On October 9, the US House of Representatives voted 261-159 to end the 40-year-old ban on the export of domestic crude oil. The bill has been sent to the Senate for consideration, where it is unclear if it will be passed. President Barack Obama has said he would veto the bill, and it is highly unlikely that both houses of Congress can muster the votes required to override a veto.
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, held a mark-up of the bill on October 1. The legislation 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 America 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 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 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 a 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 U.S. has grown faster than any country in the world, in part because of advancements in hydraulic fracking. Domestic oil production in the U.S. is now at 9.2 million barrels a day. In addition, refined oil exports, which are not restricted by the law, are being exported 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%.
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 Accountably Office ("GAO"), which concluded that lifting the export ban would increase prices. But proponents of lifting the ban 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.
The position of President Obama and his administration on removing the oil export ban had been unclear. Recent foreign policy actions by the Obama Administration indicated an evolving position of the administration.
First, the Administration 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 trading partners while blocking the exportation of domestic crude oil.
After the House vote however, President Obama made clear his opposition to the legislation and his veto threat. The White House said, “Legislation to remove crude export restrictions is not needed at this time. Rather, Congress should be focusing its efforts on supporting our transition to a low-carbon economy. It could do this through a variety of measures, including ending the billions of dollars a year in federal subsidies provided to oil companies and instead investing in wind, solar, energy efficiency, and other clean technologies to meet America’s energy needs.”