On September 17, the House Energy and Commerce Committee passed a bill to end the 40-year-old ban on the export of domestic crude oil. The Committee vote was passed by a Republican majority, with three Democrats adding their support. The legislation could be brought up on the House floor sometime in the coming weeks. House Majority Leader Kevin McCarthy (R-CA) had originally set a deadline of the end of September for House consideration, and the bill was included on the House calendar for this week, although floor consideration may be delayed due to recent events including the resignation of Speaker of the House John Boehner (R-OH).
Back in July, the Senate Energy and Natural Resources Committee voted along party lines in favor of a bill to lift the ban, while opening more areas to offshore drilling and giving nearby states a share of the royalties. The Senate Banking Committee, which also holds jurisdiction over the issue, is scheduled to mark up the bill on October 1. The bill is expected to be considered by the full Senate before the end of the year, and the debate will be intense.
The oil export ban dates back to 1973, when the United States was the largest oil consumer in the world and heavily reliant on oil imports. An Arab embargo, coupled with dramatic drops in the U.S. stock market and a steady decline in domestic oil production, had an enormous and disastrous economic impact on the American economy.
The Congress responded by banning the export of domestically produced crude oil without a license. The purpose of this energy policy was to protect domestic oil reserves and reduce the dependence on foreign oil. For decades the policy was not challenged, primarily because of a rising economy.
In 2015, the playing field has changed dramatically. Largely because of the recent sharp increase in U.S. oil production, the United Sates is no longer dependent on foreign oil to fuel its economy. In fact, the United States is now truly energy independent. According to a study by the Pew Research Center, in 2008 domestic crude oil production had sunk to 5 million barrels a day. In the last five years, oil production in the United States has grown faster than in any country in the world, in part because of advancements in hydraulic fracking. Domestic oil production in the United States is now at 9.2 million barrels a day. In addition, refined oil exports, which are not restricted by the law, currently occur at a rate of 3.7 million barrels per day.
The continued imposition of the ban and the precipitous drop in the price of crude oil in recent months has cost American jobs. Oil technology and equipment provider Schlumberger has cut 20,000 jobs, and giant oilfield services corporation Halliburton has cut its global workforce by 10 percent.
In opposition, thirteen Democratic senators wrote a letter to President Obama outlining how lifting the ban could harm consumers, business, and national security. The Senators referred to a study by the Government Accountability Office (GAO), which concluded that lifting the export ban would increase prices. Proponents of lifting the ban, however, cite several independent studies and a recent report by the bipartisan Congressional Budget Office (CBO) that conclude the opposite—that lifting the ban could actually lower domestic prices.
In recent months, the position of President Obama and his administration on removing the oil export ban has been unclear. The White House has said that it does not back the bill congressional Republicans are pursuing.
Recent foreign policy actions by the Obama Administration may provide some indication of the evolving position of the administration.
First, the Obama Administration has agreed to allow an exchange of Mexican crude oil for similar quantities of American crude oil, granting a Mexican request for permission to relax the 40-year-old U.S. ban. Up to 100,000 barrels a day of light oil and condensate will be exchanged for heavy Mexican crude.
Second, the nuclear agreement with Iran allows for expanded crude oil exports for that country. It will be argued that the president should be giving the U.S. economy the same stimulus.
Finally, in international trade negotiations such as the Trans-Pacific Partnership Agreement, the president has championed a policy that encourages more U.S. exports. Proponents of removing the ban will argue that it is inconsistent for the United States to demand open markets by our Asian-Pacific trading partners while blocking the exportation of domestic crude oil.
There is no guarantee that this highly charged issue will be resolved this year, but the pieces may be falling into place for a confrontation with the White House or a broader compromise that includes lifting the ban.