How to win the war with OPEC

The national average for a gallon of gasoline is quickly approaching just $2. Drivers can mostly thank the highest level of domestic oil production in four decades -- over 9 million barrels per day -- for these low prices. With American energy production booming and gas prices plummeting, it’s difficult to imagine a return to the shortages that characterized the 1973 Arab oil embargo. But Saudi Arabia, Kuwait, and the rest of the Organization of Petroleum Exporting Countries (OPEC) have recently launched a price war to force Americans back to a dependency on foreign energy. They are being aided by an outdated U.S. policy prohibiting the export of domestic crude oil.

The best way for American legislators to combat OPEC’s aggression is to lift this ban. Scrapping this outdated policy will secure American progress towards energy independence.

It’s easy to see why OPEC is scared. Innovative extraction techniques like hydraulic fracturing and horizontal drilling have boosted U.S. oil production by 4 million barrels per day in just the last six years. Consequently, U.S. demand for OPEC oil has dropped to its lowest level since the Reagan administration.

OPEC can’t stand to see one of its biggest customers move toward energy independence. But the cartel might not be able to endure the self-inflicted wounds caused by rock bottom oil prices for very long. Of OPEC’s 12 member countries, only Qatar can balance its budget with prices at $60 per barrel. Six OPEC members need the price to stay above $100 to avoid fiscal ruin.

By contrast, most U.S. producers still make a profit below $60 per barrel.

That’s why, in late November, the governing board of OPEC decided not to cut oil production despite a global surplus of 2 million barrels per day. Instead, OPEC maintained its production levels to push prices down in hopes of driving American firms bankrupt. The cartel believes that American energy firms will break under pressure.

Congress can strengthen our domestic economy while countering these plans. It should lift the ban on crude oil exports. Domestic firms could then sell oil to the many overseas buyers eager to reduce their own energy dependence, thus reducing the power of OPEC to maintain a throttle on U.S. and global oil supplies.

What’s more, if U.S. producers are allowed to expand to foreign markets, they’ll be able to compensate for lower oil prices with greater total sales.

Fortunately, the effort to repeal the ban is gaining traction. Texas congressman Joe Barton has introduced bipartisan legislation to lift it. However, some lawmakers argue that permitting crude exports might contract local oil supplies and push up the price paid by domestic drivers at the pump.

They needn’t worry. In a new report, the non-partisan Congressional Budget Office finds that allowing U.S. crude exports will actually save American drivers up to 10 cents per gallon of gasoline. The CBO explains that the price of gas depends “primarily on the world price of crude oil, which would decline slightly once lower-priced U.S. crudes were available in the international market.”

If Congress lifts the ban, crude exports could add 300,000 jobs and $38 billion to the U.S. economy by 2020.

Congress should lift the ban on U.S. crude exports. Repealing this outdated law will lower energy prices, jumpstart the economy, and cement America’s role in the global oil market while furthering collective independence from OPEC’s oil-based price manipulations.

  1. Michael Barrett is former director of strategy for the White House Homeland Security Council. He is a principal with Diligent Innovations.

 

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Published: Feb. 12, 2015 - Volume 13 - Issue 44