What is fast-becoming the main talking point against the proposed Keystone XL Pipeline is the claim that greater access to Canadian crude oil would not enhance U.S. energy security.

According to pipeline opponents, most of the petroleum products made from Keystone crude would be exported by Gulf Coast refiners to Europe, South America, and Asia rather than sold in U.S. domestic markets. Thus, opponents contend, Canadian oil coming through the pipeline would displace little if any oil imported from unstable, undemocratic, or unfriendly countries like Nigeria, Saudi Arabia, or Venezuela.

Rep. Ed Markey (D-Mass.) made a media splash with this talking point at a House Energy and Commerce Committee hearing last month. Keystone, he said, would not “back out” any oil we import from the Middle East if it simply turns the USA into a “middle man” for exporting diesel fuel and other finished petroleum products made with Canadian crude. He noted that nothing in TransCanada company’s long-term sales contracts with Gulf Coast refiners ensures that products made from Canadian crude would be sold to U.S. consumers.

Markey challenged TransCanada exec Alex Pourbaix to support legislation prohibiting Gulf Coast refiners from exporting petroleum products refined from Keystone crude. Clever! Pourbaix could not support Markey’s proposal without jeopardizing the sales contracts on which the pipeline project’s commercial viability depends. Yet he could not reject Markey’s proposal without appearing to confirm that Keystone is a plot by TransCanada and Gulf Coast refiners to export more oil overseas. Pourbaix did reject Markey’s proposal, but without explaining why an export ban would be a mischievous ‘solution’ to a non-existent problem.

For openers, a ban on exports of petroleum products made from Keystone crude would violate one of the basic principles of the international trading system, known as “National Treatment.” The World Trade Organization (WTO) provides a succinct explanation:

National treatment: Treating foreigners and locals equally.  Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT [General Agreement on Tariffs and Trade], Article 17 of GATS [General Agreement on Trade in Services] and Article 3 of TRIPS [Trade Related Aspects of Intellectual Property Rights], although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

Under the National Treatment principle, once Canadian oil has entered the U.S. market via Keystone XL, it must be treated the same as oil produced from U.S. wells. Only if Congress were to ban exports of petroleum products sourced from Texas, Alaska, California, North Dakota, New Mexico, Oklahoma, Louisiana, other oil-producing states, and the U.S. Outer Continental Shelf would Markey’s proposal pass muster under the GATT, a treaty ratified by the U.S. Senate in 1994.

If enacted despite violating GATT, Markey’s plan would put U.S. refiners at a competitive disadvantage, functioning as a kind of reverse protectionism. U.S. refiners could not sell oil sands-derived petroleum products in overseas markets, but their foreign competitors could do so. Our refiners would operate under a partial export ban, foreign refiners would not.

In his written testimony, Pourbaix made the common-sense point that “Keystone XL encourages domestic U.S. oil production by connecting areas with increased supply in Montana, North Dakota, and Cushing, Oklahoma, with the United States’ largest refining center in the Gulf Coast.” By the same token, Markey’s policy, tantamount to a declaration of war on the Gulf Coast refining hub, would discourage investment, production, and job creation throughout the U.S. petroleum industry. That would probably suit Markey just fine.

Indeed, given the reality of a global marketplace, is there a more effective way to destroy a domestic industry than to hinder its ability to export? And if exporting that which was previously imported is objectionable, why limit the policy to the oil industry? U.S. auto, pharmaceutical, telecommunications, and renewable energy companies use foreign-sourced parts, chemicals, and commodities. Why not ban their exports too? Markey’s policy would set a dreadful precedent.

Markey claims that without an export ban, Keystone crude will bypass rather than supply the domestic U.S. motor fuels market. That is implausible. Of the more than 2 billion barrels of finished petroleum products refined in the Gulf Coast region (PADD III) from January through October 2011, approximately 26% was exported. New supplies of crude from Canada might bump up the share of exports but not dramatically unless Keystone created a crude oil surplus in PADD III. That is unlikely, because PADD III imports of Mexican and Venezuelan crude are declining.

As a June 2011 DOE analysis observes:

Taken together, U.S. imports of crude oil from Mexico and Venezuela are about 1 million barrels/day lower than their previous peak levels. With an expected decline of Mexican crude oil production of 500,000 barrels per day and the likelihood of increased exports of Venezuelan crude to Asia, current heavy imports to PADD III are likely to decrease by a significant amount within the next five years.

Ironically (but perhaps intentionally), Markey’s proposal could increase U.S. petroleum imports from Saudi Arabia and OPEC. As the U.S. Energy Information Administration notes, total U.S. exports of finished petroleum products “increased more than 60% since 2007 as markets have become more globally integrated.” U.S. exports are bound to increase as global demand for liquid fuels increases.

So if Congress were to forbid PADD III refiners from using Keystone crude to meet growing global demand for finished petroleum products, they would have to import more crude from somewhere else. Like Saudi Arabia. As an energy security measure, Markey’s policy is nuts.

The real logic behind it is political. As this blog noted previously, Canada’s oil boom threatens two-long established pillars of anti-oil agitation: the claim that oil is a dwindling resource from which we must rapidly decouple our economy before supplies run out, and the notion that most of the money we spend on gasoline ends up in the coffers of unsavory regimes like Saudi Arabia. In reality, more than half of all the oil we consume is produced in the USA, and we get more than twice as much oil from Canada as from Saudi Arabia.

If Keystone is approved, our self-reliance on North American energy will increase and fear of “peak oil” will recede. That’s why oil haters are desparate to block it.