Oil Export Debate Has Geopolitical Dimension

Lifting the longstanding ban on U.S. crude oil exports would boost the country's economy and enhance its global leadership, a former senior Obama administration official will tell senators on Thursday, introducing a strategic dimension to the growing debate over selling American oil abroad.

In testimony submitted ahead of a Senate energy committee hearing on U.S. crude export policy, the Pentagon's former undersecretary of defense for policy, Michele Flournoy, argues "policymakers in the United States should embrace these various benefits to our allies and ourselves and liberalize our crude export rules.

"Market conditions merit such a step and security dividends will not be fully realized without it," said Flournoy, co-founder of the Center for a New American Security.

A host of economic and geopolitical factors, from plummeting oil prices, near-capacity storage facilities and sanctions against Iran and Russia, are forcing both sides of the debate to address strategic questions.

"Members of Congress are starting to focus on this issue in a big way," said George Baker, executive director of Producers for American Crude Exports - a group representing independent companies demanding an end to the export ban.

He said the possibility of using oil exports to address policy on Iran or Russia is now invoked in his discussions on Capitol Hill or with the Obama administration.

"The notion of selling oil into the international market comes up frequently," Baker said.

On the other hand, oil refiners keen to prevent producers from sending crude overseas counter that market realities limit the strategic benefits of exports.

"The case that the U.S. can enhance its geopolitical stance is incredibly overstated," said Jay Hauck, executive director of Consumers and Refiners United for Domestic Energy, a lobby group for east coast and Texas refiners.

CRUDE argues that, instead of bolstering America's global standing, they expect most U.S. crude oil to be exported to China, rather than European allies.

"I think we have consumers on our side and a lot of business sectors who have benefited from lower oil prices," he said. "We keep reminding Congress of that."

Most observers see the push for changes to the decades-old ban as a long game, with Congress continuing to debate the issue in hearings and lawmakers floating bills to test the appetite for change.

The ban on unprocessed crude was introduced following the 1973 oil shock, although U.S. laws currently allow exports of refined products such as gasoline and diesel.

Some argue that strategic factors should not override other concerns.

The American Fuel & Petrochemical Manufacturers, a trade group that supports lifting the ban, said "a decision should not be made in a vacuum," but as part broader reform of energy and shipping policies.

Some major oil companies want Congress or the administration to act on exports immediately.

"We've got to gain some traction this year. Certainly as we go into an election year, it becomes harder," said Ryan Lance, chief executive of ConocoPhillips (COP), in Washington last week.

Lance will testify at Thursday's hearing.

Reporting By Valerie Volcovici