Quora Answer: What Will Happen if the US Stopped Exporting Oil?

The following is my answer to a Quora question: “What will happen if the US stopped selling oil to the rest of the world?”

As of this moment, the United States is the largest exporter of oil in the world, with Saudi Arabia and Russia close behind.  Canada, Norway and the Gulf make up some of the rest.  China is a top exporter of oil, extracted from Iran.  The US is also the largest importer of oil.  They sell lower grade crude, and import higher grade crude. 

If the United States stopped selling oil to the rest of the world, which has happened before, it would lead to a temporary spike in prices due to a sudden deficit in the market, and an over-reaction of market sentiment.  The world is not going to run out of oil because other produces can easily cover the deficit, especially Saudi Arabia and Russia.  The havoc would be in the commodities market and the stock market. 

The United States is never going to make that sort of decision unless there are very compelling reasons, and none come to mind.  Oil is used as leverage by the US, and keeping prices below a certain threshold functions as a form of implicit blackmail on economies that need oil to be above a certain price to finance their petro-bonds, otherwise, they would be in danger of default.  It is a means of exerting pressure on economies as varied as Venezuela, Iran, and Russia. 

Secondly, the US needs that market share for geopolitical reasons.  If they cease exporting oil, Russia is one of the countries that will fill that deficit, benefiting from raised prices.  They are major proponents of energy diplomacy.  Russia already exerts undue pressure on Western Europe through natural gas. 

Finally, such a decision would panic the market, specifically the American exchanges, whether commodities, ETF or stocks.  We will see a lot of American companies go bankrupt because there is no immediate domestic demand for their grade of oil.  The oil lobby is influential, and there will be political blowback for any administration stupid enough to even consider this.  No American president wants to preside over an economic contraction of his own making.