Blog Post

Lifting the Oil Export Ban: A Staged Approach

Nov 17, 2014 | Jan Mares, Alan J. Krupnick

In the debates surrounding a lifting of the oil export ban, what is sometimes missed is that exceptions—some big, some small—to permit exports have been made for decades.  President Reagan issued a finding in 1985 that exports to Canada for consumption in Canada would be in the national interest and such exports began to be allowed.  He made an additional finding in 1988 that additional exports of crude oil from Alaska were in the national interest and they too were allowed. President G.H.W. Bush in 1992 issued a similar finding for exports of some heavy crude oil from California, which the Clinton Administration implemented in 1995.   Beginning in 1988 those findings and their resulting exceptions to the ban on exports were when US net oil imports were greater than today and anxiety about permitting exports would have been correspondingly greater.

Economic analyses by researchers at RFF and elsewhere earlier this year found that gasoline prices are likely to fall if exports are allowed. Our paper showed that gasoline prices fall because the light crude currently being inefficiently refined in the United States could then be more efficiently refined abroad, raising oil supplies and lowering oil prices a tiny bit, and lowering US gasoline prices directly, as well.

Given these results and historical precedent, we can envision a step-by-step approach to removing the export ban.  Such an approach builds in the possibility of a mid-course correction should the first step produce unexpected results.  The first step would be to allow crude oil exports to Mexico and the European Union, the latter having imported 30 percent of its crude oil from Russia in 2013.  This step would thus lead to an increase in domestic activity and jobs, and, as in the finding of President Clinton in 1996 in supporting exports of Alaskan North  Slope crude oil: “Permitting this oil to move freely in international commerce will contribute to economic growth, and create new jobs for American workers, It will not adversely affect oil supplies or gasoline prices on the West Coast, in Hawaii, or in the rest of the nation”.  A second step would be to permit such exports to Latin America and the major importers of Japan and South Korea with whom the United States has major security interests.

In lieu of such steps, the United States could continue granting exceptions for condensate exports and take other approaches to chipping away at the ban.  In our view it would be more transparent and justifiable to lift the ban itself over time, assuming there are no surprises.