As the US Senate deliberates a new round of sanctions on Iran, two former Obama advisers make a compelling case for a powerful policy lever that is not even on the table — US crude exports.
The economic arguments for exporting US crude are fairly well-known and the main ones are trotted out by oil industry groups. But the foreign policy benefits of exports are not as widely talked about.
Former National Security Adviser Thomas Donilon last week laid out several reasons why the restrictions, often incorrectly referred to as a total ban, should be lifted immediately.
The first is in many ways the most interesting.
Stories about the export “ban” almost always say that restrictions came about as a result of the oil embargo in the 1970s. Domestic oil was in short supply, so it had to be hoarded to protect against any future cutoff from hostile trading partners, or so the story goes.
Not entirely true.
A new report from the Columbia University Center on Global Energy Policy gives a clear history of US policy regarding oil exports. The report, co-written by Jason Bordoff from Columbia and Trevor Houser from the Rhodium Group, points out that export restrictions were first imposed by Richard Nixon as a way to prop up price controls on oil.
When Nixon first imposed price controls, US crude was selling at a discount to global prices. In 1974, global prices rose, giving US producers an incentive to sell their oil abroad. Restricting exports, a move that was later made permanent by Congress, was a way to avoid undermining those price controls.
“Of course we haven’t had price controls in the United States on crude oil since Ronald Reagan’s first executive order in January of 1989,” Donilon said at a Columbia event last week. “The rationale for the ban is no longer relevant.”
US commitment to global free trade is another key reason to end the export ban.
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In several areas, the US surrenders its leverage with other countries by advocating policies that it is not willing to adopt.
“The US has consistently opposed efforts by countries to manipulate their exports,” Donilon said. “Maintaining the ban will increasingly undercut our credibility in the global arena.”
Ending export restrictions will also boost US energy security, the Columbia report concluded.
“By allowing exports, we permit production decisions in the United States to be made fully on the basis of market forces rather than being influenced by artificially imposed regulatory constraints,” Donilon said. “This in turn will increase diversity of supply, increase competition, reduce volatility and lower prices in global markets.”
And then there is Iran.
Choking off Iran’s oil income has been the key to the success of global sanctions. That has been accomplished by persuading Iran’s biggest customers to scale back on purchases.
The US has done this partly through the threat of cutting off foreign financial institutions from the US banking system if countries did not comply. But US diplomats have also given assurances that there is enough global crude supply available to make up for Iranian oil.
Except, of course, from the US. Our oil is not to be shared.
“As we continue to enforce sanctions, particularly if no nuclear deal is reached and sanctions are ramped up, our refusal to export oil puts us in an increasingly untenable position when we demand that other countries reduce their imports,” Donilon said.
That view was echoed by Carlos Pascual, a former State Department envoy for International Energy Affairs, who was instrumental in the diplomatic effort surrounding Iran sanctions.
“To another country, what it looks like is the United States is saying ‘We have domestic concerns and so we’re going to structure our laws and policies around energy that first address those domestic concerns and then we’ll think about what’s good for the international community,'” Pascual said at the Columbia event.
“You’ve just lost your credibility from the very beginning.”