The United States has finally lifted a ban on oil exports that was put in place in the mid-1970s. While there were, and still are, opponents of this decision, most believe the choice to lift this restricting embargo will ultimately prove to be a monumental and successful decision in U.S. history. The only question is, how exactly will this affect the economy, Middle East, and oil and gas industries?
40-Year Ban Lifted
For years, conservative politicians have called for a lift on the oil export embargo that’s been in place for more than 40 years. Most recently, presidential hopeful Jeb Bush announced his plans to lead a charge that would ease restrictions amidst an unstable domestic business climate.
“More domestic energy leads to more jobs, higher wages, lower gas prices, and smaller electricity bills,” wrote Bush this past September. “In short, it means more money in people’s pockets, allowing them more freedom to make more choices for themselves and their children.”
Well, it appears that the Obama Administration and those in Washington have finally listened. The lifting of the embargo comes as part of a spending deal that was pushed through the House and Senate and then signed by President Obama himself weeks before the end of the year.
While we’ll discuss the possible benefits of the decision to remove the oil export ban momentarily, let’s quickly recap why the ban was enacted in the first place. In essence, the ban was the result of two interrelated issues.
First off, when the U.S. sided with Israel in the Yom Kippur War in the 1970s, the price of oil spiked from $3 per barrel to a whopping $12. As a result, a ban was put in place in December 1975 to keep oil home. Second, the country’s oil supply dwindled during the 1970s, as oil fields matured.
Thankfully, circumstances have changed, prices have gone down, and new technology has increased oil production. Over the past seven years, production has gone from 5 million barrels per day to 9 million barrels per day. As a result, supply is growing much faster than demand.
Possible Benefits of Lifted Ban
The lifting of the oil export ban brings with it a number of possible benefits. First off, it’s clear that oil and gas companies will see an increase in business. That’s why leading corporations like Exxon Mobil and ConocoPhillips, as well as the American Petroleum Institute, have been lobbying for ending the ban. These companies will finally have a way to sell their excess supply.
Another benefit is a possible jolt to the economy. As oil and gas companies strengthen, investors will be encouraged to place more trust in these corporations. Furthermore, the U.S. trade deficit will be reduced and additional jobs will be created.
What many consumers want to know is how this will affect domestic gas prices at the pump. At a time when prices are so low, many are hesitant for any change that could send prices back above the $4-plus threshold. What will the effect be?
“In the short term, crude prices might rise in those parts of the U.S. that are facing a refinery bottleneck,” writes Brad Plumer of The Washington Post. “After all, if oil producers have more options for selling their product, they can command a higher price.”
“But that’s not the whole story,” Plumer warns. In the long run, Americans will likely see better prices as a result of the lifted ban. This is especially true on the East Coast, where drivers rely on Brent crude oil.
Looking to the Future
The lifting of the oil export ban was certainly a monumental moment for the U.S. in 2015. While it appears to be a beneficial move that will help both large businesses and individual citizens, the full effects remain to be seen.