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Monday, December 11, 2017

A History of U.S. Oil Export Controls

October 23, 2014

On Oct. 20, 1973, King Faisal of Saudi Arabia imposed a total embargo on oil shipments to the United States among other countries in response to their support for Israel during the Arab-Israeli war.
 
Faisal's decision led directly to the introduction of a ban on U.S. crude exports, which remains in force in a slightly modified form and is now the focus of an intense struggle for reform.
 
Following the U.S. mid-term elections next month, Congress will take up the issue again, a debate that would benefit from an understanding of the history behind the ban.
 
On Oct. 21, 1973, Aramco, the kingdom's oil producer, was formally instructed to cease shipping cargoes to the United States and other countries on the embargo list.
 
"Aramco was assigned the task of ensuring that oil offloaded worldwide was not transhipped to non-designated recipients," the company's chief executive, Frank Jungers recalled in his memoirs ("The caravan goes on: how Saudi Arabia and Aramco grew up together" 2013).
 
"We were required to certify that each barrel went to its intended destination. This required that we set up a small and very capable group ... (that) would designate, document and verify every shipment."
 
A secret exception was made for the U.S. Navy, which was running out of jet fuel for aircraft on its carriers in Southeast Asia involved in the Vietnam War.
 
With the king's tacit approval, Aramco loaded a Caltex tanker in Bahrain with jet fuel, then organised a secret ship-to-ship transfer to a second vessel far out at sea for redelivery to the Pacific fleet.
 
But otherwise the embargo was total. Saudi Arabia was subsequently joined by Iraq, Kuwait, Libya, Algeria, Egypt, Syria, Abu Dhabi, Bahrain and Qatar in a failed bid to influence U.S. policy.
 
 
EMBARGO RESPONSE
 
Prior to the embargo, the United States had allowed domestically produced crude and refined products to be exported without any restrictions, except in wartime.
 
The president had reserve powers under the Export Administration Act of 1969 to restrict the export of "any articles, materials or supplies" in the interest of "national security, the foreign policy of the United States, or the need to protect the domestic economy from the excessive drain of raw materials". But these powers were not used to control petroleum exports.
 
Less than a month after the embargo was introduced, however, the United States began to enact a complex web of controls on crude oil, natural gas and refined products to reserve domestic petroleum supplies for U.S. consumers, businesses and the military.
 
On Nov. 16, President Richard Nixon signed the Trans-Alaska Pipeline Authorization Act. The TAPS Act amended the Mineral Leasing Act of 1920 to prohibit the export of any crude that had been transported by any pipeline over federal lands unless the president made and published "an express finding that such exports will not diminish the total quantity or quality of petroleum available to the United States and are in the national interest".
 
On Nov. 27, the president signed the Emergency Petroleum Allocation Act, which authorised him to establish comprehensive mandatory controls on the allocation and marketing of all crude oil and refined products in the United States. By Dec. 4, the White House had established a Federal Energy Office in the Executive Office of the President to organise and enforce the allocation system.
 
On Dec. 13 crude oil and refined products were placed on the short supply section of the Commerce Department's Commerce Control List. From then on, licenses were required prior to the export of crude oil, gasoline, kerosene, jet fuel, distillate and residual fuel oil, butane, propane and natural gas liquids.
 
In January 1974, the Federal Energy Office began to publish quarterly export quotas for refined products based on the amounts that had been shipped abroad before the embargo.
 
Over the next five years, export controls, especially on crude, were gradually hardened through a series of laws, which required the president to prohibit crude exports unless he made a formal finding they were in the national interest and would not diminish the quantity or quality of petroleum available in the United States or push up prices for domestic customers.
 
Congress included anti-export language aimed at severely restricting crude exports or prohibiting them entirely in the Energy Policy and Conservation Act of 1975; the Naval Petroleum Reserves Production Act of 1976; the Export Administration Amendments Act of 1977; the Outer Continental Shelf Lands Act Amendments of 1978; and the Export Administration Act of 1979.
 
In most cases, the president could authorise exports but only if he certified they were in the national interest and would not push up prices or harm employment for U.S. consumers and businesses. In some of these laws, Congress reserved the right to overturn the president's findings through a concurrent resolution of disapproval.
 
 
GRADUAL DECONTROL
 
Exports of crude and all refined petroleum products remained strictly controlled throughout the Nixon, Ford and Carter administrations. But when the Reagan administration came to power in January 1981, one of its first acts was to announce the termination of price and allocation controls on the distribution of products through Executive Order 12287.
 
In October 1981, the Commerce Department eliminated all quantitative restrictions on exports of aviation gasoline, gasoline, jet fuel, kerosene, distillate fuel oil, residual fuel oil, butane, propane, butane-propane mix and naphtha.
 
Crude exports continued to be prohibited by the laws enacted in the 1970s. But the Reagan, Bush and Clinton administrations began to carefully and selectively ease some restrictions by making appropriate national interest determinations and findings about the impact on consumers and businesses in the United States.
 
In 1985, crude oil exports to Canada "for consumption or use therein" were authorised by President Ronald Reagan. Also in 1985, Reagan's administration permitted exports of crude oil from Alaska's Cook Inlet.
 
In 1995, the Department of Commerce began to permit up to 25,000 barrels per day of Californian heavy crude oil (with API gravity of less than 20 degrees) to be exported to avoid premature abandonment of old wells.
 
In 1995, Congress also approved an act to authorise exports of Alaska North Slope crude oil, subject to presidential determinations about the impact on the availability of oil in the United States, environmental concerns and the effect on domestic fuel prices.
 
The relevant determinations were made by President Bill Clinton in April 1996, and the Commerce Department finalised rules allowing Alaskan North Slope (ANS) exports in May 1996.
 
But with the exception of exports to Canada from Alaska's Cook Inlet (max 50,000 bpd), the Alaskan North Slope, and California's heavy oil (max 25,000 bpd), all other U.S. oil production remains subject to a stringent export ban.
 
The president has sufficient authority to permit other exports by making the necessary national interest and other determinations required under existing legislation, as previous presidents did through the 1980s and 1990s, a point which has been made by Alaska Senator Lisa Murkowski, the top-ranked Republican on the Senate Energy and Natural Resources Committee.
 
Alternatively, Congress could authorise exports by enacting legislation to amend the Energy Policy and Conservation Act, the Export Administration Act, the Trans-Alaska Pipeline Authorisation Act, the Mineral Leasing Act, the Outer Continental Shelf Lands Act and the Naval Petroleum Reserves Production Act.
 
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