America's crude oil export ban does more harm than good

Crude Oil Refinery TexasSpencer Platt/Getty ImagesAn oil refinery is shown on March 25, 2015 in Houston, Texas. Texas, which in just the last five years has tripled its oil production and delivered hundreds of billions of dollars into the economy, is looking at what could be a sustained downturn in prices.

Introduced to help enforce price controls in the fuel-hungry 1970s, America’s ban on crude-oil exports was all but forgotten when the economy boomed and imports soared.

Now it is in the news again. It keeps American crude, measured by the West Texas Intermediate benchmark, around $US10 below the world price (see chart).

Cash-strapped oilmen would like to sell their product abroad — just like any other industry — and are lobbying to lift the ban. A study by IHS, a consultancy, says that free trade in crude would boost output, investment, jobs, pay, profits and tax revenues — and GDP by $US86 billion.

It would not raise petrol prices: these are set in the (freely traded) world market. Most likely they would fall a bit.

But politicians are fearful. Sooner or later, the petrol price will go up again — and anyone who voted to allow precious hydrocarbons to be sold to foreigners will be in the firing line.

Supporters of the ban argue that it not only keeps prices low. It protects jobs, and also helps national security, by promoting self-sufficiency.

Some of these arguments are contradictory. At a Senate hearing last week Jeffrey Warmann of Monroe Energy, speaking on behalf of a lobby group called the CRUDE Coalition, argued that the export ban kept the petrol price low.

He also said exports would mean “petroleum products refined in Europe but derived from American crude returning to our shores” — but that would happen only if those products were competitive, and consumers wanted them.

It is also hard to argue that the ban boosts economic security. It undermines America’s moral authority at the World Trade Organisation, where the administration berates China, for example, for imposing export bans on scarce minerals. American crude-oil exports would also hurt hostile petrostates such as Russia and Iran.

The mood may be shifting against the ban.

Some refiners would be sorry to lose their artificially cheap raw materials. But they would accept instead what they call a “comprehensive” policy, meaning laxer rules on renewable fuels, and a change in the Jones Act.

This is an even more archaic law which bans foreign ships from carrying cargo between American ports. It delights shipowners and unions, but imposes a hefty cost on anyone wanting to send a tanker from, say, a refinery on the Gulf coast to a port in the north-east.

Politics may trump logic. The administration supports lifting the ban, and so do many in Congress. But each wants the other to take the lead.

And Republicans are chary of almost anything done by the executive branch, such as new rules announced last week to restrict fracking on federal land. Nonetheless, the mood at the Senate hearing gave freetraders grounds for optimism.

“They were asking questions and listening to the arguments,” says a jaded observer, sounding rather surprised.

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