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October 16, 2015

Reduce Trade Deficit by Ending Crude Oil Export Ban

  The Hill

The House of Representatives has just taken a major step toward reducing the U.S. trade deficit: ending the crude oil export ban. 

U.S. companies sell goods and services to other countries, just as those countries sell their goods and services to us.  The U.S. always buys more than it sells—in large part because we have more money to spend—which leads to a monthly balance-of-trade deficit.  

When the U.S. economy is strong, at least compared to other countries, as it is right now, the trade deficit usually increases.  The deficit was $48.3 billion in August, up from the revised figure of $41.8 billion in July.  Since about 2010, the trade deficit has run in the $40 billion to $45 billion range.  

Some economists, but mostly politicians and the media, go into a projectile sweat when the trade deficit grows and look for legislative ways to lower that number.  

Removing the ban on U.S. crude oil exports is one sure way to dramatically lower the balance of trade deficit, not for a few months, but for years to come.

In 1975, when gas lines were long and voters’ tempers were high, Congress passed legislation prohibiting U.S. crude oil exports.  The country had seemed to peak its oil production a few years earlier and was on a gradual crude oil production decline, and Congress wanted the country to keep every drop it produced.

Of course, cars run on gasoline and not crude oil, and yet there is no ban on refined gasoline products.  In other words, Congress banned the export of a product drivers can’t use but not a product they can.  

But that was 40 years ago, and innovative drilling techniques have flipped the 1970s gas shortage on its head.  The U.S. government’s Energy Information Administration (EIA) now ranks the U.S. as the largest producer of crude oil in the world.  

Allowing crude oil exports would increase the supply of oil, stabilize the price, and, most importantly for this discussion, reduce the trade deficit as we sold the products to other countries.

Critics claim there’s no point in ending the ban, at least for now, because the U.S. still consumes more oil than it produces.  But their claim misses two important points.

First, analysts project that the U.S. could become a net oil producer—producing more than we consume—within five years.  But establishing the infrastructure and entering into contracts will take some time, and no oil producing company is going to move forward unless it knows for sure that Washington will allow exports.  

Second is economic efficiency.  Oil has to be refined to be used, and getting crude oil to a refinery that can handle it means transportation and sometimes storage costs.  It may make more economic sense for a company to sell its crude oil to another country than going to the additional costs of transporting and refining it in the U.S.  

The White House opposes ending the ban, and has suggested that the Commerce Department, not Congress, should make the call on whether to lift it.  But that’s just a stalling tactic, similar to the one used in the Keystone XL pipeline.

In that case, the White House asked the State Department to assess the environmental impact of approving the Keystone, knowing the assessment would take years.  But State Department experts did the work and concluded that approving the Keystone would have little to no environmental impact.  Even so the White House has refused to approve the Keystone pipeline.

Economists disagree on the importance of reducing the trade deficit, but there should be no disagreement that allowing oil exports would be the quickest and easiest way to do it—along with helping the energy sector, boosting the economy and moving toward energy security.  

The Senate should now push through an end to the export ban and send a bill to President Obama, even if the White House disapproves. Don’t let crude oil exports get sidelined by the same tactic that has hindered the Keystone XL approval.


 

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