What Does Lifting the US Crude Oil Ban Mean?

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Getty Images

Last week, Congress voted to repeal the ban on exporting U.S. crude oil in an energy policy shift.

The ban on exporting oil originated in the 1970s when the Arab oil embargo raised gasoline prices and caused inflation. The US had adopted domestic price controls to fight the inflation, and crude restrictions were necessary to make those price controls effective.
However, after two weeks of heavy debate among congressional leaders, Congress finally passed the $1.1 trillion government spending bill that included a measure to remove the 40-year-old ban.

Lifting the ban was “particularly important at a time when our industry is experiencing a period of extreme volatility and uncertainty,” said Ryan Lance, chairman and CEO of ConocoPhillips.

The nation’s economy and oil industry are very different from the 1970s. Earlier this year, domestic oil prices dropped under $40 due to the shale oil buildup (a buildup caused the ban). With the ban removed, the oil industry can put shale out in the market, bring the crude benchmark back up, and earn additional capital which can be used for production, exploration, and investments. This in turn will lead to more supply chain jobs in the sector. Lifting the ban also adds to U.S. oil security and strengthens crude trade relationships with Europe and Asia.

In order for the bill to pass, compromises were made to address concerns from opponents. Democrats in the Senate had secured some protections for independent refiners, allowing them to deduct transportation costs for gasoline and other fuels they make to counterbalance the rise in domestic crude prices.

The bill also includes measures that will boost development of renewable energy such as renewable power tax credits, parks conservation funding paid for with oil revenues and the elimination of measures aimed at undoing Obama’s clean power rules on power plants. House Democratic leader Nancy Pelosi said the environmental damage from exporting oil would be offset by ten times.

Democrats may not have been able to get a better deal even if they controlled both chambers of Congress, according to (D)- Senator Martin Heinrich of New Mexico.

Significant U.S. export shipments will not be any time soon, due to the global surplus in oil supplies. Still, crude producers will have the increased flexibility they coveted.

“Now that we have leveled the playing field, the United States finally has an opportunity to compete and realize our nation’s full potential as a global energy superpower,” said George Baker, head of Producers for American Crude Oil Exports.

The legislation will now go to President Barack Obama, who is expected to sign it into law.

Article written by HEI contributor Aliyah Cole.

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