The Economist: Nafta naphtha – A long-overdue easing of a protectionist export ban

The economistThe Economist | Saturday, August 22, 2015 | Editorial Board

WHEN the economics textbooks of the future are written, America’s ban on crude-oil exports will be a fine example of the perverse effects of protectionism. Similarly, a decision by Barack Obama’s administration on August 14th to allow American firms to swap some oil with Mexico, so easing the restraint, will earn an honourable footnote in the story of the ban’s inevitable demise.

Geology, engineering, economics and politics are all at play. In 1975, just after the first oil shock, America banned crude-oil exports in order to stabilise domestic prices. The country’s oil refineries are still configured to deal with the heavy, sulphur-laden crude oil it used to import. Now, thanks to the shale revolution, oil imports have plunged as production has soared. Oil from shale is lighter and less sulphuric. There are not many refineries in America that can deal with it efficiently. Yet the ban means it cannot be exported, either.

This archaic rule now keeps the price of domestically produced oil, signalled by the West Texas Intermediate (WTI) benchmark, at a hefty discount to the world price—currently over $6 per barrel. That has become particularly painful since OPEC’s excess production has sent prices tumbling. American oilmen fume that their potential export markets are being sacrificed to the interests of America’s refining industry, which enjoys artificially cheap feedstock thanks to the ban.

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