Forty years ago, the Iranian Revolution sent international oil markets into turmoil, doubling oil prices and catalyzing policies in the U.S. for price controls and energy rationing that prolonged the pain. The oil crisis lives on today in popular memory, stirring up images of long lines at local gas stations and fears of exhausted oil supplies.
What’s amazing is that only a few weeks ago, an even greater oil supply disruption occurred in Saudi Arabia, taking 5.7 million barrels per day offline. And yet, after a brief spike in prices, markets settled down and have remained relatively calm. No lines, no rations, no energy crisis.
We owe a big thanks to America’s energy industry for starters. Because of fracking technology, production has more than doubled from 5 million barrels of oil per day in 2009 to 12 million barrels per day in 2019. Simply put, U.S. oil companies have produced a cushion of supply to global oil markets that did not exist before. The U.S. is on pace to break new production records, likely surpassing 13 million barrels per day in 2020.
Good policy has been a critical part of the equation. With limited exceptions, U.S. law prohibited crude oil exports until President Barack Obama lifted the ban in December 2015. Now, American companies export more than 3 million barrels per day.
In less than four years, U.S. producers now export more oil than most OPEC members produce in total. In fact, today America is the world’s top oil supplier.
Other factors have kept oil markets calm in the wake of the attack on Saudi processing facilities. Breathing another sigh of relief into the markets is Saudi Arabia’s quick recovery. According to Reuters, 75% of the lost output already has been restored. Some energy analysts are skeptical, but Saudi Arabia is saying it will be fully operational within days, far ahead of the weeks or months initially projected to get back to full capacity.
Even so, the U.S. has been a consistent, reliable supplier to the international oil markets. The same can’t be said for everyone.
Venezuela’s economic collapse and sanctions on Iran have removed significant sources of supply. This past spring, a drone strike shut down a Saudi Arabian pipeline, and two oil tankers were attacked. The National Energy Board of Canada projects that Canada’s oil production in 2019 will decline this year for the first time in a decade. And in the U.S., tropical cyclone activity in the Gulf Coast the past two years threatened both extraction and refining.
Yet, there was no wild fluctuation in crude prices. America’s producers have offset these supply disruptions. In the latter case, despite predictions from energy experts, CEOs and industry analysts that we were going to see $100 per barrel oil last year, it never happened. The highest price it got was roughly $75 per barrel, and prices are hovering around $60 per day.
To be clear, we’re not out of the woods yet. After all, oil is a global traded commodity so what happens around the world affects the price at the pump in the States. With tensions running high in the Middle East, another supply disruption is certainly possible.
To that end, policymakers should do more to make our abundance of resources accessible and eliminate the government-imposed barriers that keep markets from efficiently correcting.
For starters, ending the trade war is critical. Steel and aluminum tariffs drive up the costs of energy infrastructure, hurting operations in the U.S. and provoking retaliatory tariffs by China on U.S. oil exports. As American companies await decisions from the Commerce Department on tariff waivers, investment dollars are sitting on the sideline.
In addition, policymakers should do more to open access to America’s abundant energy sources. Streamlining the permitting process for oil extraction and transportation will get more oil to the market. Granting access to areas that are currently and unnecessarily off limits on federal lands and in federal waters will create new opportunities for resource development.
Giving 50% of the federal royalty revenues to oil producing coastal states could incentivize more extraction in the outer continental shelf. States could use that money for coastal restoration, promotion of tourism or however they see fit.
America’s energy boom is great news for jobs and higher levels of prosperity but has also served as an important shock absorber when an unexpected event disrupts global oil markets. But just because we’re fat and happy now doesn’t mean we should be complacent.
Now is the time for policymakers to provide more market access so that domestic producers can safely supply consumers with affordable, reliable power.
Nicolas Loris is the deputy director of the Thomas A. Roe Institute for Economic Policy Studies and Herbert Joyce Morgan Fellow in Energy and Environmental Policy at The Heritage Foundation (heritage.org).