Bell-Bottom Blues: Think Tank Charges Policymakers With Replaying That 70s Show on Oil Exports

Brookings Institution analysts say an out-of-date "scarcity mind-set" is preventing economically beneficial exports of crude.

A very funny list of eight reasons "children of the 1970s should all be dead" went viral this summer, recalling that less-supervised era when bike helmets were absent (but secondhand smoke was everywhere), "semi-lethal playgrounds of hot metal" were the norm, and seat belts seemed like a novelty.

Those days are long gone. But a report released Tuesday by a pair of Brookings Institution scholars says that when it comes to perceptions of oil markets and energy security, the public and some policymakers are stuck in the 1970s and the energy tumult that followed.

It makes the case that amid surging U.S. production, lifting the country's decades-old ban on crude-oil exports would boost the economy, reduce unemployment, and lower gasoline prices somewhat. But realizing those benefits will require the public and policymakers to move past old beliefs about the oil market that date to the Arab oil embargo of the 1970s that ushered in the current restrictions.

Here's a blurb from the report by Charles Ebinger, who heads Brookings' Energy Security Initiative, and research assistant Heather L. Greenley:

After nearly 40 years of global economic and financial instability, including oil-price shocks occurring multiple times from 1973 through 2008, political volatility in the Middle East and other major oil-producing countries, the Iranian hostage crisis, the rise of global terrorism, and three major wars involving threats to global oil supplies, a "scarcity mind-set" has become ingrained in American consumers and many members of Congress. In reality, the U.S. did not experience a physical scarcity of oil after 1973; rather, the shortages were the result of price and allocation controls that created a false and self-inflicted sense of vulnerability. The economic threat the U.S. has faced over and over again is oil-price volatility, and the pain of trying to adapt to rapidly escalating prices. Yet politicians and pundits have misunderstood the price threat as one of "scarcity" and thus have channelled policy in the wrong direction: to mitigate high gasoline prices by husbanding domestic supply while protecting the industry from foreign competition through a variety of mechanisms (oil import fees, volumetric quotas on imports, etc.)

The report, with modeling help from the consulting firm National Economic Research Associates, estimates that lifting the ban in 2015 would lower gasoline prices by as much as 12 cents per gallon, though the benefit diminishes over time.

The report also predicts that ending the ban would ease price volatility in oil markets and reduce unemployment by as much as several hundred thousand annually in the 2015-2020 period.

It arrives as oil producers, who sell light crude at a discount domestically, are eager to tap global markets for their product as output surges. But the report predicts that with greater profits, producers invest at even greater levels in the U.S., adding another 1.3 million to 2.9 million barrels per day in 2020 if the ban were removed next year.

"The increase in U.S. oil production makes world oil prices fall. Accordingly, so do U.S. gasoline and diesel prices, at least temporarily. This lowers the costs of production for all kinds of businesses and makes households better off," the report says. It also argues that ending the ban would enhance world energy security by "increasing the diversification of oil supply available globally" and signal the U.S. commitment to open trade.

The crude-oil export ban is the subject of an intensifying political and lobbying battle.

The American Petroleum Institute, the industry's biggest lobbying group, and a number of major individual companies support exports. But some independent refiners, fearful of higher crude prices if U.S. producers have access to global markets, are lobbying to keep the restrictions.

Some lawmakers, including GOP Sens. Lisa Murkowski and Ted Cruz, have begun pushing for removal of the export ban. Murkowski has argued that the Obama administration has a fair amount of leeway under its existing authority, although that's contested by a pair of Democratic senators, Edward Markey and Robert Menendez, who support the current restrictions.

The Brookings report argues that the ban, which has prevented exports except in very limited circumstances, can be removed without Congress. "Our legal analysis shows that the president has the power to act at any time to lift the ban, by declaring exports to be in the national interest under the provisions of the Energy Policy and Conservation Act of 1975 (EPCA)," it states.

The Commerce Department recently granted a pair of companies permission to export an ultralight form of crude oil that has been minimally processed. Administration officials insist there has been no change in policy but say they are exploring the topic.