(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Dec 18 President Barack Obama has
sufficient authority to lift the ban on U.S. oil exports on his
own and does not need approval from Congress.
The various statutes on which the ban is based have either
expired or give the president broad discretion.
Behind the scenes, U.S. oil producers, especially the small
independents that dominate shale plays such as the Bakken and
Eagle Ford, have already begun a lobbying campaign to get the
The influential opinion pages of the Wall Street Journal and
the Financial Times have both carried pro-export editorials
recently: "Time to end the U.S. oil embargo" in the Financial
Times on October 15, and "Exporting American Oil" in the Wall
Street Journal on December 18.
The International Energy Agency has also lent its support.
"Either U.S. crude is shipped abroad or it stays in the ground,"
the agency's chief wrote in an article earlier this year ("U.S.
must avoid shale boom turning to bust" Feb 6).
Now the Obama Administration appears to be preparing for a
rethink. "Restrictions on exports were born, as was the
Department of Energy and the Strategic Petroleum Reserve, on oil
disruptions," Energy Secretary Ernest Moniz told a conference
"There are lots of issues in the energy space that deserve
some new analysis and examination in the context of what is now
an energy world that is no longer like the 1970s" he concluded,
in remarks reported in the Wall Street Journal on Wednesday
("Moniz breaks the taboo against selling U.S. crude overseas"
Even the hint that the ban might be relaxed has drawn a
strong response from refiners and politicians who want it
Senator Robert Menendez, a Democrat from the refining state
of New Jersey, who is also chairman of the powerful Foreign
Relations Committee, wrote to the president on Monday "to
express my deep concerns over the recent comments of Energy
Secretary Ernest Moniz stating that your administration is
considering easing the ban on exporting domestically produced
"Easing this ban might be a win for Big Oil, but it would
hurt American consumers," Menendez complained.
"We must continue to keep domestically-produced crude here
to lower prices for consumers ... Allowing for expanded crude
exports would serve only to enhance the profits of Big Oil, and
could force U.S. consumers to pay even more at the pump," he
Most observers assume lifting the export ban would require
action by Congress, subjecting it to all the usual complexity
and delays of the legislative process. "Moniz is right to raise
the issue, and we hope his comments will spur Congress into
action," the Wall Street Journal wrote.
In fact, the ban could be lifted by the president acting
alone. Easing the restrictions or even lifting them altogether
is legally straightforward, though the politics may be harder,
and it is not clear whether it is a priority for the White
For most of the last 150 years, since oil was discovered in
Pennsylvania in 1859, U.S. politicians have been more
preoccupied about limiting imports of cheap crude from the giant
oil fields in Mexico, Venezuela and the Middle East to protect
small independent producers in Texas, Oklahoma and Kansas.
Starting in the Great Depression, the U.S. government and
oil producers began to experiment with quotas, with varying
degrees of voluntariness and effectiveness, in a bid to hold up
domestic oil prices and keep the small independent producers in
In 1959, the voluntary approach was replaced by the
Mandatory Oil Import Program, which imposed legally binding
quotas on the amount of crude and various refined products that
could be brought into the United States.
The Mandatory Oil Import Program lasted until 1973. But as
domestic production failed to keep pace with demand, the quotas
became more generous, and more and more exemptions and
exceptions were created for specific products, refiners and
With domestic crude producers and refiners no longer able to
keep pace with demand, the quotas were replaced with a
license-fee system, which limped on until the early 1980s, when
it finally petered out.
The full story was superbly told by Robert Bradley in "Oil,
gas and government: the U.S. experience" published by the
free-market Cato Institute in 1996.
U.S. politicians have been far less concerned about exports.
Crude exports were briefly restricted during both World Wars as
part of the mobilisation effort, which included broad-ranging
controls on production, refining and consumption.
Exports to the Far East were also banned during the Korean
War to prevent oil from reaching North Korea's allies.
But the peacetime ban on crude exports dates only from 1973,
when it was imposed as part of the Nixon administration's
comprehensive price-control programme designed to counter
Domestic sales of crude and refined products were subject to
price controls. To prevent producers and refiners from
circumventing the price caps by shipping oil abroad, both crude
and products were placed on the Commerce Control List
established under the Export Administration Act of 1969 as items
in "short supply".
PATCHWORK OF LAWS
Today, crude oil and heavier natural-gas liquids like
pentane produced from gas fields are still on the Commerce
Control List as items in short supply. The restrictions are
enforced by the powerful but low-profile Bureau of Industry and
Security (BIS) within the Department of Commerce.
Through the Commerce Control List, BIS, which works closely
with the intelligence agencies and the State Department, also
enforces restrictions on the export of dual-use items as well as
equipment that could be used for the proliferation of nuclear,
chemical and biological weapons, and items that could be used
The short supply controls on crude ultimately derive their
legal authority from a tangled thicket of legislation, including
the Mineral Leasing Act of 1920, the Naval Petroleum Reserves
Production Act of 1976 and the Outer Continental Shelf Lands Act
Amendments of 1978.
The full list of statutes is set out in a document on the
"Legal Authority for the Export Administration Regulations",
periodically updated by the Office of the Chief Counsel for
Industry and Security.
But the principal authority for the ban derives from just
three statutes: the Energy Policy and Conservation Act of 1975
(EPCA), the Export Administration Act of 1979, and the
International Emergency Economic Powers Act of 1977, as amended.
