Another Misguided Exports Ban Idea – Refined Products

Frank Macchiarola
Posted August 3, 2022

Sound policymaking should consider possible unintended consequences. Proposals to ban exports of U.S. refined petroleum products – favored by some in Washington trying to help consumers struggling with higher prices – miss the mark and could actually raise prices for American families and businesses and possibly unleash damaging geopolitical impacts.

For those proposing a ban on refined product exports, it seems like a simple equation: Keep American-made fuels at home, increase domestic supplies and put downward pressure on prices. But they may not have thoroughly thought things through. A new study by the American Council for Capital Formation properly connects the dots to show how an export ban could be harmful. Key study findings:

U.S. refineries could close

The U.S. already has seen shrinking refinery capacity. The ACCF study found there could be more with an export ban as infrastructure constraints would trap refinery production in the Gulf Coast region. With limited outlets for trapped exports, the ACCF study estimated 1.3 million barrels per day (mb/d) – or 7% of total U.S. capacity would need to be shuttered.

Domestic prices could go up

The loss of refinery supply would likely increase product prices in the global market, as buyers of U.S. exports bid up the price of fuel from alternative sources. ACCF’s Kyle Isakower, writing in The Wall Street Journal:

The problem is that the U.S. doesn’t have enough infrastructure to transport all the refined products from the major Gulf-region refineries to the East and West coasts. If some of the refined-product inventory were stranded rather than exported by ship via Gulf ports, refineries would be forced to cut production. Consequently, the East and West coasts would still need to import gasoline and diesel from a global market that would have less supply because of the U.S. export ban. All this would lead to higher prices on and near the East and West coasts, affecting two-thirds of Americans.

Jobs would be lost, and the economy would suffer

The ACCF study estimated refinery closures due to a ban and reductions in upstream oil and natural gas development would cause 85,000 average job losses over the second half of 2022 and 35,000 average job losses in 2023 – including direct, indirect and induced job losses. Additionally, the study estimated U.S. GDP would fall more than $44 billion in 2023.

Russia would be the winner

Isakower pointed out that the U.S. exports more than 6 mb/d of refined products, about half of which stays in North, Central and South America. Banning exports would force the rest of the Americas to look elsewhere to replace them.

Meanwhile, if the U.S., the world’s No. 1 exporter of refined products, banned its exports, the first beneficiary would be the world’s No. 2 exporter: Russia. Notably, the No. 3 exporter, India, though friendly to the U.S., did not join in global sanctions against Russian crude oil, and its imports of Russian crude have increased 700,000 barrels per day since early last year. Isakower:

If the U.S. bans refined-product exports, countries in the Americas likely would replace many of those lost barrels with Russian products or Indian products derived from Russian crude. Either way, the U.S. would lose geopolitical influence in its own global backyard and likely cede it, at least in part, to Russia.

Others have chimed in on the inadvisability of a U.S. refined products export ban. Rapidan Energy’s Bob McNally said a ban would be a “gut punch” to U.S. allies and a gift to Vladimir Putin:

“[A]s 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. … 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.”

Columnist Josh Rogin of The Washington Post noted that an exports ban would work against the Biden administration’s efforts to help Europe by increasing U.S. energy supplies. A ban or restrictions on refined products would “reduce the quantity of petroleum available in world markets, leaving allies in a lurch and driving prices higher,” Rogin wrote.

“Imagine even tighter global product markets without Gulf Coast gasoline and diesel exports,” said Ben Cahill, Center for Strategic and International Studies senior fellow, during a June event. “Kill this idea, please.”

Banning refined product exports would be bad policy for Americans and harm U.S. strategic efforts abroad. The proposal is similar to misguided discussions of banning crude oil exports as a way to benefit domestic consumers – exports that since 2015 have helped put downward pressure on crude oil and gasoline prices, increased U.S. production, helped stabilize international energy markets and created American jobs.

Both export ban proposals would likely diminish American energy leadership and result in more harm than good here at home. Let’s hope cooler heads and clearer thought processes will prevail.