By Jay Hauck
January 8, 2015 at 5:00 am ET
With a new year and a new Congress come new legislative priorities. Already, the new Chairwoman of the Senate Energy & Natural Resources Committee, Lisa Murkowski (R-AK), is holding a vote this week in her committee on the Keystone XL Pipeline. That is the first of many energy issues that the Republican-led Congress will focus on over the next several weeks and months.
One issue that has started to get some attention in Washington is a new proposal to allow exports of domestic crude oil. Current law highly restricts unprocessed American crude from being exported.
The issue at first blush may seem simple, but in reality it’s quite complex. The most obvious argument for keeping the ban in place is that lifting it risks raising the price of petroleum products here in the United States. If producers can get more for their money shipping crude to overseas refineries, then domestic refiners would naturally have to pay more for domestic crude or import more expensive foreign crude.
Either way, that cost gets passed on downstream, ultimately to the consumer – whether that’s diesel fuel for trucks, heating oil for homes, or, of course, gasoline prices at the pump.
One argument attractive to Republicans in particular is the view that the United States must be a leader when it comes to free trade – we don’t have an export ban on corn, or widgets, for example.
The fact is, crude oil is a commodity unlike any other. Oil can’t seriously be compared to other commodities, for its strategic value is paramount. Few economic shocks have come as quickly as the Arab Oil Embargo of the 1970s – the genesis for the export ban. More recently, we’ve seen the price of oil plummet – in large part because Saudi Arabia and OPEC have refused to cut their production.
OPEC, it should be noted, is a cartel – that is, an organization dedicated to helping set the price of oil. A cartel is by definition the antithesis of free market capitalism and illegal under U.S. antitrust laws (which were established to ensure a free and fair marketplace). OPEC may seem weak in some respects, but it sure had a lot to do with the price of oil going down as fast as it did.
The old adage, “what goes up must come down,” can be reversed as well. What goes down can come back up – just as swiftly. If OPEC suddenly decided to put the brakes on production to drive crude prices back up, you’d better believe the entire world economy would feel the effects.
And the only thing that would moderate that would be U.S. crude, which would sell at a lower price here at home than the world price. Anyone familiar with the energy sector knows that you predict the future at your peril.
Exporting U.S. crude oil will mean we import more foreign oil. U.S. refiners have been replacing millions of barrels of foreign crude with domestic crude as more U.S. production has come on line.
And exporting crude ultimately would result in the closure of significant domestic refining capacity. Lifting crude export restrictions would actually move America further away from energy independence and end up bolstering OPEC’s influence.
One of the many past Presidents who didn’t lift the export ban was Ronald Reagan. Reagan, who believed in “peace through strength” wouldn’t give up something for nothing.
Lifting crude export restrictions is akin to unilateral disarmament, and does nothing to promote free trade around the world. In a world of volatile oil prices driven by an oil cartel, does it make any sense to throw away a tool that insulates America from those who would use oil as a political weapon?
As Congress considers the various facets of energy policy this year, it’s important to look at the implications of a change to our crude export policy. A rush to pass export legislation in the form of an amendment, for example, would be extraordinarily unwise.
House Energy & Commerce Committee Chairman Fred Upton has aptly urged a “thoughtful dialogue” on the subject. The dynamics of oil markets are an extraordinarily complex set of issues. The consequences of the debate could be profound for both the economy and our national security.
Jay Hauck is Executive Director for The CRUDE Coalition, a group of U.S. petroleum refiners