by Raymond J. Keating –
Bad ideas in politics never seem to die. After all, socialism keeps rearing its ugly head. One of the latest bizarre ideas being kicked around Washington political circles is government imposing an export ban on petroleum products in an effort to fight high gas prices at the pump.
Golly, could it just be that easy? Of course not. And a little economic sense and history reminds us.
Government stepping in to impose barriers to market transactions leads to assorted distortions that inevitably result in less production and higher costs, not to mention grim political consequences during a time of war.
The rumors that have been flying around D.C. is that the Biden administration and various members of Congress have been considering the idea of a partial or full ban on fuel exports.
The inevitable results of such actions would be to reduce access to international markets for U.S. producers, reduce U.S. production, and hurt global allies’ access to affordable fuels during Russia’s war on Ukraine.
By the way, the U.S. is the largest exporter of refined petroleum products, as well as the world’s largest importer, according to analysis from OEC, and there is a complexity involved in, for example, the movement of both refinery inputs and outputs, including exports and imports, that obviously lie far outside the expertise of elected officials.
For example, as the U.S. Energy Information Administration has noted, “Because of logistical, regulatory, and quality considerations, exporting some petroleum is the most economical way to meet the market’s needs. For example, refiners in the U.S. Gulf Coast region frequently find that it makes economic sense to export some of their gasoline to Mexico rather than shipping it to the U.S. East Coast because lower cost gasoline imports from Europe may be available to the East Coast.”
What are the most likely results if the Biden administration and/or Congress were to restrict U.S. fuel exports?
A study from the American Center for Capital Formation found that a ban would result in higher gas prices for most Americans, lost U.S. GDP, and job destruction. Key points include:
● “A ban on U.S. product exports would trap refinery production in the Gulf Coast region as capacity constraints on pipelines and the Jones Act-compliant vessel fleet limit the ability of Gulf Coast refiners to redistribute displaced exports to other U.S. markets.”
● “The loss of U.S. refinery supply would increase product prices in the global market as buyers of U.S. exports bid up the price of fuel from alternate sources. This would increase product prices for consumers in the East and West Coast regions where imports continue to set market prices as the ‘last barrel’ of supply.”
● “More than two-thirds of U.S. consumers will see price increases, including average increases of more than 15 cents per gallon for gasoline and 45 cents per gallon for distillates over the second half of 2022.”
● “U.S. gross domestic product (GDP) would fall more than $44 billion in 2023 as losses to U.S. fuel consumers in the East and West Coast, refiners in the Gulf Coast, and oil producers in the Central U.S. more than offset benefits to consumers in the Gulf Coast and Midwest regions, refiners in the East and West Coast, and crude oil exporters in the Gulf Coast.”
● “Refinery closures and reductions in upstream oil and gas drilling activity due to the export ban would cause 85,000 average job losses over the second half of 2022 and 35,000 average job losses in 2023, including direct, indirect, and induced job losses.”
● “Even if Russian export volumes do not increase as a result of the U.S. product export ban, higher global product prices will increase Russian export revenues.”
It also pays to keep in mind the effects of the U.S. in 2015 lifting its decades-long ban of crude oil exports – which effectively is the exact opposite policymaking as being considered currently. The American Exploration and Production Council and API just released a study on the impact of lifting the ban, and it reported that this opening of markets generated growth in U.S. oil and natural gas production, enhanced U.S. GDP, exports and jobs, and reduced global energy prices.
Specifically, over six years, the lifting of the ban increased U.S. GDP by $161 billion, increased jobs by an annual average of 48,000, and reduced gas prices by an annual average of 4.6 cents per gallon.
Freeing markets from government controls, and relying on private competition and cooperation, always enhances efficiencies, investment, and production – all subject to consumer sovereignty. That goes for energy markets and all other sectors.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.