Freeing American Crude: Oil Export Controls Amount to a Trifecta of Bad Policy

Op-ed in the Washington Times

April 27, 2015

It's rare to find a policy that combines bad economics with harmful national security overtones and, at the same time, violates US obligations to the world trading system. But US restrictions on crude oil exports are just that rare bird.

While President Obama has refused to lift his pen to allow exports, Republican Senator Lisa Murkowski of Alaska is working around the clock to repeal the archaic ban. The senator puts a sharp point on her argument: "We shouldn't lift sanctions on Iranian oil when we are keeping sanctions on American oil." Thousands of skilled American oil field workers have been laid off, and billions of dollars of investment halted, simply because US producers cannot sell their crude on world markets.

Oil markets have changed dramatically since the 1970s, but the ban on oil exports remains frozen on the statute books.

The ban on crude oil exports was enacted in the wake of oil shocks four decades ago amid fears about the United States losing energy self-sufficiency. In that era, the United States depended heavily on imported oil. At the time, only the state of Alaska was affected by a policy that foreclosed shipments of crude oil to Japan and other Asian buyers. Fast-forward to the shale revolution and the ban has become an outdated relic of yesteryear. It affects oil-producing states from coast to coast while making the United States less secure at home and in its alliance relations.

Oil markets have changed dramatically since the 1970s, but the ban remains frozen on the statute books, crying out for a presidential waiver or for congressional repeal.

Foremost, the shale revolution could potentially turn the United States for the long term into the world's No. 1 producer of crude oil, surpassing Saudi Arabia. But this transformation will not happen so long as the ban remains in effect, relaxed only episodically by the Department of Commerce. Indeed, at this very moment, producers across the nation are giving pink slips to thousands of skilled workers and idling hundreds of rigs because they cannot earn a reasonable return by selling crude oil abroad. Sensible countries promote exports to create good jobs and spur the economy. Sensible countries maintain their oil production capability as insurance against political upheavals in the Middle East. Antiquated US policy is doing just the opposite.

The harm starts with bad economics and oozes into the realm of national security. Russia's takeover of Crimea and eastern Ukraine may be an international outrage, but the burden of retaliatory sanctions falls far more heavily on our European allies than on the United States. And unlike the United States, Europe (in particular Central and Eastern European countries such as Lithuania, Slovakia, Poland, and Hungary) depends heavily on Russian energy supplies, which Vladimir Putin could turn off at any moment. The United States should abolish all restrictions on liquefied natural gas and crude oil exports to show support for European sacrifices and ease European fears of future shortages. The Europeans have quietly pleaded with Washington for just these actions.

Although the Obama administration has, on a case-by-case basis, relaxed the ban on natural gas exports, it has not asked Congress to repeal the ban on oil exports. Nor has the president used his power, under existing legislation, to declare that crude oil exports are in the national interest. Apparently, the administration fears accusations that exports would encourage higher energy prices, add to climate change, and cater to big oil. These are doubtful economic or scientific propositions, but they apparently carry political weight in the White House.

Finally, the ban flatly violates US obligations to the world trading system, codified in the General Agreement on Tariffs and Trade at its inception. Under the relevant article, export bans are supposed to be imposed only temporarily, for exceptional circumstances. A ban in place for more than four decades clearly fails these tests. Indeed, in the very recent past, the United States challenged China in the World Trade Organization for imposing similar bans on the export of various natural resources and rare earths, and prevailed in both cases.

No country has launched a parallel case against the crude oil ban, but the president and Congress should not wait. They should amend US policy because it's the right thing to do—for the economy, for national security, and to respect international obligations.

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Gary Clyde Hufbauer Senior Research Staff

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