For the past 40 years, US oil companies have not been allowed to export crude oil to other countries. As domestic oil production has expanded in the past few years, major US oil companies have pushed for a repeal on the ban to allow the companies to keep growing. Their efforts are starting to materialize as the House of Representatives plans to hold a vote at the end of the month to decide on what to do regarding the ban. Despite opposition from the Obama administration, House Majority Leader Kevin McCarthy believes “lifting the oil ban will not only help our economy, it will also bolster our geopolitical standing.”
I certainly agree with McCarthy. There are plenty of reasons why repealing the ban makes sense. For starters, it is four decades old and was put in place to ensure adequate domestic oil supply. In the past few years, oil production in the US has grown significantly leading to excess supply, while domestic consumption has declined. This mismatch has created inefficiencies in the oil production business. On the flip side, opening up exports could generate billions of dollars in revenue and help balance the trade deficit. A more geopolitical argument points to US foreign allies. Many allies are reliant on volatile governments like Russia that use oil supplies as a method of exerting foreign policy. The European Union received almost 30% of its oil and gas from Russia in 2014, and just the option for these nations to have a stable and reliable source of energy from the US would express sentiments of strong support and decrease these countries’ dependencies.
Those against the removal of the ban argue that this bill could, if passed, jeopardize America’s energy independence. Opening up free trade of US oil might undo the decline in American imports that has occurred over the past decade, potentially driving up domestic oil costs and exposing the US more to the volatile oil market. Environmentalists are concerned that by exporting oil, the US would be encouraging more oil and gas production, contributing to the issue of climate change. It is important to note, however, that the US already exports plenty of petroleum products, and this argument is quickly dismissed by many.
The idea of “jeopardized American energy independence” is a shaky one, and there seems to be a pretty compelling case for supporting US oil exports, notably the idea of freeing nations from their reliance on Russia or the unstable Middle East for energy. This decision has potential to shake up global oil markets. Should the bill be passed, global oil prices are likely to fall and domestic oil companies should perform exceptionally well while creating more jobs as they ramp up production. The bill is expected to pass through the House, but the prospects of it passing through the Senate are unclear. Earlier this summer, a Senate panel voted on a similar legislation, but received no Democratic support. Furthermore, the White House refuses to extend support for the repeal of the ban. WTI Crude closed higher by about 1.3% in light of the White House announcement.