The Dallas Federal Reserve Bank made the case for why policymakers should lift the ban on crude oil exports:
Removing the export ban would eliminate a variety of marketplace distortions by increasing the price of crude oil in the interior U.S. to better reflect global levels, leading to a more efficient economic outcome. While this would adversely impact certain U.S. refiners, it would benefit other market participants. Over the longer term, U.S. crude oil producers would receive higher prices. In response, they would produce more oil than they would have if the ban were in place. With greater amounts of oil available globally, more gasoline and diesel would be produced, reducing their prices and benefiting U.S. consumers.
Similarly, leaving the ban in place could adversely affect Americans and drive up prices at the pump:
Consumers also may be negatively affected if the export ban remains in effect. Given that the prices of gasoline and diesel are determined in a world market, consumers see few, if any, of the benefits that flow to U.S. refiners. To the extent that the ban discourages drilling, this limits the potential supply of oil available to be processed into gasoline and diesel, placing upward pressure on retail fuel prices.
Although U.S. law permits the export of refined petroleum products, the federal government largely restricts the export of crude oil after Congress enacted energy laws stemming from the 1973 Arab oil embargo. The policy made little sense then. Now, with the recent upsurge in domestic oil production, restricting the free trade of a privately owned good unfavorably affects the majority of Americans to the benefit of a concentrated few.
The federal government has several tools at its disposal to lift the ban on crude:
- The Department of Commerce could change the definition for allowable exports. In fact, it recently granted two Texas companies permission to export an ultra-light crude called condensate. However, Commerce has put other companies’ requests on hold.
- President Obama could declare that crude oil exports are in the national interest of the United States. Given the expansive economic gains from exports and the geopolitical gains from increasing supplies to the world market, lifting restrictions on crude oil exports is undeniably in the national interest. However, given that the President is supposed to make a national interest determination for Keystone XL—which it undeniably is—and has stalled that decision for years, it is unlikely that President Obama would make that call for crude exports.
- The best solution is for Congress to pass legislation to remove the ban. Regardless whether any decision is made by the Department of Commerce or the President to lift restrictions, Congress should change the law, recognizing the benefits of free trade to American families.
For more on the issue of energy free trade, check out the new Heritage report “Energy Exports Promote Prosperity and Bolster National Security.”