EPCA is essentially a permissive statute. It says only that
"the president may, by rule, under such terms and conditions as
her determines to be appropriate and necessary ... restrict
exports of coal, petroleum products, natural gas or
petrochemical feedstocks" (Section 103(a)).
EPCA goes on: "the president shall ... promulgate a rule
prohibiting the export of crude oil and natural gas produced in
the United States, except that the president may ... exempt from
the prohibition such crude oil or natural gas exports which he
determines to be consistent with the national interest" (Section
EPCA leaves it to the president to decide whether to
restrict oil or gas exports "in the national interest". In the
case of natural gas, the Administration has clearly decided that
restrictions are not necessary in the national interest,
granting permission for five LNG export projects, with more
expected in the coming months.
By far the most important law is the Export Administration
Act of 1979, which replaced an earlier act dating from 1969. It
gives the president the authority to "prohibit or curtail the
export of any goods" (Section 7(a)(1)) where "necessary to
protect the domestic economy from the excessive drain of scarce
materials and to reduce the inflationary impact of foreign
demand" (Section 3(2)(C)).
Ironically, the Export Administration Act expired in August
2001, after a temporary extension, and has not been renewed.
Instead, the president has issued an executive order in August
each year extending the provisions of the act and the
regulations derived from it for another 12 months. The most
recent renewal was contained in a one-paragraph notice issued by
the White House on Aug 8.
In issuing these executive orders, the president has invoked
his power under the International Emergency Economic Powers Act
to block imports or exports of any item during a "national
emergency" which presents "an unusual or extraordinary threat
... to the national security, foreign policy or economy of the
United States" (Section 202(a)).
As a result, the United States has been living under an
almost permanent state of emergency since 1994, when the Export
Administration Act first ran out, and presidents started to
extend export controls by executive order.
To summarise: EPCA obliges the president to impose controls
on the export of crude but only if he determines they are
appropriate and necessary and in the national interest. The
Export Administration Act, which has expired, allows the
president to control oil exports on the basis they are in short
supply and scarcity is threatening domestic inflation.
In addition, the International Emergency Economic Powers Act
allows the president to continue applying the lapsed export
regulations during an unusual or extraordinary threat amounting
to a national emergency.
Despite the legal tangle, it is reasonably clear that the
president, acting alone, could lift the export ban, simply by
directing the Bureau of Industry and Security to remove crude
oil from the short supply section of the Commerce Control List.
The president is unlikely to declare the seemingly unending
national emergency is over since that would invalidate all the
other export restrictions, including those on
counter-proliferation. But it would be a simple matter to insert
a paragraph in the next presidential notice, due by August 2014,
stripping out the oil export ban from the general renewal of the
The president would simply need to conclude that the ban is
no longer appropriate and necessary, and no longer in the
national interest of the United States. No fresh legislation is
required to lift the ban, though involving both houses of
Congress in the decision would provide more political cover.
NO RATIONAL BASIS
Controls on the export of crude were enacted in the 1970s
amid concerns about the OPEC embargoes, soaring energy prices,
gasoline lines and the impact on domestic inflation. Those
concerns provide the entire legal basis for the relevant
restrictions under the Export Administration Act.
In fact, the act states explicitly that it is the policy of
the United States "to encourage trade" (Section 3(1)) and not to
restrict exports except where "necessary to further fundamental
national security, foreign policy or short supply concerns"
(Section 3(10)(A)) or "to restrict export of goods where
necessary to protect the domestic economy from the excessive
drain of scarce materials and to reduce the serious inflationary
impact of foreign demand" (Section 3(2)(C)).
The act makes clear exports can only be restricted to carry
out the policies set out in Section 3, of which the relevant
ones are set out above.
With U.S. crude and condensates output expected to hit
record levels within the next two years, it is hard to argue
that they are still in short supply or the United States faces
an excessive drain of scarce materials or serious inflationary
It is no longer clear the Export Administration Act is
applicable to crude.
That leaves the president's powers to impose export
restrictions under the Energy Policy and Conservation Act, but
even there it is hard to maintain conditions remain the same as
Energy Secretary Moniz was simply stating the obvious when
he noted that circumstances have changed and the controls and
might deserve a review.
Ultimately, the export ban results in a financial transfer
from domestic oil producers to refiners rather than consumers.
The ban ensures domestic crude oil prices remain below world
levels because producers cannot arbitrage the difference.
But no such restrictions apply to refined products, so the
price paid by U.S. consumers for gasoline, heating oil and
diesel is linked to world levels.
In consequence, domestic refineries pocket the difference,
buying cheap domestic crude below global prices while selling
their output at international levels.
New Jersey Senator Menendez is probably wrong to argue that
ending the export ban would result in higher prices for U.S.
consumers at the pump; it is unlikely to make much difference.
It would, however, result in a large shift in profits, away
from refiners and to domestic oil producers.
It is not clear how the export ban would fare if challenged
in court. Several avenues for challenging the ban and its
extension by executive order could be tested (including that it
no longer serves a reasonable and rational purpose). But the
courts have proved reluctant to interfere with the president's
power to conduct foreign policy and national security.
In the final analysis, the decision whether to lift the
export ban is political and distributional. Domestic oil
producers, who stand to benefit most from lifting the
restrictions, will lobby hard to have them removed, while
refiners, who benefit most from them will lobby intensively to
maintain the status quo.
(Editing by Jason Neely)