Will Biden Embargo U.S. Oil?

The White House is considering a self-defeating ban on refinery exports

WSJ editorial.

"Winston Churchill is famously said to have said—who knows if he actually did—that Americans will do the right thing after exhausting every possibility. Alas, the Biden Administration seems intent on exhausting every bad policy to reduce gasoline prices. Its new brainstorm is a ban on refinery exports.  

The White House called in oil executives for a meeting to discuss Hurricane Fiona recently—then accused them of reaping windfall profits and threatened an export ban. In August Energy Secretary Jennifer Granholm sent a letter to refiners threatening “emergency measures” if they didn’t reduce exports. The risk that the Administration follows through on its threats has grown since OPEC+’s production cuts this week, even though it would be counterproductive.

U.S. gasoline and distillate fuel (e.g., diesel, heating oil) exports have increased this year, but they aren’t back at pre-pandemic levels. Refiners have been running all out while domestic gasoline demand has been running lower than in 2020, no doubt owing to higher prices. The big problem is five U.S. refiners have shut down in the past two years.

This has reduced the U.S. fuel supply on the East and West Coasts. Pipelines carrying fuel from Gulf Coast refineries to the East Coast are full. And there aren’t enough ships to move more that comply with the Jones Act—the protectionist law that requires cargo transported between U.S. ports to be on American-owned, -built and -crewed ships.

Gulf Coast refined fuel doesn’t comply with California's stringent environmental standards, and some doesn’t even meet U.S. specifications. That’s one reason one million barrels a day of U.S. distillate is exported to Latin America. If these exports stopped, our neighbors would have to find other fuel sources such as Russia or Venezuela, which refines Iranian crude.

U.S. fuel exports to Europe have also increased this year to power factories and electricity generators, and to keep homes warm amid a shortage of natural gas and sanctions on Russian oil imports. Biden officials earlier this year called on U.S. refiners to increase diesel exports to Europe. If these stop now, Europeans could face a cold and dark winter.

Americans would also be harmed. A July study from the American Council for Capital Formation (ACCF) estimated that an export ban could result in 1.3 million barrels a day of shuttered U.S. refining capacity in the Gulf Coast. This would reduce crude oil production in central states such as Oklahoma and the global fuel supply.

This would mean higher U.S. fuel prices, especially on the East Coast, which depends more on imports. The ACCF study estimated that an export ban would reduce U.S. GDP by $44 billion next year and increase prices for more than two-thirds of U.S. consumers. It would do the opposite of the Administration’s ostensible goal.

President Biden may do it anyway because he feels backed into a corner by OPEC. It would rank as his single most self-defeating energy policy—in a long, long line of them."