Report

Crude Behavior

The U.S. oil boom has unleashed torrents of oil, and sparked a fight over the 40-year-old ban on oil exports.

Russia's land grab in Ukraine is fueling a debate in Washington that would have been unthinkable even a year ago: should a country that still imports half its oil start selling some of that black gold overseas?

The dispute is pitting oil producers, who want to open the doors to exports, against oil refiners, who want to keep cheap crude at home. It pits conservative lawmakers who see overseas sales as a boon for American business against liberals who fear it would raise prices at the pump. And it pits Democrat against Democrat: Sen. Ron Wyden of Oregon was wary of oil exports during his tenure at the helm of the Senate Energy and Natural Resources Committee. His replacement, Sen. Mary Landrieu of Louisiana, is an unabashed supporter of greater overseas sales.

The issue will be at the center of a hearing Wednesday before a House panel that will feature a leading voice for exports in the Senate, Alaska Republican Lisa Murkowski; refiners who oppose the sales; and energy experts. The debate is as contentious as it is surprising: Just five years ago, U.S. oil production had reached historic lows, and worries of ever-increasing dependence on fickle sources of foreign oil dominated the thoughts of policymakers and oil executives.

The turnaround has been dramatic. U.S. oil production has increased more since 2008 than any place in the world, and will keep growing by almost 1 million barrels a day in coming years. Some experts, including the Paris-based International Energy Agency, expect the United States to produce more oil than Saudi Arabia or Russia as soon as next year, which would further wean the country off pricey imported oil. That's all due to the large-scale use of drilling techniques developed after World War II, but which didn't become economic enough to go mainstream until barrels of crude oil started selling for $100.

"Now that the U.S. is poised to become the world's largest oil producer, the economic case for exports is clear," said Kyle Isakower, the vice president of regulatory policy at the American Petroleum Institute, the oil industry lobby that is leading the charge for overturning the 40-year-old ban on exporting crude oil.

To be sure, even though it's on track to pump more oil than any other country, the United States also uses more oil than anyone else. That means it is still a net importer of crude, to the tune of about 7.5 million barrels a day. But the glut of light, sweet American oil gushing out of new oil fields, especially in Texas and North Dakota, is causing a fundamental rethink of the whole edifice of 1970s-era energy policy, which was framed in an era of scarcity, not abundance. The Organization of Petroleum Exporting Countries oil embargo of 1973, in particular, led to the virtual banning of crude-oil exports from the United States.

The debate over crude oil exports mirrors a similar policy battle that erupted two years ago and has been getting more intense ever since: what to do with the growing glut of natural gas unleashed by the fracking revolution. That is in many ways an easier fight for free trade proponents, because there are fewer legal restrictions on shipping U.S. gas overseas. The Obama administration, not known as a friend of the oil or gas industries, has already approved seven new terminals that could liquefy natural gas and ship it to customers in Europe and Asia.

Like with gas exports, the potential for exporting crude has gained sudden prominence in the weeks since Russia forcibly annexed the Crimean peninsula and moved tens of thousands of troops to its border with eastern Ukraine. Lawmakers from both parties, backed by President Barack Obama, have suggested boosting exports of U.S. natural gas to weaken Russia's energy hold over Europe. But gas exports will take years to materialize; excess crude oil is already sloshing around the center of the country, oilmen told Congress last week, but they can't sell any of it because of the current export ban.

"If we want to have an overnight impact on today's global events, we can immediately begin exporting crude oil," Harold Hamm, chairman and chief executive of Continental Resources Inc., told the House Foreign Affairs Committee last week.

The exports bandwagon has plenty of critics. Big refiners, who turn discounted American crude into products like gasoline, want to keep things the way they are, because they benefit economically by selling refined products overseas at a premium. The United States is now exporting about four million barrels a day of refined products, a 300 percent increase from a decade ago.

"It seems kind of ridiculous to us that we would export crude oil when we don't have a surplus of it," said Bill Day, a spokesman for Valero Corp., one of the biggest refiners in the United States.

Some lawmakers, such as Sen. Ed Markey (D-Mass.), have been vocal opponents of crude exports since the idea first gained currency last year. In December, he urged the U.S. trade representative to "vigorously oppose" any efforts in the World Trade Organization to tweak the longstanding U.S. export ban.

Even the Obama administration has sent mixed signals about crude exports despite its generally favorable view of overseas natural gas sales. Late last year, Energy Secretary Ernest Moniz suggested that 1970s-era energy laws needed to be revised. But at a big energy conference in March, Moniz said the oil industry has not yet made its case for why exports would be a good idea.

But it's clear that the once-unthinkable notion of exporting oil is gaining momentum. The first witness to testify at the House hearing Wednesday will be Murkowski, the senator from Alaska, who has become one of the biggest cheerleaders for overturning the export ban. She will reiterate that lifting the ban will boost production and help trim the trade deficit.

