Trade restrictions made sense once, but not in the new oil boom
The United States again is one of the world’s great energy powers. On Monday, the U.S. Energy Information Administration projected that American crude oil output will peak at nearly 10 million barrels per day by mid-decade, up from 6.5 million last year. Last month, the International Energy Agency figured that the United States would overtake Saudi Arabia as the top oil producer, at least for a time. Yet some politicians remain unwilling to let the country reap the full benefits of this boon.
For decades, the government has imposed restrictions on exporting domestically produced crude oil but not on refined petroleum products such as gasoline and diesel fuel. This arrangement seemed sensible; the country’s crude business wasn’t booming, but its refining industry was an economic powerhouse deeply embedded in world energy markets.
Now, however, new drilling techniques have resulted in a revitalization of U.S. crude production. But oil firms export only a tiny fraction of the roughly 8 million barrels they extract daily, even though the oil often isn’t the sort U.S. refineries are set up to process. Understandably, they’d like a wider market in which to sell. Last week, Exxon Mobil became the latest to call for lifting federal export restrictions. Critics responded that doing so would harm national security and consumers. They’re wrong.
It’s true that forcing U.S. crude oil producers to sell exclusively to domestic refiners translates into lower crude prices in some parts of the country. Those lower prices, though, mean fewer rewards flow to the energy-production sector, which has supported jobs and communities where few might otherwise be. And lower crude prices in a few places don’t mean significantly lower gasoline prices for Americans. Refineries, not drivers, buy crude oil and then make it into gasoline and other products. These products trade on world markets and generally reflect the world crude price. The big winners of the current restrictive export policy, then, are refiners who buy their crude at locked-in U.S. prices and sell their gasoline at something closer to a global price. Consumers would benefit through expanding U.S. oil production, allowing U.S. crude to go the refineries that most want it, promoting stability in the global crude oil supply and, perhaps, putting some downward pressure on global prices.
Even if prices didn’t change much, it wouldn’t matter: The government doesn’t have a compelling interest in nudging down the price of high-polluting gasoline, and certainly not through trade policies that put absurd restrictions on energy flows and hurt American producers.
If national security were in danger, the government could shut off exports. If anything, the United States’ continuing export restrictions diminish the country’s credibility when it asks other nations to adopt rational policies that rankle economic nationalists. Congress should let the country participate fully in the international oil market.
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