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Oil Export Momentum

Support is growing to repeal a Nixon-era ban that Iran and Russia love.

Wall Street Journal

oil-well-drillingThe Washington news isn’t all bad these days: Republicans and some Democrats are working hard to gather enough votes to repeal the 40-year ban on exporting crude oil. With gasoline prices hitting new lows, now is the right political moment to do something right for the economy and national security.

The ban is a relic from the Nixon era when oil prices spiked and OPEC began. America’s unconventional oil boom has changed everything. U.S. crude production bottomed in 2008 at about seven million barrels per day and is now more than 11 million. The Energy Information Administration estimates that U.S. output could hit 18 million barrels a day by 2040. Crude inventories are at an 80-year high, and imports declined nearly 30% between 2005 and 2013.

The export ban is, paradoxically, one of the biggest threats to this U.S. production boom. The decline in oil prices over the past year has forced U.S. producers to slash investment and cancel projects. The U.S. rig count has dropped 50% since last autumn, and the industry has cut more than 125,000 jobs. Lifting the ban would offer new markets for U.S. oil and mean fewer layoffs.

This harm is compounded by the U.S. refinery mismatch. Most U.S. refineries are built to process heavy crude that the U.S. has long imported from the likes of Venezuela and Mexico. But most U.S. drillers are producing light, sweet crude. Refiners are slowly retooling to handle more U.S. crude, but record amounts of oil are still piling up in storage. So U.S. producers are getting $5 to $10 a barrel less than what oil sells for in the global market, which leads to further declines in domestic drilling.

Lifting the ban would allow producers to realize profits on the light, sweet crude that sells at a premium to heavy crude. A Brookings Institution study estimates that ending the ban could increase U.S. production by as much as 4.3 million barrels a day by 2035. The consultants at IHS predict an annual GDP gain of up to $170 billion, significant new capital investment, tens of thousands of new jobs a year, and a flood of new tax revenue.

More than a dozen studies have shown that exporting oil would not increase American gasoline prices. U.S. gas prices are a function of global oil prices. Putting U.S. crude into the global mix would increase world supply and thus, all other things being equal, put downward pressure on those prices. When President Bill Clinton ended the ban on oil exports from Alaska’s North Slope, studies found no increase in U.S. gas prices.

House Majority Whip Steve Scalise is making the case that ending the ban would also be a useful response to Iran’s windfall from President Obama’s nuclear deal. Once free of sanctions, Iran will ramp up its oil production. Growing U.S. production would diversify the world market and diminish the geopolitical clout of Iran, Russia and other unsavory oil producers. Question: How can Mr. Obama justify unleashing Iran oil on the world while continuing to block U.S. producers from a similar opportunity?

The President may soon have to answer, because coalitions are forming in Congress to lift the ban. In the Senate, Energy and Resources Chairman Lisa Murkowski has joined North Dakota Democrat Heidi Heitkamp on a repeal bill that may get a committee vote as early as this week. Some 13 House Democrats have endorsed similar legislation from Texas Rep. Joe Barton. On Monday Mr. Scalise took an informal whip survey of Republicans, and we’re told he found strong support. The House may vote after the summer recess.

The Obama Administration may not be as hopeless as usual on this one. Last year it lifted export restrictions on a small subcategory of oil, and Energy Secretary Ernest Moniz said in 2013 that the ban deserves “new analysis and examination.” Michele Flournoy, a former undersecretary of defense for Mr. Obama, has argued that the ban is “outdated and counterproductive.”

So who’s opposed? Some businesses and unions that fear job losses, however irrationally. But the most powerful opponents are the green lobbies that want to stop all fossil-fuel production and thus oppose the opening of any new markets for U.S. oil. This is Mr. Obama’s crowd, and they have so far blocked most Democrats from getting behind repeal.

Republicans and their Democratic allies should push ahead anyway. Americans are enjoying a summer driving season with the lowest gasoline prices in years, so they aren’t likely to fall for the old demagoguery about exporting American energy to foreigners. This should be an easy win for jobs and U.S. global influence.