From West Texas to the World

Why Washington May End its Ban on Crude Oil Exports

A service truck drives past an oil well in North Dakota, November 2014. Andrew Cullen / Reuters

On October 7, the U.S. House of Representatives voted overwhelmingly to repeal a 40-year-old ban on exports of domestic crude oil to foreign countries. Two Senate subcommittees also support the repeal, and the full Senate will likely vote shortly. The Obama administration has threatened to veto the repeal, but that has only made it a hot issue in the 2016 presidential campaign. Republican presidential candidates Jeb Bush and Marco Rubio favor repealing the ban; Democratic candidate Hillary Clinton opposes it.

Why is Washington suddenly debating the ban? For 40 years, ending the injunction was, in the words of Jason Bordoff, a former energy adviser to U.S. President Barack Obama, “unthinkable.” When it was put in place in 1975, following the Arab oil embargo and the soaring oil prices of 1973 and 1974, politicians in both parties viewed it as essential to the national interest and a cornerstone of U.S. energy policy. Technically, the ban only requires crude exports to be licensed; licenses are routinely granted for exports to Canada but almost never for other markets.

The New York Times suggests that the reason for the renewed focus is simple: oil prices have fallen. Oil companies, seeing their profits shrink, are pushing for access to overseas markets. But if falling oil prices were all it took, why didn’t politicians push for the repeal at other times when oil prices declined steeply, such as in the mid-1980s or the late 1990s?

In reality, the current debate results from three factors. First, oil companies needed a reason to oppose the ban. They didn’t have one so long as the price of oil in the United States was close to the world price. There was always more than enough domestic demand for U.S.-produced oil because the country consumes far more than it produces (and imports the rest). As long as the U.S. price was roughly equal to the world price, high or low, it didn’t really matter where the U.S.

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