RSS
The U.S. is barred from exporting crude oil. And it makes no sense.
It's high time the government updated its antiquated energy trade laws
 
Don't keep crude oil producers bottled up.
Don't keep crude oil producers bottled up. (Carlos Garcia Rawlins/Reuters/Corbis)

Did you know that U.S. companies are barred from exporting crude oil? It's true. And it's long past time that the government did something about it.

Earlier this week, The Wall Street Journal reported that the White House had finally relaxed a 1970s-era law that, with a few obscure exceptions, had prevented U.S. firms from exporting crude oil. Under the law — which was enacted in response to the first Arab oil crisis — firms can export refined petroleum products, but not the raw stuff.

But, as Business Insider's Rob Wile pointed out, the report was a false alarm:

The Commerce Department confirmed that it approved applications from two energy firms to export a form of ultra-light oil known as condensate, of which there is now a huge glut thanks to the U.S. shale boom.

But the applications were only approved because the condensate will be lightly processed through a distillation tower. [Business Insider]

And in a statement Tuesday night, the Commerce Department itself said there has been "no change in policy on crude oil exports."

That's very disappointing. The law was never fit for purpose.

As Blake Clayton of the Council on Foreign Relations argues:

When Congress in the 1970s made it illegal to export domestically produced crude oil without a license, the goal of the legislation was to conserve domestic oil reserves and discourage foreign imports. In reality, the export ban did not help accomplish either of these objectives. [CFR]

Now, it's certainly true that for an oil-driven economy, access to oil is a matter of national security. That's still true even though the U.S. has begun a transition to a renewables-driven economy. But the U.S. already has the Strategic Petroleum Reserve, as well as ample legal powers to keep U.S. oil flowing as a hedge against turmoil or breakdown in global energy markets.

In practice, the law has had little impact on national security. The beneficiaries are U.S. oil refineries that are shielded from overseas competition in the market for U.S.-produced crude oil, allowing them to buy it cheap. But those savings aren't passed on to the U.S. consumer, because once the oil is refined, it's open to the global marketplace again.

When the U.S. was consuming vastly more oil than it was producing this didn't matter so much, because exporters didn't want to export. But thanks to the shale boom, the U.S. is producing much more energy — energy that global oil consumers would like to buy at a higher price. That's why crude oil prices jumped when the Journal reported that the ban had been softened.

The losers from this law are crude oil producers, which lack access to global markets and instead have to rely on domestic refineries. And that hurts the economy. According to industry estimates, allowing crude oil exports could generate upward of $15 billion a year in revenue by 2017 at current prices, boost jobs and production, and save U.S. motorists $420 billion over the next 15 years. That's a massive opportunity cost.

In other words, this archaic, dysfunctional law is just hurting the economy without really providing any national security benefit.

Time to say goodbye to it.

 
John Aziz
John Aziz is the former economics and business editor at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.

THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER

Subscribe to the Week