Republicans retook the Senate and held the House in a stunning victory. They promised to strengthen America both at home and abroad. If Republicans want to continue their success in 2016, they will need to show the American people that they can lead. What if Republicans could strengthen the economy, loosen Russia’s grip on Europe, reduce the Middle East’s strategic importance and power, and lower gasoline prices in single policy? What if they could do all of this with a policy that is popular with both mainstream conservatives and the increasingly influential libertarian youth?
They can. Republicans can use their Congressional power to end the export ban on crude oil.
The modern crude export ban begin under the Ford administration in reaction to energy shortages caused by price control mechanisms. Domestic oil producers, eager to break even on their investments, preferred foreign, free markets to domestic, controlled markets. The Energy Policy and Conservation Act provided that the President may “restrict exports of coal, petroleum products, natural gas, or petrochemical feedstocks, and supplies of materials or equipment which he determines to be necessary to maintain or further exploration, production, refining, or transportation of energy supplies, or for the construction or maintenance of energy facilities within the United States.” The President may grant an exception to this general. This includes exports to our free trade partners, like Mexico and Canada. In practice, oil extraction companies lobby the President and the Department of Commerce for these exportation licenses.
Strengthen Our Economy
The export ban initially helped reduce gasoline shortages in the United States caused by price control mechanisms. After the imbargo and price control mechanisms ended, America did not produce enough oil to meet its demands, so local prices (WTI) and global oil prices (Brent) closely mirrored each other. Domestic and International oil prices correlated directly with domestic gasoline prices.
In the wake of the American oil boom, the domestic and global crude oil prices began to diverge. Domestic oil prices dropped considerably while global oil prices remained unchanged. Nevertheless, American consumers did not see any direct benefits from this change. Gasoline prices remained linked to the global price of gasoline, despite the lower domestic crude oil prices. Why? While there is a surplus of crude oil, there is a lack of means of transporting that oil and a few refineries able to process it. Modern American oil is sweet, light oil. American oil refinery sector is designed for sour, heavy oil. It takes time to covert old refineries or build new refineries to process the new oil. The need for the Keystone XXL pipeline and other projects is well documented.
Strengthen our Allies’ Economy
There is another way to spread our fortune. Mexico’s oil refinery industry is designed to process light, sweet crude oil. By lifting the crude export ban, the United States will provide the Mexican economy a boost of job growth. Likewise, the global crude oil cost will drop. This will lower American gasoline prices. The Obama administration is considering an exchange of heavy, sour Mexican oil for light, sweet American oil. The swap would allow American oil to enter the international market. Nevertheless, the exchange does not provide a long-term solution that Congress could provide by ending the ban altogether.
Eliminating the United States the export ban will also help our other strategic ally: Europe. European energy efficiency methods are largely drive by a lack of domestic energy. A Russia trade embargo would force Europe to reduce its energy usage by 28%. The German economy runs on Russian natural gas. Eliminating the export ban would allow America’s surplus of natural gas to flow to Europe, increasing the diversity of its energy supply. Similarly, the Russian economy is dependent on high petroleum prices. Lower global energy prices decreases Russian influence in the world.
Recent changes in the oil market has led many in the industry and Congress to advocate for an end in the export ban. The left-leaning Brookings Institute reported lifting the ban will have positive economic and political benefits. The Council on Foreign Relations believes lifting the ban will benefit America’s internationally. In a report, the Institute for Energy Research showed that the positive economic and political benefits will be long-standing and far reaching. Despite this, some in Congress are trying to keep it alive—few are Republicans.
Ending the crude oil export ban is an area we all agree in, and we know there will be a positive end. It is a place where Republicans can show they can lead.