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Opinion

Oil-Export Foreign Policy: Don’t Believe the Hype

 

Oil producers and their congressional allies are pushing for a repeal of the longstanding energy security policy that restricts exports of U.S. crude oil.  Facing justified skepticism from voters that repeal would lower gas prices, their new approach argues that exporting U.S. crude would provide the United States with geopolitical benefits.

While that might sound appealing, very little evidence backs up such arguments. Upon close examination, the foreign policy benefits from crude exports turn out to be little more than hype.

For context, a brief look at the origin of the law in the mid-1970s is helpful.  In 1973, on Yom Kippur, the Jewish Day of Atonement, Egyptian and Syrian forces launched a surprise attack on Israel.

Arab members of the OPEC oil cartel, led by Saudi Arabia, punished the United States for its support of Israel by imposing an oil embargo.  This precipitated the 1973 energy crisis – the first of several “oil shocks” the United States suffered in the 1970s.  The price of crude shot up 400 percent, and Americans endured long lines at gasoline stations.

Commenting on the effects of this unprecedented economic assault, the U.S. State Department historian has noted, “The 1973 Oil Embargo acutely strained a U.S. economy that had grown increasingly dependent on foreign oil.”  Today, despite recent domestic production increases, the U.S. is actually importing more oil than it did in 1973.

In the wake of the embargo, Congress passed the Energy Policy and Conservation Act of 1975, a package of laws designed to help the United States wean itself off of foreign oil and lessen its exposure to oil shocks.  Some of those policies were clearly misguided, such as price controls.  Others have stood the test of time – such as the establishment of the Strategic Petroleum Reserve and the law restricting exports of American crude oil.

Indeed, it’s telling that when Ronald Reagan lifted price controls early in his presidency, he kept in effect both export restrictions and the reserve.

On the eve of the first oil embargo, the United States was producing record amounts of oil – the most in its history.  American oil production then slowly declined, until the recent shale boom brought production back to early-1970s levels.

The import picture has been different.  America imported 2 million barrels of crude per day from OPEC in 1973; last year we imported almost 8 million barrels of crude per day from all foreign sources. The United States imports 3.4 million barrels daily from OPEC.

In 2014, American refiners processed ever-more domestically produced crude, backing out imports, but the U.S. continues to import far more oil than it did in the 1970s.  While domestic production has helped enhance our energy independence and security, crude imports from some unstable and even hostile countries are still a significant part of our energy mix.

Despite our continued reliance on oil from foreign sources, U.S. oil producers have been lobbying hard to repeal restrictions on exports.  They have stated quite clearly that they want to get a better price for a barrel of crude by selling it overseas.

Export proponents fail to mention that exporting U.S. crude oil would force American refiners to import more foreign crude, barrel for barrel, often from unstable and unfriendly regimes – from Venezuela, from Libya, possibly even from Iran.  That would foolishly reverse the trend of relying less on foreign oil, and move us away from energy security and independence.

Crude oil is such an essentially strategic commodity that we have aStrategic Petroleum Reserve, primarily because the world crude market, as well as access and supply, is dictated by the OPEC oil cartel.  And most crude market participants are national oil companies, many of which are controlled by hostile or unstable governments.

As a fig leaf for the desire to get more money for a barrel of oil, the oil-export lobby and their allies have begun claiming that crude exports will “transform” American foreign policy, enhancing “energy diplomacy” or otherwise giving the United States added “credibility.”

But as Amos Hochstein, the State Department’s special envoy for International Energy Affairs, recently noted, “We don’t control our own energy production and we don’t use it as weapons or tools or leverages for pursuit of other policies.”

OPEC can set quotas and production targets to move the price of oil.  American crude producers, by contrast, are subject to whatever that price is.  If it’s high, U.S. drillers have incentive to produce more; when prices go down, they have incentive to produce less.  The distinction seems to be lost on those who think American shale drilling can displace OPEC.

American shale oil has been a game changer for consumers – U.S. households will save $700 or more on fuel costs this year because of greater domestic supplies.  But exports of that oil would put the security of our supply at risk and further expose American producers, refiners, and consumers to the whims of OPEC.

American crude production is great for consumers; but as a tool to advance our foreign policy goals, it’s just a pipe dream.

 

Jay Hauck is the Executive Director of The CRUDE Coalition, a group of merchant refiners that includes Alon USA, Monroe Energy, PBF Energy, and Philadelphia Energy Solutions.