Freeing US crude oil for export is more than just the right thing to do: it has the weight of economic fact in its favor. We are nearing a fork in US policy where we can do what is right and profit by it through embracing the reality of a changing global energy market, or we can pretend that the future looks like the past and impoverish ourselves through protectionism.
When the US ban on crude exports was put in place in the late 1970s, it was an understandable if panicked reaction to the unprepared for (if not entirely unanticipated) OPEC oil embargo. The shock to the global economy that resulted was the game-changer of its time, and encouraged the development of a more resilient global oil sector over the past three decades. In achieving their short-term political goals, OPEC made itself much less relevant over the long term through encouraging the development of alternatives and underestimating the responsiveness of the market.
But the dangers of resource nationalism appear to be a lesson that has to be learned over and over again, and the resistance to US crude oil exports is rooted not in an empirical reliance on facts, including the fact of surging production of US crude often best suited for supply to global markets, but in an emotional response that threatens the long-term relevance of the US in more than just the global oil market.
More oil, lower prices
Start with the basics: the more oil produced over time relative to demand, the greater a fall in prices.
High oil prices exert a drag on developed economies, while lower oil prices prompted by the increased supply itself encouraged by access to export markets means lower prices, including lower prices for gasoline at the pump.
Selling crude oil for export means financial support for the expansion of drilling projects and infrastructure at home, and that means more oil not only in the global marketplace overall, but in regional US markets too. Reducing the cost of crude oil can only positively impact the cost of fuel, a recent Center for Strategic and International Studies publication noted, while a report from Resources for the Future used a model rich in refining efficiency inputs and Opec behavior analysis to forecast a three to seven cent per gallon fall in the price of gasoline stemming from an end to the US crude export ban.
That doesn’t mean everyone will see a fall in gasoline pump prices all at the same time and all at the same speed, but generally, the cost of energy will be lower and directionally headed down, encouraging investment across a variety of sectors.
Focus on the numbers that matter
There is a difference between net imports and exports as opposed to total imports and exports that is central to understanding energy security, trade flows and deficits.
Oil is a comparatively fungible commodity in the aggregate, which is one of the reasons its price serves as a proxy for all kinds of global trade analysis, but when it comes to economic performance on the ground, differences matter enormously. The ability to ship high-quality crude oil from the US basins where it is currently being extracted to places unable to process the kind of low-quality crude oil that sophisticated US refineries can handle is a good trade for the US.
A surge in exports of refined fuel, not covered under the outdated crude oil ban, is already boosting economic performance and reducing the trade deficit. The value of net refined exports surged 55% in 2013 over 2012 to hit $33 billion, according to the US Energy Information Administration. With energy accounting for 15 percent of gross goods imports and 7 percent of gross goods exports, even a shift in the import-export mix rather than a reversal helped narrow the trade deficit to its lowest level in four years, the EIA said.
Sell high, buy low and spend the money where it can create jobs and value-added activity. That’s how to make the economic benefits of energy security lasting and tangible.
There are arguments that energy security is the same as energy independence, and that energy independence means keeping all the crude oil at home to displace imports regardless of the cost to consumers. Those arguments rely on a worldview that the US would somehow be able to abandon its existing obligations around the world to maintain security and to engage diplomatically, a worldview as shortsighted as it is unrealistic.
While there is no doubt that the relationship between, for example, the US and Saudi Arabia is built on oil, the fact that Saudi Arabia now ships more oil to China than it does to the US makes access to Saudi oil neither less important in global trade or less of a priority when it comes to multilateral defense and security considerations. Ignoring the economics of oil in favor of perceived geopolitical or security independence in arguing for extending an outdated ban on crude oil exports is to ignore the existence of an increasingly interlinked world as part of a costly return to mercantilist obstructionism.
