The United States produces so much oil that millions of barrels of crude oil are shipped abroad every day.
These American barrels have become extremely valuable to the rest of the world since the war in the Middle East trapped nearly 1 billion barrels of oil in the Gulf.
Asian and European nations rushed to replace the oil shutdown, sending demand for American oil exports soaring.
This raises an obvious question: If the United States has enough oil to ship abroad, why not keep more crude oil, gasoline and jet fuel at home to curb rapidly rising prices?
After all, those who matter. And some other countries, including China, began limiting their own oil exports weeks ago.
Industry experts recognize that controls on exports could contain prices in the short term. In the long term, however, they fear that such restrictions would destroy American refineries and ruin the United States’ reputation as a reliable energy supplier, potentially plunging its allies into recession.
The states that reducing exports is not an option under discussion.
Energy Secretary Chris Wright and Interior Secretary Doug Burgum have made repeated public and private assurances that the White House is not considering export restrictions. But some lawmakers hope the White House will reconsider.
Democratic Rep. Ro Khanna recently reintroduced a bill that would ban the export of gasoline during periods of high prices.
“It’s common sense,” Khanna told Fox Business last month. “Why would we be sending our oil overseas while Americans are being ripped off at gas stations? We should have our oil supply to Americans. That would lower the price.”
“Bad idea”
While banning energy exports could score political points, some analysts warn it will not have the desired result. The problem is that America’s intricate energy supply chain depends on a combination of imports and exports.
Matt Smith, chief oil analyst at Kpler, points out that although the United States is a net exporter of oil, the country still imports 6.5 million barrels of crude oil per day.
America’s oldest refineries have already maxed out processing the light, sweet crude produced by the Permian Basin in West Texas and New Mexico.
They often need to combine this American shale oil with heavier blends found in Canada, the Middle East and Latin America to produce gasoline and diesel. US surplus crude oil is exported.
In other words, the United States is not a self-sufficient energy island.
35% chance of export restrictions
Industry experts say that banning energy exports could easily have the opposite effect.
Bob McNally, founder and chairman of Rapidan Energy Group and former energy adviser to President George W. Bush, said any price drop caused by export restrictions would be temporary.
The concern is that forcing refineries to operate only with American crude could reduce their profit margins.
“Refineries will produce less gasoline, and that will ultimately lead to higher prices,” McNally said.
Still, McNally does not rule out limits on exports if the energy crisis intensifies, as he suspects it will. His company sees a 35% chance that prices will rise enough for the Trump administration to implement restrictions on oil in some form.
“I’ve been in the White House when the walls close in. That’s a terrible idea, but it may be hard to resist as the price goes up,” McNally said. “I can’t believe I’m saying this.”
Indeed, the worst energy supply shock in history is leading some analysts to rethink long-held beliefs about export controls.
Vikas Dwivedi, global energy strategist at Macquarie Group, said a temporary ban on oil and oil product exports would likely drive down American gasoline and oil prices, easing pressure on consumers just in time for the midterm elections.
He argued that refineries could overcome problems caused by losing access to heavier foreign crude.
“All my career I would have said: a ban won’t work. Don’t do it. This is nonsense,” Dwivedi said.
“A total mess”
Robert Auers, refined fuels manager at RBN Energy, said banning oil and oil product exports could temporarily lower gasoline prices — but at a huge cost in the long run.
Auers argued it would be a “total mess” that would force refineries to reduce production — and some would even close permanently.
“You could bring prices down drastically next week.
But this impact would diminish over time. A year from now, prices may be no different than they are today,” Auers said.
And big oil companies would certainly fight against such a measure. “That would be very bad policy and there would be very strong and vocal opposition from the industry,” an oil and gas industry source told CNN.
Chevron CEO Mike Wirth warned this week that export bans, price caps and similar policies won’t work.
Wirth, speaking at the Milken Institute Global Conference, said such policies may be “well-intentioned” but history shows they have “unintended consequences that can make things worse, not better.”
And the rest of the world?
Limiting the supply of American oil to the rest of the world would harm the global economy, and this would likely have repercussions on the United States.
Dwivedi said global prices for oil, gasoline, jet fuel and other energy products would become “absurdly high.” “All of a sudden you could be risking a global recession. And we can’t insulate ourselves from that. It would boomerang back,” he said.
Auers predicted severe retaliation, potentially including tariffs, against the United States. “You would start a whole new trade war — worse than last year’s,” he said.
And part of these exorbitant global prices would be paid by U.S. allies in Europe and Asia — nations that depend on American energy during a crisis.
“We would permanently ruin our reputation as an energy arsenal,” McNally said.
