History, Crude Oil Exports and Seizing the Moment

Mark Green
Posted August 27, 2015

For as long as most younger Americans can recall, the United States has been barred from exporting crude oil – a self-inflicted sanction that’s at odds with our historical role as a global leader in both free trade and oil production. For them, that’s the way it has always been – the U.S. unilaterally excluding itself from the world’s most important energy marketplace.

Yet, history, economics and security imperatives all argue that it shouldn’t stay that way. Rather, U.S. oil exports policy should be restored to its former posture, to realign policy with this reality: America’s shale energy revolution, the most recent in a series of world-changing energy events, affords the U.S. a great opportunity, and that the U.S. should pursue every means possible to harness that revolution’s benefits – including resuming the export of domestic crude.

To start, policymakers must acknowledge a couple of things: First, that maintaining the oil export ban that was imposed after the 1973 embargo is hurting U.S. competitiveness in the global economy and limiting the benefits that could and should accrue to an energy superpower. Second, that lifting the ban would simply return U.S. trade policy on crude oil to its historical position of strength. API President and CEO Jack Gerard, in a Tribune News Service op-ed:

For decades, U.S. presidents have made achieving American energy security a top priority. Now, thanks to the nation's historic energy resurgence, we finally have the capability to make good on the promise. … Banning crude exports might have made sense in the wake of the 1970s oil embargo. But now that the United States leads the world in oil and natural gas production, it's become a costly relic.

Reuters analyst John Kemp writes that the United States historically has been a major petroleum producer – and for much of that history America exported domestic crude:

Until as late as 1952, the United States still accounted for more than half of worldwide daily crude production – dwarfing output from other early producers such as the Dutch East Indies, Burma, Russia, Romania, Mexico and Iran. The United States ran a persistent trade surplus in crude and refined fuels with the rest of the world.

Two Kemp charts – one showing U.S. oil production as a share of global output:

And a second, graphing the historical trajectories of U.S. oil exports and imports:

OK, here’s one more from Kemp – showing exports and imports from 1973 to 2014, with virtually all of the exports since the mid-1970s coming in the form of refined fuels:

Striking in the chart above is the dramatic decline in U.S. net oil imports (red line) in the mid-2000s, coinciding with the advent of America’s shale energy revolution – the marriage of advanced hydraulic fracturing with horizontal drilling to develop oil and natural gas in shale and other tight-rock formations. This revolution has made the United States the world’s No. 1 producer of oil and natural gas. Kemp:

There has never been a shortage of oil (either in the United States or globally) at any point in the last 150 years – it’s just a question of price, investment and technology. Big shifts in prices, trade and the balance of power have been driven by discoveries (Pennsylvania in the 1860s, the southwestern United States from 1900 through the 1930s, California in the 1920s, Iran from 1908 and then the Arab countries from the 1930s through the 1950s) and improvements in technology (offshore, shale). The last 70 years have seen repeated shifts in market share and power between the United States and the Middle East producers. The shale boom is just the latest manifestation. In the 1950s and 1960s, it was the oil exporting countries that squeezed producers in Texas and the other U.S. states. Now U.S. producers are having the same impact in reverse thanks to the shale revolution.

The point is that the U.S. should embrace the current opportunity – America’s energy moment – instead of watching as it passes by. The U.S. should harness its energy wealth by increasing access to domestic reserves and by putting in place commonsense regulatory and permitting structures that foster private investment and safe and responsible development.

Most importantly, the U.S. should stop sanctioning itself by continuing to ban domestic crude oil exports – denying the benefits of global trade to its economy and citizenry, as well as the stimulus to production here at home. By exporting oil, the U.S. will be stronger economically, more energy secure and better positioned to help friends abroad. IHS Vice Chairman and oil historian Dan Yergin:

“The 1970s-era policy restricting crude oil exports—a vestige from a price controls system that ended in 1981—is a remnant from another time. It does not reflect the dramatic turnaround in domestic oil production, led by tight oil, which has reversed the United States’ oil position so significantly. The United States has cut its dependence on foreign oil in half since 2005 and its production gains have exceeded that of the rest of the world in recent years. The economic contributions of this turnaround have been substantial. Allowing the free trade of oil would expand those gains for consumers and the wider economy.”