During the Cold War, the United States faced significant vulnerabilities regarding its energy supply. A stark reminder of this occurred in 1979 during the Iranian Revolution when crude oil prices soared from about $13 to $34 per barrel. This event highlighted the need for energy independence, prompting American administrations to invest heavily in domestic supply and refining infrastructure.
By 2018, the shale revolution had positioned the U.S. as the world’s largest oil producer. However, despite high output, the U.S. did not achieve true fuel security. The nation’s refining infrastructure remained optimized for heavy crude rather than the light crude predominantly produced through shale extraction. Consequently, millions of barrels of light crude were sold to allies in Europe and East Asia instead of being processed locally.
Reasons to Invest in Light Crude Refining
There are three compelling reasons for the U.S. to develop light crude refining capabilities:
- Supply Resiliency: Refineries that can process light crude ensure fuel availability even if maritime chokepoints close. Many of the world’s critical oil transit chokepoints are susceptible to disruptions. For example, the Strait of Hormuz handles about 20 million barrels daily, covering one-fifth of worldwide demand. Historical conflicts like the Tanker War of the 1980s and modern tensions, such as those involving Iranian mines, illustrate these risks.
- Economic Benefits: Exporting refined products yields higher margins compared to selling raw crude. In 2023, American refiners exported about 6 million barrels per day of refined fuels, sometimes making margins exceeding $30 per barrel for diesel. After the European Union banned Russian diesel, demand and prices for American fuel increased. Investing in light crude refineries could help the U.S. capture these profits.
- Diplomatic Leverage: The sale of finished fuel grants diplomatic influence that crude oil exports do not. While buyers may easily switch suppliers of crude oil, refined products are less replaceable due to limited refining capacity. This gives the U.S. leverage in negotiations, particularly in regions like East Asia, where countries like Japan and Korea rely heavily on imported crude.
Strategic Path Forward
Updating existing refineries to handle light crude is more feasible than constructing new ones, given no major refinery has been built in the U.S. since 1977. In 2023, ExxonMobil expanded light crude capacity at its Beaumont plant by 250,000 barrels per day for around $2 billion. This provides a cost benchmark for scaling capacity further.
Moreover, the 2025 reconciliation bill has expanded the definition of eligible energy infrastructure to cover refining. This means the Department of Energy can now back these expansions with loans from a $250 billion fund. Additionally, the Permitting Council might expedite projects through the FAST-41 dashboard, and Congress could introduce a 25 percent investment tax credit to foster refinery development, akin to incentives for building semiconductor plants in Arizona and Ohio.
By focusing on a refining sector that matches America’s light crude output, the nation can secure its domestic fuel supply amidst any future chokepoint closures, retain substantial economic margins, and enhance its diplomatic arsenal.
Alvin Camba, Ph.D., leads Lyvi’s SIGMA program, funded by the U.S. Department of Defense, to safeguard critical supply chains. He also holds positions with the Atlantic Council and Associated Universities, Inc.