On June 16, Bloomberg News reported that the White House is considering limiting US exports of gasoline and diesel, a step ahead of an outright ban on all exports of petroleum products. The White House National Economic Council is already exploring legal justifications for restricting exports, the report said, because the president does not have the explicit authority to make this unprecedented move.
The next day, Representative Ro Khanna (D-Calif.) publicly called for an outright ban on US oil exports, resurrecting an idea he and other progressive Democrats championed last fall as gas prices began to rise. At that time, CNN reported that White House Chief of Staff Ron Klain had also suggested halting oil exports to lower gas prices.
“Why are we sending more oil to other countries when we have a problem here with supply?” Khanna said on CNBC. “We could have that ban now, and it would dramatically lower gas prices.”
In December, Energy Secretary Jennifer Granholm said the ban on crude oil exports was “off the table”. Asked about this last month, Granholm changed her message and said nothing was off the table.
Oil producers and exporters point out that progressive Democrats have been trying for years to reverse the Obama administration’s decision to lift the US export ban in 2015. Progressives want to move ahead with oil, not expand global oil markets.
In the current crisis, however, the Biden administration and the Democrats are caught between that priority and the reality that Putin’s invasion of Ukraine has made oil exports a crucial instrument of foreign policy. Russia is cutting off gas supplies to European countries as punishment for helping Ukraine, and those countries are struggling to make up for it.
The Biden administration promised European allies that it would help them mitigate Putin’s use of energy as a weapon by increasing US supplies. If the White House were to ban or even restrict exports, it would reduce the amount of oil available on world markets, leaving allies in trouble and pushing up prices. And that, in turn, would mean more profits in Putin’s coffers — which are already filling, despite sanctions, because of soaring world oil and gas prices.
“It would be a punch in the stomach for our allies and it would be a gift to Putin, because as the US cuts off its supplies to the world, the price of crude oil would rise and that would result in a financial boon for Russia. ” said Bob McNally, chairman of the Rapidan Energy Group and energy consultant to the George W. Bush administration.
Even if the export restriction only applied to refined products such as gasoline, jet fuel and diesel fuel, any benefits to US consumers would be small and temporary, McNally said. The Biden administration would also be undermining its own effort to pressure US energy companies to expand refining capacity, which is already slowing despite rising demand.
European countries, which are already tired of the cost of getting rid of Russian oil, may abandon the US-led pressure campaign if the United States starts hoarding its own oil products. Limiting oil exports would likely lead to a massive supply shortage around the world and undermine the credibility of the United States as a reliable supplier, according to a June 21 research report by Credit Suisse.
“This would have a greater impact on the global supply of goods than the Russian invasion of Ukraine,” the report said.
The United States currently exports between 2 million and 2.5 million barrels a day of refined petroleum products such as gasoline, jet fuel and diesel oil, as well as about 2.5 million barrels a day of other petroleum products. , according to Credit Suisse.
In his interview with CNBC, Khanna suggested that European allies could be exempt from any ban. “Why are we sending the oil to China?” he said. But the data shows that sales to China represent only a small portion of total exports, negating the supposed benefits.
Yet another problem is that US refineries rely on crude products from abroad, while US crude oil products are usually only refined abroad. Messing with these complicated arrangements would likely result in major disruptions arising in the midst of an existing crisis.
In the long term, the goal of moving away from oil to renewable energy sources is a wise one. But in the short term, the cold reality is that there is no way to cut gas prices very quickly – not even going hat in hand and begging Saudi Arabia to increase production.
The best thing the Biden administration can do is be honest about it with the American people and continue working to increase all types of domestic energy production while maintaining US export commitments abroad. We are in an energy war with Russia, and wars have costs. But this is a war we cannot lose.