Lifting Oil Export Ban Would Boost U.S. Manufacturing

The manufacturing sector, already a leading component of the U.S. economy, would benefit significantly if the crude oil ban were lifted, according to a new study.

This was the finding of a new report, titled Lifting the Crude Oil Export Ban: The Impact on U.S. Manufacturing that was sponsored jointly by The Aspen Institute’s program on Manufacturing and Society in the 21st Century and the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. Econometric modeling was conducted by Inforum, the Interindustry Forecasting Project at the University of Maryland.

“One of the most important drivers of a robust domestic manufacturing sector is the U.S. oil and gas production boom of the last five years,” said Thomas J. Duesterberg, Executive Director of The Aspen Institute’s Manufacturing and Society in the 21st Century program and the report’s co-author. “Higher levels of oil production require higher investment expenditures for capital equipment and construction, which in turn boost overall demand for goods. This stimulates the manufacturing sector and its supply and distribution chains. The resulting improvement in income and employment would boost the economy significantly.”

Donald A. Norman, Director of Economic Studies at the MAPI Foundation and report co-author, concurred.

“It makes sense to export (lighter) oil to markets where it is more highly valued because it can command a premium price,” he said. “This will provide additional incentive for U.S. producers to develop domestic resources.”

The paper employed the Inforum LIFT economic forecasting model to analyze how removing the ban on crude oil exports could add to growth in manufacturing by stimulating higher levels of oil production in the United States. It used a low export base (which results in a high of 2 million barrels per day [b/d] in additional oil production) and a high export case (which leads to an increase of 3.25 million b/d in 2025, and an average of 2 million b/d over the 10-year forecast period).

The study found both macroeconomic benefits and industrial sector gains.

For example, in terms of macroeconomic benefits:

GDP is higher by 0.93%, or about $165 billion, in 2019-2021, and levels off at approximately 0.74% higher, or about $141 billion in 2025;

A total of 650,000 jobs would be added at peak in 2019;

Real household income would be higher by $2,000 to $3,000 per household in 2025, an increase of 2.2%, and reaches a peak of 2.5% on a per household basis in 2019;

And in industrial sector gains:

Production of durable goods and materials would increase 1.4% ($8 billion) by 2017; mining and construction equipment would grow by 6% ($6 billion) in 2017;

All manufacturing jobs would see an average gain of 37,000 per year through 2025, construction jobs would grow by over 217,000 in the peak year 2017, and related professional services jobs would grow by an average of 148,000 per year; and

Capital investment for machinery—exploration and development—would increase by $7 billion in 2020.

 “There is an excellent case on policy grounds to end the long-standing prohibition on exports of U.S. crude oil,” the report concludes, “but the economic case for such action is even more compelling.”