Larry Summers, leader of President Obama’s National Economic Council from 2009 to 2010 and former Harvard University President, made a forceful case last week at the Brookings Institution to end the 39-year-old crude oil exports ban. The ban, which was put in place in 1975 in response to the Arab oil embargo, reflects policy stuck in the 1970s. We have an opportunity to promote U.S. economic development through a booming energy renaissance that demands a very different policy some 40 years later. Permitting U.S. oil exports will lower gasoline prices at the pump, provide Americans with new jobs, lower unemployment, and strengthen the nation’s flexibility in international policy. Mr. Summers believes President Obama should act now. His case is straightforward: “We should not have prohibitions without a reason. We need all the economic benefits we can get.”
Mr. Summers spoke at the release of a new report by the Energy Security Initiative (ESI) at Brookings, entitled “Changing Markets: Economic Opportunities from Lifting the U.S. Ban on Crude Oil Exports.” The study supports his argument for exports. U.S. refineries cannot handle the dramatic increase in domestic crude oil production that has resulted from the domestic shale boom. Mr. Summers also makes clear that his support for ending the export ban is not an argument against climate change or the need to address it. The US is already making surprising progress in limiting carbon, he observes. Retaining a ban on exports is not the solution to additional changes that may be considered in well construction and wastewater disposal, associated with hydraulic fracturing. Ending the ban on oil exports will drive economic growth with new jobs and increased disposable personal income that comes from savings at the pump. Improved efficiencies in the refining process are also likely.
According to the macroeconomic study conducted by the ESI and the National Economic Research Associates (NERA), eliminating a ban on crude oil exports could inject between $600 billion and $1.8 trillion into the domestic economy and reduce gasoline prices by 9 cents per gallon by 2015. The study coincides with a study by IHS released earlier this year that also forecasts lower gasoline prices and increased employment and economic revenue. Because oil production is now at its highest point since 1987 as a result of the steep rise in domestic horizontal drilling and hydraulic fracturing, suppliers are looking for ways to bring their product to market.
Without increased market access via international exports, the study warns that U.S. production will decline. Crude stockpiles climbed to a record high on the U.S. Gulf Coast earlier this year, a trend that will continue so long as the industry believes that the export ban might be lifted. With broader market access, however, oil production in the Gulf Coast alone could increase by over 1.5 million barrels per day. Brookings gets it right: “We think the key lesson of our economic history in the energy space is that the U.S. economy works better by embracing market forces than trying to resist them.”
Mr. Summers’ succinct comments are the latest example in a growing trend of influential American leaders who wish to revisit the ban. Obama Administration officials—including Energy Secretary Ernest Moniz—have asked to reexamine the ban’s utility. Several high-profile lawmakers, for example Sens. Mary Landrieu (D-La.), Lisa Murkowski (R-Alaska), and Rep. Joe Barton (R-Texas), have followed suit. According to an Associated Press poll conducted this year, ninety percent of economists surveyed believed allowing crude oil exports would improve the economy.
Additionally, the comments by Summers and the release of the Brooking’s report come on the heels of the Commerce Department’s decision earlier this summer to allow the export of lightly processed condensate, a first step that further bolsters Summers’s argument. Brookings believes President Obama has the authority to remove the ban without consulting Congress, meaning he could capitalize on the increasing momentum without getting weighed down in a political battle in Congress.
The President has the clear authority to act. The American people stand to gain substantially from ending the ban. The U. S. stands to gain additional international foreign policy leverage in a world where oil and natural gas exports provide power to some and constrain others in the continued European and Russian dance over the Ukraine. Lawmakers and policy wonks are loudly supporting a rational crude oil export policy. It is now time for President Obama to capitalize on this momentum and end the ban on crude oil exports.