There is no telling how many years it may take, but the U.S. decision to lift its ban on crude-oil exports could increase the likelihood of a major war between regional Mideast powers that the U.S. will be either unable or (more likely) unwilling to stop.
How is this even possible? To appreciate the argument, one should consider the second- and third-order economic and political effects that have been associated with U.S. oil exports in the past, as well as the totally new market dynamics that are the result of the ban's demise. These effects, when married with current trends in American politics, make it less likely that the U.S. will intervene in a major military conflict in the Middle East in the next 10 years -- even as the potential for such a conflict continues to grow.
Refinery economics: Many observers underplay just how useful a safety valve exporting U.S. crude to foreign refiners is becoming for global oil markets. In the short space of three months since the ban was lifted, and at a time when the arbitrage -- or profit margin -- for U.S. exports has been quite low, U.S. crude has left the Gulf Coast to refiners in France, Italy, Germany, Israel, and Venezuela. The first test shipment of crude to China from the Gulf Coast is already under sail, and the enlargement of the Panama Canal scheduled for later this year will make it even cheaper to send shipments to East Asian refineries.
Each of the roughly 700 major refineries in the world is a one-of-a-kind factory with its own special set of recipes that can use a number of different crude grades to create products that best fit local markets. Given the easier-to-refine qualities of U.S. tight oil, it can become a very attractive blend stock. Venezuela's state-oil company, PDVSA, has already purchased four U.S. cargos since the beginning of the year to be used to dilute its heavier crude, and earlier this month the company said it may import up to 100,000 barrels per day (b/d) of U.S. crude over a three-month period. The development is a dramatic reversal of fortune for the post-Chavez regime currently under duress in Caracas. This new trading relationship, over time, makes the political relationship between the United States and Venezuela less tense.
Economic history: In decades past, U.S. oil exports have been used as an economic weapon and have had dramatic impacts on U.S. foreign policy. In the summer of 1941, the administration of Franklin D. Roosevelt banned West Coast oil exports to Japan to protest Japanese militarism in East Asia. This decision is viewed by many historians as a proximate cause of the attack on Pearl Harbor, with the Japanese military government choosing to use force to acquire oil and commodities from Southeast Asia rather than capitulate to U.S. political demands.
Fifteen years later, President Dwight D. Eisenhower undermined a joint British-French invasion of the Suez Canal in the autumn of 1956 by threatening to suspend oil exports to Western Europe until British and French troops withdrew. The threats by Eisenhower caused a run on the British pound, which in turn ended the government of British Prime Minister Anthony Eden and rocked the status quo in Europe. While little acknowledged in U.S. histories, this naked display of power greatly embarrassed European elites and helped tip the scales among French and German leaders toward the creation of the European Union shortly afterward.
