The Congressional Ban On Selling Crude Oil Is Past Its ‘Sell Date’

How times change.  Used to be Congress wrung its hands over oil shortages and American dependence on imports. Now there’s a fight on Capitol Hill over whether to allow American oil companies to export crude – because, as surprisingly few citizens know, it’s against the law for U.S. firms to sell oil into world markets.

Several years ago, when the Manhattan Institute (and a handful of others, notably Ed Morse, head of global research at Citi) took the position that it’s time to discard the old, misguided prohibition on crude exports, political experts advising Congress on both sides of the aisle called such an idea a non-starter.

And yet one week ago, the House passed just such a repeal, H.R. 702, the aptly named Act to Adapt to Changing Crude Oil Market Conditions.  The Senate is scheduled to vote on the issue this week as well and is within a handful of votes of the majority needed to overcome a promised veto from the White House.

The move to repeal is contentious, but for reasons unrelated to the events and beliefs that originally motivated the 1975 legislation. Four decades ago, America was still reeling from the economic and geopolitical shock of the 1973 Arab oil embargo that sent prices spiraling 400 percent nearly overnight, created long lines at gasoline stations, and sent politicians scurrying for solutions.  Oil suddenly seemed a very precious and limited commodity.

So, in 1975, President Gerald Ford—who for Millennials is the time-line equivalent of President Franklin Roosevelt for Boomers—signed into law the Energy Policy and Conservation Act in order to reduce dependence on imports and, among other things, made it illegal for American businesses to sell crude oil into global markets.

The result? U.S. dependence on imports actually increased for 35 years.

But things have finally changed in the oil world, and not because of new laws, new incentives for production, or magical replacements for oil.  Instead, new technologies, deployed by thousands of small and mid-sized businesses, have unleashed stunning quantities of oil (and natural gas) long known to have been locked up in America’s shale fields.  And the U.S. has become, seemingly overnight, the world’s fastest growing and biggest oil-producing region.

We now know that American oil is far from rare or precious.  Indeed, the U.S. production gusher has triggered a global crude price collapse. With America awash in crude, the original motivation for a unique ban on selling an American commodity into global markets no longer exists.

But anything to do with oil ignites debate.

The White House claims Congress just wants to “cozy up” to “big oil.”  This tired political invective doesn’t even line up with reality: small and mid-sized companies, not big ones, pioneered, launched, and still dominate the shale oil boom, and collectively produce 75 percent of all domestic oil.  In fact, it is precisely these relatively small American firms that want to compete with Russian and Middle Eastern “big oil.”

We also hear the argument, and political fear, that ending the oil export ban might cause gasoline prices to rise.  Test that logic by substituting the words “corn” or “computer chips” for “oil” in this debate.  Unsurprisingly, study after study, including one from the Congressional Budget Office, reaffirms the well-established economic principle that more competition and supply in global oil markets would on average help hold prices down.

Critics also make the strange case that America will only “encourage” more oil use by selling into world markets—as if the Europeans for example aren’t clearly eager, if not in some cases desperate, to reduce dependence on Russian oil. Keeping American crude out of world markets doesn’t reduce demand; it merely enables our competitors and even our enemies to step up to meet that demand.

If America doesn’t export, the world won’t use less oil; it will just send more money and jobs to OPEC and Russia instead of American states.

Give credit to the Sierra Club when they said:  “By lifting the ban, you’re creating a whole new market for the oil industry to export to, and windfall profits for oil companies, which means more money to frack more, to produce more, to burn more.”

This is exactly the point.  Lifting the ban would lead to more “windfall” profits—which by the way, no one labels “windfalls” in Silicon Valley—for American firms, and thus create more jobs, a more favorable U.S. trade balance, and strengthen America’s geopolitical hand.

Sometimes, over the stretch of history, Congress does repeal old laws that are far past a ‘sell’ date. December 22, 2015 marks the 40th anniversary of the signing of the EPACT.  There would be no better celebration than repeal of the outdated ban on oil exports.


Mark P. Mills is the Senior Fellow at the Manhattan Institute.

Morning Consult