American oil producers demand return of Eisenhower-era import quotas

Banning OPEC oil would require US, Canada to produce only 3 million b/d more of crude oil

Some American oil producers have had just about enough of Saudi Arabia. They’re calling for the next President to impose import quotas on light oil and to shut OPEC out of the US market.

President Dwight D. Eisenhower.

The Panhandle Producers & Royalty Owners Association encompasses oil companies and royalty owners from the Texas Panhandle to New Mexico’s stretch of the Permian Basin, north to western Oklahoma and southwestern Kansas.

Its proposal is basically a revival of President Dwight Eisenhower’s 1959 Mandatory Oil Import Quota Program that restricted imports to 12.2 per cent of domestic production. Richard Nixon killed the program in 1973.

The primary justification for quotas back in the day was national security – depending too heavily upon foreign suppliers of a critical resource makes a nation dependent and vulnerable. While the Association tries to dress up Ike’s old policy prescription in national security garb, this time around the primary motivation is heavily economic.

“The United States should no longer allow Saudi Arabia and the Middle East to manipulate our economy by crippling our ability to produce and use our own natural resources. We have been forced to comply with the consequences of decisions made by a country whose intent was to take over a ‘market share’ that was ours and make it theirs,” a release from the Association argues.

Targeting the Saudis may make for great politics, but a Nov. report from the US Energy Information Administration shows that Persian Gulf countries account for only 16 per cent of American oil imports.

Saudi Deputy Crown Prince Mohammed bin Salman.

Americans – not to mention Association members – might be shocked to discover that 45 per cent of US crude oil imports come from Canada. And the EIA suggests that percentage is likely to continue rising.

But the Association is not concerned just about the Middle East. It wants to ban all OPEC – which also includes Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, United Arab Emirates, Venezuela – imports.

According to EIA data for Jan., the latest month available, the US imported about 302 million barrels of crude. OPEC nations accounted for 95 million, just under a third, and non-OPEC countries for 207 million. Canada dominated this group (127 million, 61.3% of non-OPEC imports). The remainder was made up of Mexico (22 million), Colombia (15 million), and a host of smaller producers.

The Association proposes to exempt Canada and Mexico from the quotas, which would account for about 75 per cent of non-OPEC imports. But why not keep all non-OPEC imports? Then America would only have to replace the OPEC portion – 31.5 per cent of its imported oil – a number that seems easily achievable given the opportunity to expand both the Canadian oil sands and American shale production.

So, just how feasible might this scheme be?

US shale
Max Fawcett, former editor, Alberta Oil Magazine.

Max Fawcett, former editor of the Alberta Oil Magazine, says that quotas would represent an enormous geopolitical shift, and would likely leave the United States without a key ally in the Middle East.

“But that alliance hasn’t seemed to do much for the United States in recent years, and if they’re reconsidering it then there’s almost certainly nothing from an energy perspective that would hold them back,” he said in an interview.

“North America is clearly self-sufficient for the foreseeable future, and with demand for refined products in terminal decline in Canada and the United States that seems unlikely to ever change.”

Ed Hirs, professor of energy economics at the University of Houston and managing director with Hillhouse Resources, is a big proponent of Eisenhower-style quotas. He’s written a number of op-eds promoting the idea in major newspapers like the Houston Chronicle, arguing both the economic and national security angles.

Ed Hirs, energy economist, University of Houston.
Ed Hirs, energy economist, University of Houston.

Eisenhower “did not want to commit the military to an intractable region of the world, and he did not want the U.S. to be strategically dependent upon foreign suppliers. We can and should re-turn to President Eisenhower’s policy and impose quotas on crude oil imports,” Hirs wrote in an opinion piece.

He points to the enormous cost of America’s recent Middle East adventures: More than 5,000 soldiers killed and 50,000 wounded, trillions of dollars in military expenditures – and, one could add, the constant threat of terrorist attack on domestic soil.

Frankly, I’m shocked one of the Republican presidential candidates hasn’t cozied up to oil import quotas. Donald Trump has been fulminating at his rallies about lousy trade agreements and predatory practices by America’s trading partners; striking back against Saudi Arabia and OPEC seems like a natural policy position for him. And Ted Cruz’s energy platform is so pro-oil that if the industry even hinted it favored import quotas, one has to think the junior senator from Texas would scurry to support them.

As the Association notes in its release, the “bust in oil exploration and production has left families, companies, both large and small, with bankruptcy and hundreds of thousands out of work.”

Sounds to me like a voter bloc in search of a champion.

The Association is calling for “no more imports within the first 60 days of the new American President’s term next year.” Which politician is likely to run with the idea first?

PLSI-Truck-5Plunger lift use rises in Permian Basin as producers cut costs. Oil and gas companies increasingly choosing plunger lift over rod pumps for full life of well. 

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