Oil Export Regulation: Pre-1970s History (Part I)

As the long history of import regulation suggests (The U.S. was a net exporter until the post-World War II period), governmental concern over petroleum exports has been relatively infrequent.  Exports generally have been welcomed to market abundant domestic supply.

There have been exceptions, however.  In wartime, domestic supply has been licensed to guide its distribution in channels deemed proper by authorities; in peacetime, export control has been part of a wider regulatory purpose.

World War I

In World War I, the Lever Act gave Presidential authority to license exports pursuant to broad wartime powers over petroleum distribution. Licenses were required as part of the U.S. Fuel Administration’s inaugural planning effort with petroleum.

World War II

During World War II, export matters replaced prewar concerns about imports. The Lend-Lease program featured oil exports to the Allies at taxpayer-subsidized rates.

On June 23, 1941, President Roosevelt placed all petroleum products under export control. Oil sales outside of the Western Hemisphere, British Empire, and Egypt were banned to “meet a threatened shortage of petroleum products in the eastern United States,” as well as keep United States petroleum out of the hands of the enemy. [1]  Licenses issued by the State Department covered only Atlantic Coast shipments because of tight transportation in  District 1. [2]

A month later, an embargo of aviation fuel to Japan was announced, reflecting the U.S. government’s pro-China position in the Japan-China war. The embargo had a material affect on Japan’s fuel supplies, and a strained relationship gave way to a surprise attack on Pearl Harbor and consequent U.S.  entry into World War II.

North Korea

With the invasion of North Korea into U.S.-backed South Korea in 1950, petroleum exports to the enemy were banned. Export licenses, which had continued from World War II for shipments over $1,000, were reduced to cargoes over $25 which covered the waterfront. [3]  Far East shipments were halted to prevent oil from reaching North Korean allies.

Export control was administered by the Economic Cooperation Administration and the National Production Authority within the Petroleum Administration for Defense. After the July 1953 Armistice, export license requirements were relaxed to prewar levels which deregulated most industry shipments. [4]

The three-fold wartime planning experience–World War I, World War II, and Korea–was over. Special wartime planning regulation would not be implemented again (such as during the Vietnam War.) [5]

Peacetime

Three peacetime episodes involved oil-export intervention by the U.S. government. The Oil Code of 1933, seen earlier with respect to imports, restricted exports as part of its domestic production control program. Without this complementary intervention, so-called hot-oil–oil (illegally) produced in excess of state ‘market-demand proration’ quotas–could have escaped to foreign markets with destabilizing, albeit indirect, consequences in home markets. [6]

Peacetime problems with oil supply in the winter of 1947–48 led to government regulation of exports to keep oil at home. [7]  The winter scare was followed by a return to surplus conditions and with it, export freedom.

The third peacetime episode, after the oil embargo of 1973 and the oil shortages from price and allocation regulation, is the subject of tomorrow’s post.

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[1] Oil and Gas Journal (OGJ), June 26, 1941, p. 36.

[2] OGJ, June 26, 1941, p. 25.  Chiefly affected was lubricating oil shipped from North Atlantic Coast ports to the Far East.  OGJ, June 26, 1941, p. 36.

[3] OGJ, July 13, 1950, p. 53; August 31, 1950 p. 39.

[4] National Petroleum News, August 19, 1953, p. 32.

[5] For a critical evaluation of centralized wartime planning, as well as standby planning (1954–65), see Bradley, Oil, Gas, and Government: The U.S. Experience (1996), chapter 5, pp. 255–60.

[6] For a history of state-level output restrictions on oil and gas, all intended to support higher prices in a buyers’ market, see Bradley, idem., chapters 3 and 4.

[7] Anthony Copp, Regulating Competition in Oil, p. 66.

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Note: This post is adapted from Robert Bradley, Oil, Gas, and Government: The U.S. Experience (1996), pp. 769–770.