Ending the U.S. oil export ban is an empty gesture

Both the House and Senate are considering measures that would lift a ban on the export of U.S. crude oil that has been in place since 1975, the height of the Arab oil embargo.

Ending the 40-year prohibition may seem counter-intuitive in an era of global supply glut and collapsing prices. For oil producers and lawmakers from oil-producing states, repeal is seen as a way to find new markets for American energy and bring back jobs to districts that have been hard-hit by the excess supply.

While many Republicans, including presidential candidate Jeb Bush, have come out in favor of the idea, most Democrats, including President Barack Obama, are lukewarm, if not opposed. Presidential candidate Hillary Clinton said last month that she worried about the potential harm to the environment of lifting the ban, and would only support a measure if it’s accompanied by concessions. These could include renewable energy tax credits or support for refiners, who benefit from low prices.

Although the proposals could gain ground in Congress, the prospects for enactment this year remain dim. Nonetheless, the issue is certain to be a hot topic of debate in the presidential race.

But the candidates’ time could be better spent: The long history of oil suggests the ban is of little consequence, whether it stays or goes. In fact, imports and exports of crude oil are largely irrelevant to energy independence. What matters are the much bigger, tectonic shifts in production and consumption, which wouldn’t be affected by a change in the law.

From the moment the U.S. pioneered the oil industry with the first derricks in Titusville, Pennsylvania, in 1859, energy and economic power became inextricably intertwined. “Americans,” writes the historian Tyler Priest, “were the first people to become mass producers and consumers of oil.”

Crude pumped from domestic wells fueled the allied military victories in World War I and II, which sealed America’s rise as the pre-eminent power. Throughout this period, the U.S. was “energy independent,” though no one used that phrase, because it had never been otherwise.

A single-minded focus on imports and exports in this era — or in any era — is to miss the big picture. Just look at the numbers. In 1929, the U.S. imported about 79 million barrels of oil and exported 26 million barrels. Although this would suggest a dependence on foreign oil, that wasn’t the case. That same year, domestic field production of crude topped 1 billion barrels, making imports and exports a sideshow to the main event, which was domestic supply.

In some years, exports exceeded imports; in others, it was the other way around. In 1938, the U.S. exported 77 million barrels and imported 26 million. But domestic production of crude hit 1.2 billion barrels that year, dwarfing these figures.

At the same time, a momentous shift was taking place that had nothing to do with imports and exports: the beginning of the exploitation of the huge oil reserves in the Middle East.

As these reserves began to be tapped in full after World War II, U.S. policy makers started to worry that incredibly cheap oil from the Middle East would flood American markets. Their predictable — though pointless — response was to focus on imports and exports, and to worry about the growing disparity between the two.

In 1947, two Republican senators, Hugh Butler of Nebraska and Richard Welch of California, called on President Harry Truman to ban the export of “irreplaceable” domestic oil. A year later, the Commerce Department banned the sale of crude oil to foreign countries (except Canada) without a special license — the first such control instituted during peacetime.

But the limits made no difference. In the 1950s, concern over the ascendance of the supply from the Middle East prompted a flurry of measures that tried to restore U.S. primacy in oil markets by regulating the flow in and out of the country. For example, the Eisenhower administration imposed draconian quotas on imports of foreign oil in 1957.

It also subsidized domestic production through an array of tax breaks. In that period, Saudi oil cost about 5 cents a barrel to produce; U.S. oil cost 20 times as much. Although the government made valiant efforts to make U.S. oil competitive, it didn’t succeed: Oil imports continued to rise, and took off after 1970.

But rising imports were a symptom of a deeper trend: the depletion of American oil reserves. Domestic field production peaked in 1970 and then began a long decline. As the nation began struggling to meet the demand for oil, President Richard Nixon’s lifted the import quota controls in 1973.

The oil embargo began that year, rendering this move moot. There was no escaping the fact that the U.S. had dwindling supplies, while the Middle East was awash in the stuff and could call the shots.

In 1975, President Gerald Ford signed into law the Energy Policy and Conservation Act, which sought to tackle the problem by reducing demand. This legislation also resurrected the old idea of export controls, permitting the president to ban the export of domestic oil.

This particular clause, the one that lawmakers now want to repeal, passed with almost no debate or discussion. And for good reason: Until then, U.S. oil exports mostly had been negligible relative to domestic consumption.

In the year before passage of the ECPA, the U.S. exported a little more than 2 million barrels of crude oil a year, but consumed almost 6 billion barrels. Banning exports was akin to rearranging the deck chairs on the Titanic.

Now some politicians say the ban no longer makes sense, pointing to the growing supplies of “tight oil” obtained via fracking. Oil production has surged in recent years, and by some projections could surpass the peak of 1970. According to a report released this year by the Energy Information Administration, the U.S. may achieve energy independence between 2020 and 2030, becoming a “net energy exporter.”

So should the ban be lifted? History has a ready answer: Who cares? What matters is who has oil and how much. Tinkering with the level of imports and exports won’t change that.

_ Stephen Mihm, an associate history professor at the University of Georgia, is a contributor to Bloomberg View.

Chicago Tribune