As the Biden administration scrambles to find ways to bring down soaring gas prices, several old ideas are gaining new life in public debate and inside the White House. The latest is a proposal to ban or restrict U.S. oil exports, which wouldn’t fix the problem and would very likely hurt our European allies while handing a financial windfall to Russian President Vladimir Putin.
On June 16, Bloomberg News reported that the White House is considering capping U.S. exports of gasoline and diesel fuel, a step short of a full ban on all petroleum product exports. The White House’s National Economic Council has already been exploring legal justifications for restricting exports, the report stated, because the president doesn’t have explicit authority to make this unprecedented move.
The following day, Rep. Ro Khanna (D-Calif.) publicly called for a full ban on U.S. oil exports, resurrecting an idea he and other progressive Democrats had advocated for last autumn, when 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 bring down 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 reduce gas prices.”
Oil producers and exporters point out that progressive Democrats have been trying unsuccessfully for years to reverse the Obama administration’s 2015 decision to lift the U.S. ban on exports. Progressives want to move on from petroleum, not expand the industry’s global markets.
In the current crisis, though, the Biden administration and 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 right now cutting off gas supplies to European countries as punishment for aiding Ukraine, and those countries are scrambling to compensate.
The Biden administration has promised European allies it would help them mitigate Putin’s use of energy as a weapon by increasing U.S. supplies. If the White House banned or even restricted exports, that would reduce the quantity of petroleum available in world markets, leaving allies in a lurch and driving prices higher. And that, in turn, would mean more profits in Putin’s coffers — which are already filling, despite sanctions, because of soaring worldwide oil and gas prices.
“It would be a gut punch to our allies and it would be a gift for Putin, because as the U.S. shut off its supplies to the world, the price of crude oil would go up and that would result in a financial boon for Russia,” said Bob McNally, president of Rapidan Energy Group and an energy adviser in the George W. Bush administration.
Even if the export restriction applied only to refined products such as gasoline, jet fuel and diesel fuel, any benefits to U.S. consumers would be small and temporary, McNally said. The Biden administration would also be undermining its own effort to push U.S. energy companies to expand refining capacity, which is already going down despite surging demand.
European countries, which are already fatigued by the cost of weaning themselves off Russian oil, might abandon the U.S.-led pressure campaign if the United States starts hoarding its own oil products. Putting limits on oil exports would likely lead to massive supply shortages globally 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 bigger impact on the global supply of products than the Russian invasion of Ukraine,” the report stated.
The United States currently exports between 2 million and 2.5 million barrels per day of refined petroleum products such as gasoline, jet fuel and diesel fuel, as well about 2.5 million barrels per day of other petroleum products, according to Credit Suisse.
In his CNBC interview, Khanna suggested that European allies could be exempted from any bans. “Why are we sending the oil to China?” he said. But the data shows that sales to China makes up only a small portion of total exports, nullifying the supposed benefits.
Yet another problem is that U.S. refineries depend on raw products from abroad, while U.S. raw petroleum products often are only refined overseas. Tinkering with these complicated arrangements would likely result in huge disruptions, coming in the middle of an existing crisis.
In the long term, the goal to move away from petroleum to renewable energy sources is wise. But in the short term, the cold reality is that there is no way to quickly bring down gas prices much — not even by going hat in hand to beg Saudi Arabia to increase production.
The best thing the Biden administration can do is to be honest about that with the American people and continue to work to increase all types of domestic energy production while sticking to U.S. export commitments abroad. We are in an energy war with Russia, and wars have costs. But this is a war we can’t afford to lose.