How long will the US oil export ban last?

How long will the US oil export ban last?

As low oil prices continue to put pressure on US producers, the Obama Administration is in no hurry to abolish the 40 year-old oil export ban.

Ever since the US re-established its reputation as a major oil producer, a debate around the oil export ban has been in the focus of Washington’s political life and the oil industry is finally seeing results from years of lobbying to lift the 40-year old ban.

The measure was originally imposed in 1975 as a consequence of the Arab-led embargo on oil exports to the US in 1973. However, given the vast quantities of shale oil the US has begun producing in recent years, it appears that the ban has become an obsolete relic of a time when America was a hostage of its reliance on imported oil.

As a result of intense lobbying, the Republican-controlled Congress will likely pass a bill to repeal the export ban in the next few weeks. Nevertheless, the move will most certainly run aground in the Senate and the White House.

Both Democrats and Republicans have good arguments in support of their positions. The Republican Party has been a long-standing supporter of the oil industry – in particular the upstream industry that was a direct beneficiary of the shale boom.

The massive rise of production, supported by high prices in the late 2000s, presented an excellent opportunity for the US oil explorers to seek new markets and fight the unrestrained market battle outside North America. In geopolitical terms, oil exports would also allow the US to support its allies worldwide, further break OPEC’s global monopoly, and conduct a less restrained foreign policy towards its adversaries, Russia and Iran in particular.

                    Source: EIA

The opposite camp, led by the Democrats in Congress and the White House and strongly supported by the downstream refinery sector that for years reaped the benefits of the high production margins, makes a case that unlimited exports would directly affect US consumers by increasing petrol prices, and undermine a valuable strategic asset that gives the United States energy independence and security.

Moreover, many argue that the Department of Commerce already has the authority to regulate crude oil exports depending on US strategic interests, that the export of refined products is unrestricted, and that the ban has, in fact, already been relaxed by allowing the export of the ultra light crude-condensate.

At the moment, it seems that those in favor of maintaining a ban are winning the battle. A recent EIA report concluded that unlimited exports would not have a significant impact on either crude oil or petrol prices as both are affected more by global supply and demand swings, rather than the export ban itself.

Similarly, the global oil glut, along with the vanishing gap between the Brent and the US Western Texas Intermediate (WTI) benchmarks, has knocked out the key argument in favour of oil exports – that US crude is no longer competitive on international markets.

                          Source: IEA

In fact, according to a recent Bank of America forecast, WTI prices might actually overtake Brent in 2016 since US production is starting to dwindle under pressure from low prices and global oversupply.

As a result, US refineries may have to start importing light crude in order to compensate for the low output from US shale resources, while Canadian and Mexican refineries might lose incentive to buy oil from US producers and instead turn towards more competitively priced international markets awash with cheap oil. Such a scenario could create a dangerous situation where remaining US producers would be squeezed not only by bellow-breakeven production prices, but also by competition from abroad, creating a double threat for the US shale industry.

Given this environment and current low prices, the crude oil export debate will not become a burning issue for the Obama administration. The question will continue to stir the political debate in Washington, but for now, the ban will most likely stand firmly in place.

About Author

Ante Batovic

Ante was previously a lecturer in International History at the University of Zadar where he specialised in Cold War and East European history. He was also a visiting fellow at the LSE IDEAS centre and the fellow of the Robert Schuman Foundation in the European Parliament. He holds a master’s degree in Global Politics from the London School of Economics and a PhD from the University of Zadar.