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Friday, December 11, 2015

Why Is It Illegal to Sell American Oil Overseas?

The US export ban is a relic

The U.S. House of Representatives voted to lift the 40 year-long ban on crude oil exports last month. The White House has already threatened to veto the measure if it passes the Senate. U.S. energy policy remains stuck in the 1970s, when tight restrictions were imposed by Washington on the export of US crude oil in the wake of the 1973 Arab oil embargo, through the Energy Policy and Conservation Act and the Export Administration Act. Today, lifting the ban is vital to US interests.

The United States is the world’s largest oil producer (bigger than even Saudi Arabia), but exports just a tiny fraction of its oil abroad, to Canada and Mexico. The U.S. also has vast reserves of natural gas, which are not subject to an export ban, but the federal government tightly controls where American natural gas can be sent.

At present, only the 20 countries that have signed a free trade agreement (FTA) with Washington can automatically import US natural gas. No European countries have an FTA with the United States (due to the supranational nature of the European Union). Instead key US allies are energy dependent on a major American adversary, Russia.

Moscow exerts an extraordinary stranglehold over Europe’s energy needs, which poses an immense strategic and security risk across the Atlantic. Increasingly, Vladimir Putin’s aggressive regime will seek to weaken European opposition to Russian expansionism by threatening to withhold energy supplies at critically important moments, as it has done on several occasions with Ukraine.

Europe’s energy dependence on Russia is staggering. According to the Congressional Research Service (CRS), Russia supplied “40 percent of the EU’s natural gas imports and almost 30 percent of its oil imports” in 2014. As the CRS points out, seven EU member states in Eastern and Central Europe depend almost entirely upon Russia for their natural gas needs, including the three Baltic states of Estonia, Latvia, and Lithuania.

Energy dependence is a major concern in parts of Western Europe as well, including in the EU’s largest economy, Germany, which derives 45 percent of its natural gas from Russian sources. Europe’s dependency on Russia will only grow in the next decade, as European use of natural gas increases, while domestic production falls. The inflow of money from the European Union is essential to the survival of Vladimir Putin’s regime and state-owned companies such as Gazprom that are home to Russia’s ruling class, with roughly half of Moscow’s tax revenues coming from oil and natural gas.

Loosening Russia’s energy grip is vital to US interests in Europe. By lifting restrictions on the export of natural gas to those countries most dependent upon Moscow, the United States will be able to weaken Russian influence and enhance the security of key NATO allies living in the shadow of the Russian bear. It is frightening to think that Moscow could hold the Baltic states hostage by simply switching off their natural gas supply.

It is time for the United States to advance an energy policy that improves the security and independence of its allies, and enhances America’s strategic influence abroad, while boosting the U.S. economy and creating jobs at home.

As the Heritage Foundation recently argued in a major report headed by economist Nicolas Loris, “free trade in energy bolsters national security by increasing supply diversity and providing choices for allies; it will have beneficial geopolitical implications for every region of the world.” This is a far better alternative to keeping in place outdated measures that weaken the transatlantic alliance while handing the initiative to authoritarian powers that threaten our interests.

This post first appeared at CapX.

  • Nile Gardiner is the Director of the Margaret Thatcher Center for Freedom at The Heritage Foundation.