organizer Donald Trump, New Jersey Gov. Chris Christie, and former Florida Gov. Jeb Bush, have all come out in favor of lifting the export ban. Bush, who included lifting the ban in his energy plan, said limiting the sale of crude “makes no sense now.”

Democrats in the White House, on the Hill, and the campaign trail are generally leery of what they say looks like a giveaway to Big Oil. Additionally, many lawmakers question allowing crude exports while the United States is still importing millions of barrels of oil a day. Sen. Robert Menendez (D-N.J.) tried to attach an amendment to the Senate bill that would have postponed exports until the United States is self-sufficient in oil production. Hillary Clinton and the White House have both said they oppose current legislation to lift the ban.

The debate over crude exports would have been unimaginable just a decade ago, when U.S. oil production was declining and imports were soaring. But since about 2008, the fracking revolution has tapped huge amounts of oil: U.S. crude oil production grew from about 5.1 million barrels per day in 2008 to about 9.3 million barrels a day this year. (The United States consumes about 19 million barrels a day.)

Even though the country is far from being self-sufficient in oil, lifting the export ban still makes sense. That’s because most of the oil gushing out, thanks to the fracking revolution, is “light” oil. But most of the advanced oil refineries on the U.S. Gulf Coast, built during years of soaring imports, are geared to use “heavy” oil from places like Venezuela and Saudi Arabia.

Shipping light U.S. oil to refiners overseas would create an additional outlet for U.S. production, which would add to global supplies of oil, and bring down global prices, which would help lower prices at the pump. Nearly all economic studies of crude exports indicate that lifting the ban would lower — not raise — gasoline prices by about 9 cents a gallon.

Paradoxically, as crude oil prices have tanked over the last 15 months, lifting the export ban has actually become more important for U.S. producers.

That’s because exports would bring the artificially depressed price of U.S. crude — about $44 a barrel today — more in line with global benchmarks like Brent crude traded in London. In the past five years, U.S. oil prices have been about $15 a barrel cheaper than global prices. (That discount doesn’t help consumers at the pump, since gasoline prices move in line with global, not local, oil prices.) The Congressional Budget Office estimates that the House legislation would nudge up domestic oil prices and boost domestic production, and would earn the government $1.4 billion over the next 10 years by increasing the value of oil royalties on federal land.

The fracking boom has been one of the bright spots, especially for job creation, during an otherwise anemic economic recovery. But U.S. oil producers need higher prices than other major producers like Saudi Arabia or Iraq, and are already struggling to stay in business with oil in the $40 range; indeed, many companies in the American oil patch are going broke.

With a dismal jobs report depressing the markets Friday, policymakers might have to start considering any option to keep payrolls growing — including finally lifting the export ban.

Photo credit: PAUL LOWRY/Flickr

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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