The recent legislation that removed the 40-year export ban on domestically produced crude oil was long overdue. First put in place to avoid excessive dependence on crude oil imports, especially from the unstable Persian Gulf, it was kept in place far too long with justifications that were not robust.
The benefits that will be derived from the removal of the ban are both global and domestic. And, there is also the benefit, and hopefully the precedent, of getting rid of a bad, ill-considered policy. The Code of Federal Regulations is filled with others that should be repealed.
Energy security has always been a major policy priority. Now, the ability to export our crude oil will enhance it and in doing so strengthen relations with trading partners. While the EU has imposed sanctions on Russia, it has not seriously reduced its dependence on imports of Russian oil. That limits its degrees of freedom in punishing Vladimir Putin. Shale oil from US production is low sulfur and well matched for European refineries. Exporting some of our current over supply to Europe benefits us and increases the energy security of European nations who have seen Russia use its resources as a tool in its heavy-handed diplomacy. Increasing the global supply of oil keeps downward pressure on world prices and that has a foreign policy benefit in terms of our dealings with Russia and now Iran since low crude prices impose a severe penalty on both countries.
As an ancillary benefit, we are now in the position of aligning our free trade rhetoric with our actions. Since the Great Recession in 2008 energy production was one of the few sectors that experienced job growth, most of which were good paying jobs. With low oil prices that are most unlikely to rise substantially in the near term, American producers have cut thousands of jobs. While lifting the export ban will not bring back the lost upstream production jobs, it can stop the hemorrhaging and set the foundation for increased hiring when oil prices rise, as they surely will.
The elimination of the ban also removes market distortions and will increase efficiencies in the refining sector. Before the ban was lifted, domestic refiners bought crude at below market prices because of the domestic glut but sold products at the world price, which artificially increased their margins. Some of this revenue gain was offset because most domestic refineries face higher costs in processing low sulfur crude. Now revenue will shift back to domestic producers who will have access to global markets.
During the course of the debate over lifting the ban, there were numerous analyses conducted of the economic impacts. Well respected organizations like the Brookings Institute, The Aspen Institute, ICF International, and IHS all came to the same conclusion, a positive addition to GDP and job creation. The job numbers are in the hundreds of thousands and the additions to GDP are tens of billions annually.
The economic numbers clearly demonstrate the cost of ideology. The President could have removed the ban in 2008 instead of agreeing to it in 2015 as part of an omnibus spending bill. Instead, we have had eight years of foregone additions to GDP, foregone investment, and fewer jobs than we could have had. There is an important lesson to be learned. The question is will politicians in Washington learn it and take additional actions to lift the economy from the anemic 2% growth level?