The main reason that crude exports are now on the table is because there is a simple mismatch between the crude oil gushing out of wells and the refineries that turn oil into useable products. The United States now produces lots of light, sweet crude, but the multibillion-dollar oil refineries that proliferate on the Gulf Coast were built to handle the heavy, sour crudes found in Saudi Arabia and Latin America. Refineries in Europe and elsewhere, meanwhile, are optimized to process the lighter crudes now being drawn out of the ground in enormous quantities.

As a result, there's so much American oil sloshing around the Midwest that U.S. oil, which was once the global benchmark and historically fetched a premium, sells at a substantial discount to the main grade of oil traded in London. American producers figure exporting crude would be a way to sell their oil at those higher overseas prices; U.S. refiners are happy to keep things the way they are because they can buy oil more cheaply and sell their products at higher prices. Opening up global markets for U.S. crude would also be a way to ensure future production. In fact, the IEA suggested earlier this year that current export curbs could actually stunt U.S. oil production in coming years.

But as with the debate over natural gas, the industry is also arguing that exports will be a big boon for consumers and the wider economy. A new study prepared for API by ICF International and EnSys Energy, consulting firms, found that ending legal restrictions on the export of crude oil would lower gasoline prices for U.S. consumers by a few cents a gallon, provide tens of billions of dollars in annual economic growth, create hundreds of thousands of jobs, and help raise oil production even further.

Crude export proponents also say that loosening decades-old restrictions would bolster U.S. free trade credentials. That argument is gaining weight now, in light of a World Trade Organization ruling last week against China's restrictions on rare-earth exports. Essentially, the WTO found that countries can't give domestic industries a leg up by restricting the export of critical materials that other economies need. And that could have implications for the debate over U.S. gas and oil exports.

Despite the push by industry, there are plenty of voices urging caution. Deborah Gordon, an energy and climate expert at the Carnegie Endowment for International Peace, said in an interview that she will tell the House panel Wednesday that in a tremendously fast-moving energy landscape, big policy decisions such as removing export bans need careful consideration. Hydrocarbon products, whether specially-prepared feedstocks for certain industries or refined liquids such as diesel fuel, will dominate future energy trade more than simple crude oil, which could make changes to the export ban problematic down the road.

"I think we need to slow down. This is a multidimensional game of chess," she said in the interview.

One of the biggest questions surrounding whether or not to lift the export ban is figuring out just what will happen to U.S. oil production in years to come. The oil industry is confident that new technology developments will enable the United States to keep producing oil at a world-beating pace for years to come. The IEA, on the other hand, figures the era of U.S. petro-dominance will be relatively short lived, with production tailing off in the 2020s and OPEC regaining its status as the world's biggest producer.  

Karen Bleier - AFP - Getty

Report

Early Release

Jonathan Pollard is Israel's most notorious spy. So why are Washington and Jerusalem talking about freeing him?

The United States considers him one of the most damaging spies in recent history. Israel considers him a martyr. And now, he may be coming home.

Jonathan Pollard, who has been imprisoned for nearly 30 years after giving U.S. military and intelligence secrets to Israel, may be released within the next two weeks as part of what two officials familiar with the discussions described as an effort to salvage the flailing Israeli-Palestinian peace talks. In exchange, these people said, Israel would consider releasing 14 Israeli-Arab prisoners who've also been jailed for decades as well, potentially, as Marwan Barghouti, a prominent Palestinian militant. White House spokesman Jay Carney neither confirmed nor denied the reports at his daily press briefing. "I have nothing new...that I haven't said in the past, which is that [Pollard] was convicted of espionage and that he is serving his sentence," Carney said. The State Department dismissed the discussions as "rumors about what may or may not be on the table."

Pollard, who was sentenced to life in prison in 1987, has long maintained that he only gave information to Israel -- an American ally -- so it could protect itself from hostile countries in the Middle East. Not so, say intelligence officials who served at the time of Pollard's crimes.

"Much of what he took, contrary to what he'd have you believe, had nothing to do with Arab countries or the security of Israel, but had everything to do with U.S. collection methods, to include most specifically against the Soviet Union," retired Adm. Thomas Brooks, the former director of naval intelligence, said in an interview. Pollard worked for Brooks in 1980 when Brooks was in charge of a Navy intelligence office based at Ft. Meade, Md, which is also the headquarters of the National Security Agency.

Among the highly-prized secrets that former officials say Pollard gave away while working as a civilian intelligence analyst for the Navy were technical details of sophisticated U.S. spy satellites; analyses of Soviet missiles systems; and information about eavesdropping equipment used by the NSA to intercept foreign governments' communications, including all ten volumes of a highly-classified manual known as "the Bible" that spelled out how the United States intercepted Soviet communications.

This isn't the first time that Pollard's release has been floated in the midst of U.S.-brokered Middle East peace talks. In 1998, President Bill Clinton was prepared to release Pollard during the summit at Wye River, Md., but the effort was scuttled when intelligence officials protested and then-Director of Central Intelligence George Tenet threatened to resign.

