The oil export ban made little sense when domestic production was low, and it is definitely not a good idea now that we’re awash in the stuff. Yet the antiquated rule still has plenty of defenders in Congress. Getting rid of the ban would benefit the economy, create jobs, and do nothing to raise gas prices, which is the ostensible reason for the ban in the first place.
The 1970s was not a particularly creditable era for either fashion or public policy. The gaudy polyester shirts and bell bottom jeans, thankfully, have disappeared, but a few of the egregious policy mistakes are still with us, chief among them the ban on exporting domestically produced oil.
The ban is a product of a mindset that the government could fix problems by making a few well-meaning rules that set aside the vagaries of market forces. The biggest problem facing the economy in 1973 was sky-high oil prices that resulted from the OPEC embargo, which doubled prices almost overnight and put an end to a quarter-century of low and stable prices.
Our government responded to the embargo with several well-meaning but ineffective and costly half-solutions: It lowered the speed limit on interstate highways to 55 mph, mandated more fuel-efficient cars, imposed price controls on retail gasoline sales, and banned crude oil exports, among other things.
The government quickly jettisoned price controls after people grew tired of waiting in line to buy gasoline, and the 55 mph speed limit—never popular—was haphazardly enforced and did little to improve fuel efficiency. When gas prices receded in the 1980s, the 55 mph speed limit did too. Fuel efficiency mandates proved more durable, although they inadvertently led to the seismic increase in preference for pickup trucks, minivans, and SUVs, which were largely exempt from such strictures. The extent to which these mandates saved fuel versus the natural consumer reaction to high prices is still a matter of debate.
The export ban is the lone 1970s-era palliative that continues unchanged, despite the fact that it’s done even less than any of the other measures enacted to constrain gasoline prices. Its durability can be explained by the fact that voters don’t understand the costs it imposes on our economy.
These days no one even pretends that the ban has an impact on gasoline prices: There is currently a glut of oil here and across the world, with a record amount sitting in tanks and tankers floating offshore. Some of that oil is being held for speculative purposes by producers and investors betting on prices going up in the future, but some of it remains in storage because the nation’s refineries don’t have the capacity to refine all that’s being produced in the United States.
Environmental rules have made it all but impossible to open new refineries—the most recent U.S. refinery opened in the 1970s. While existing refiners have managed to expand capacity to accommodate the production boom, the virtual ban on new refineries creates an effective cap on future oil refining and production that we are close to reaching.
An end to the oil export ban would not increase domestic gasoline prices in the slightest. In fact, there’s empirical evidence suggesting it could reduce prices in the short run by putting further downward pressure on the price of Brent crude oil, an important global oil index that domestic gasoline prices tend to track much more closely than any domestic oil price index. The reason for that, suggests Adam Sieminski, administrator of the Energy Information Administration, is that we effectively participate in a global oil and gasoline market despite all wishing to the contrary, and lower global oil prices translate to lower oil—and gasoline—prices domestically.
The EIA—which strives mightily to avoid taking anything that remotely resembles a partisan policy stance—recently released a report arguing for an end to the oil export ban, which it described as at best ineffectual.
Ending the ban would create jobs by removing the capacity constraints on domestic refiners that threaten future production growth. A study by the global research firm IHS estimates that ending the ban would create between 450,000 and 850,000 jobs annually, most of which would be ancillary to the actual production of oil. It would also help growth by putting further downward pressure on energy prices: While an additional few hundred thousand barrels a day may seem like a drop in the bucket in a world that consumes over 90 million barrels each day, energy demand is quite price inelastic, meaning that small changes in supply can have a disproportionate impact on the price.
The oil export ban isn’t simply a harmless vestige of past policies: It imposes a significant cost to the economy in lost jobs and slower economic growth, constraints we can scarcely afford at the present time. While it may be difficult for voters to understand precisely how the oil export ban harms the economy, there’s no question that this is precisely what it does—while creating few winners in the process. It’s the job of our politicians to explain this fact and then repeal the ban.
Ike Brannon is a former chief economist for the House Energy and Commerce Committee.
