Editor’s note: This article first appeared at Forbes.com.
For those of you old enough to remember the 1970s, you may recall how dismal economic conditions were as a result of unenlightened policies coming out of Washington. Among the more counterproductive laws were the Energy Policy and Conservation Act of 1975 and the Export Administration Act in 1979. Both laws severely curtailed exports of domestically produced crude oil. We should have learned from the long gas lines caused by President Nixon’s price controls that government interference with energy markets ultimately backfires, but we still haven’t absorbed that lesson. The 1970s-era federal restrictions on oil exports may soon come back to bite us.
Currently, American oil companies can only obtain a license to export crude if certain very specific conditions are met, so the vast majority of domestic crude can’t leave our shores. As you would expect, American oil producers want the ban lifted, but the political left wants to retain the ban. Commentators for the Center for American Progress complained earlier this year that five major oil companies with collective profits of $93.3 billion in 2013 were “lobbying to lift the crude oil export ban” and that “doing so could hurt working families, our economy, and our energy security.”
It’s too bad the left doesn’t do economics. If they did, they would understand that oil markets are global, so the more crude that hits the global market, the lower the price of crude oil (hence, the prices of gasoline, kerosene, diesel, heating oil, etc.) will fall. The last time I checked, cheaper prices for needed products help working families. Why the left wants to hurt people of modest incomes by restricting the supply of oil and propping up energy prices is something they need to explain.
Some energy experts have reported that we are fast approaching the capacity of our domestic infrastructure to refine or to store the light, sweet crude oil coming out of shale deposits (thank you, EPA). With nowhere for additional crude to go, production would have to be cut back and American workers laid off. Hmmm, that doesn’t sound very good for our economy or the working Americans whom progressives sometimes profess to champion.
In addition to benefiting American consumers and workers, lower global oil prices would yield geopolitical benefits, too. Vladimir Putin and various petro-tyrants who depend on hydrocarbon revenues to fund their mischief would have their wings clipped. In fact, exporting energy to Europe would weaken Putin’s leverage over our European friends and allies.
One wonders if progressives even realize that their opposition to oil exports conflicts with some of their other objectives. Many on the left complain about the merchandise trade deficit (yes, yes, I know it’s just an accounting artifice offset by a capital surplus) and they get mad as heck when foreign governments block exports from America. Selling oil abroad would lower the trade deficit, but here we see progressives seeking to do what they decry foreign governments from doing—blocking American exports.
Progressives always get bent out of shape about oil company profits, in spite of the fact that the oil and gas industry typically ranks lower than 100th in terms of the comparative profit margins of 215 American industries, generally earning a modest six to eight percent. Well, the writers for the Center for American Progress hinted at how to inflict some serious profit pain on oil companies when they wrote that “the big five oil companies actually increased their total production,” yet earned “lower profits.” Strangely, they couldn’t connect the dots: Supply goes up, price falls, profit margins are squeezed. What’s so hard about that? Oh, I forgot—the left doesn’t do economics.
If progressives really want to curb oil company profits, they should favor the removal of all restrictions from drilling and selling oil. The resulting flood of crude would crash profit margins and even put some marginal producers out of business.
Investors in domestic oil company stocks already have endured lower stock prices this year, with some of the major shale oil producers falling between 21 percent and 34 percent. We don’t know yet which domestic oil companies will survive the current down-cycle in this highly competitive, merciless commodity market, but it is clear that the export ban unfairly handicaps producers of the light sweet crude for which we are close to running out of domestic refining capacity. Of course, that’s the way the left prefers it—having government pick the winners and losers.
The better, fairer, more economically rational way is to let American oil producers do what all of us want to do with our own property: be able to sell it to whoever wants to buy it. Oh, I forgot: the left doesn’t do property rights either.
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