wei46_Gaya GuptaThe Washington Post via Getty Images_gas prices Gaya Gupta/The Washington Post via Getty Images

Making Higher Oil Prices a Win for American Households

The gains to the United States from its sanctions policy toward Russia need not benefit only a few oil companies and their shareholders. A two-part policy that permits oil exports only from incremental new production could turn American households from losers into winners.

NEW YORK – The United States exports more petroleum than it imports. As a result, the country as a whole benefits from the recent spike in global oil prices. But American households think they are hurt by the higher prices, because all the benefits have gone to US oil companies and their shareholders. No attempt has been made to distribute any portion of the windfall to US households, even though today’s higher energy prices are largely the result of a US government-led action – the sanctions on Russia following its invasion of Ukraine.

The US is facing neither an oil production shortage nor a sudden explosion in demand. Instead, the rising energy prices since late February have coincided with a massive increase in US petroleum exports. Calculated from US government data, US net petroleum exports in May 2022 totaled 3.9 million barrels a day, representing a whopping 45% increase over the same month last year. The increase in US dollar revenue is even greater given the 76% increase in the prices over the same period.

There is a policy that can make American households much better off. If the US introduced a 45% tax on its oil exports, it would increase the domestic sale of oil and bring down the US energy price by between 40-45%, including a decline in the gasoline price from its current level of about $5 per gallon to less than $3 per gallon. If the government distributed the export-tax revenue to low- and middle-income households, they would benefit further still. Oil companies would continue to make more money than they did before the war, just not by as much as they do now.

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