That reveals the depths of U.S. spies' animosity toward Pollard, whom many regard as one of the most harmful spies in recent history. Three decades after Pollard confessed to giving Israel a stack of documents that, by his own estimation, would have measured six-by-six feet and stood 10-feet high, intelligence veterans insist that Pollard did far more damage to U.S. national security than is generally known.

"I think what he did is exceeded only by Edward Snowden," said Brooks, drawing an analogy between Pollard and the former NSA contractor who gave millions of pages of classified documents about eavesdropping systems to journalists, and who's now living in Russia under a grant of political asylum.

But Pollard's supporters have been adamant that he should be released from prison, and that he never should have served this long. Pollard is regarded as a national hero in Israel, where nearly every prime minister since the time of his arrest, in 1985, has called for his release. In the late 1990s, the presidents of fifty-five major American Jewish organizations jointly called for Pollard to be set free. And for decades, there've been mass protests both in Israel and the United States calling on a succession of American presidents to free Pollard, both on humanitarian grounds and, his supporters say, because he gave information to a close U.S. ally, and was unjustly accused of betraying the United States. Many of those protests are organized by Pollard's wife, whom he married while in prison and remains one of his staunchest defenders.

When Brooks supervised Pollard, he dismissed Pollard and sent him to work in another office, where he was stripped of his security clearances, because Pollard showed signs of being "mentally unstable," Brooks said.

A few years later, Pollard's security clearances were restored, and shortly thereafter he began spying for Israel, Brooks said. "Giving that [intelligence] away was a tremendous boon to the Soviets," he said, repeating a frequently-levied charge that classified intelligence made its way into Soviet hands. Some former officials have claimed that Israel bartered the purloined intelligence in exchange for the Soviet Union allowing Jews to emigrate to Israel.

Brooks said that in his opinion, the information Pollard gave to Israel was probably stolen by Soviet spies. "The Mossad at the time was well penetrated by the KGB," Brooks said. "Based on the degree of penetration by the Russians, it would be very, very strange if they didn't get access to it."

Brooks said that the damage to U.S. intelligence efforts was considerable and long-lasting, and included sources of intelligence that were permanently lost to American spies. A former senior intelligence official said the number of documents Pollard stole was among the largest in U.S. history up to that point.

In a 1999 New Yorker article, journalist Seymour Hersh interviewed former intelligence officials who said they could measure the cost of Pollard's spying in terms of communications channels that went silent. "The data passed along by Pollard included detailed information on the various platforms -- in the air, on land, and at sea -- used by military components of the National Security Agency to intercept Israeli military, commercial, and diplomatic communications," Hersh wrote.

Hersh quoted an anonymous intelligence expert who claimed that U.S. intelligence personnel noticed a significant decrease in the communications traffic they were monitoring, including at NSA listening posts in England, Tel Aviv, and Cyprus. "We could see the whole process [of collecting intelligence] slowing down," the expert told Hersh.

In 1998, Brooks, along with three fellow retired admirals who had served as directors of naval intelligence, wrote a letter to the Washington Post to dispel what they called "myths" that Pollard was an Israeli patriot who wanted to help Israel protect itself from a surprise attack. "Pollard pleaded guilty and therefore was never publicly tried," the retired admirals wrote. "Thus, the American people never came to know that he offered classified information to three other countries before working for the Israelis and that he offered his services to a fourth country while he was spying for Israel."

They didn't name the countries, but Pollard reportedly offered classified material to South Africa, Argentina, and Taiwan, and also was in touch with Pakistani and Iranian sources about trying to broker arms. Pollard was motivated my money and greed, the admirals said, applauding Clinton for not releasing the spy. Pollard didn't deny taking payment for his services -- more than half a million dollars, prosecutors alleged at his sentencing hearing in 1987 -- but claimed he was being rewarded simply for doing a good job, and that he intended to pay back some of the money.

One former intelligence official said the amount of information Pollard stole, as well as the "indiscriminate" nature with which he took it, is what most outraged U.S. spies. Pollard couldn't have known everything that he took, nor could he be sure that it was only shared with the Israelis, the former official said.

In a sworn statement to the judge presiding over Pollard's sentencing, then-Secretary of Defense Caspar Weinberger said Pollard had compromised several classified intelligence systems. Weinberger also reportedly told the judge there was suspicion -- though no proof -- that intelligence Pollard gave to Israel was later obtained by the Soviet Union.

Pollard told Hersh that as far as signals intelligence -- NSA's bread and butter -- was concerned, the U.S. government "has consistently lied in its public version of what I gave the Israelis."

Brooks, the retired admiral who once supervised Pollard, said he had no objections to his being released now. Pollard is eligible for parole next year, so even if he's not freed as part of current peace talks, he might not remain in prison much longer.

"I really don't care what happens to him," Brooks said. "He's had a long time in prison." Brooks said he wouldn't object to parole or even a commutation of Pollard's life sentence. "But I have a great, great opposition to pardoning him," he said, an act that can only come from the president. "He has no sense of remorse or guilt whatsoever."

John Hudson and Yochi Dreazen contributed reporting.

Gali Tibbon / AFP