Energy Independence and Refining Challenges for the U.S.

During the Cold War, the United States faced significant vulnerability to supply shocks, particularly with imported crude oil. The Iranian Revolution in 1979 highlighted this risk by causing crude oil prices to increase sharply from about $13 to $34 per barrel within a single year. This situation prompted successive U.S. administrations to prioritize energy independence, investing extensively in domestic supply and refining infrastructure.

The shale revolution, which began post-2008, saw American firms use hydraulic fracturing to access new sources of light crude oil. By 2018, the U.S. emerged as the world’s largest oil producer. Despite this, the expected fuel security was not achieved because the nation’s refining infrastructure was primarily designed for heavy grades of crude. Refiners on the Gulf Coast, therefore, couldn’t fully utilize the light crude from shale fields, necessitating the export of this light crude to European and East Asian allies.

“America should invest in light crude refining.”

Investment in refining infrastructure for light crude presents three significant benefits:

• Ensuring domestic fuel supply: Refineries must be equipped for the light crude that U.S. wells yield, as heavy grades must navigate maritime chokepoints to reach Gulf Coast refineries. The Energy Information Administration details seven major chokepoints, including the Strait of Hormuz, which sees about 20 million barrels daily, accounting for one-fifth of global demand. Historical incidents like Iran’s gulf mining during the 1980s and more recent attacks near Hormuz underscore potential vulnerabilities. A closure in maritime routes, such as the Strait of Malacca, could prevent heavy barrels from reaching U.S. refineries, leaving domestic light crude stranded.
• Capturing export margins: Refined products fetch higher margins than raw crude, enhancing profitability for American firms. In 2023, approximately 6 million barrels per day of gasoline, diesel, and jet fuel were exported by U.S. refiners, sometimes earning margins exceeding $30 per barrel, especially for diesel. When light crude is exported to venues like Rotterdam or Ulsan, foreign refiners capture these profitable margins, while American producers receive only the crude price. Following the European Union’s 2023 ban on Russian diesel, European buyers increasingly sought American fuel, presenting an opportunity for U.S. refiners to fulfill this demand.
• Gaining diplomatic leverage: Countries selling finished fuel wield greater foreign policy influence, as crude buyers can find alternative supplies readily. Crude oil trades among numerous suppliers globally, yet refined products like diesel and jet fuel have more limited sources. Consequently, suppliers of finished fuel are harder to replace. The U.S., via expanded refining capacity, could better negotiate with allies such as Japan and Korea, which heavily rely on sea lanes endangered by geopolitical tensions, particularly from China.

Instead of constructing new refineries, expansion of existing facilities appears more viable. For instance, in 2023, ExxonMobil expanded its Beaumont plant by 250,000 barrels per day at a cost of approximately $2 billion. This sets the financial expectation for adding 1 to 2 million barrels of new light capacity between $10 and $20 billion. Legislative developments like the 2025 reconciliation bill under Section 1706 now classify refining infrastructure as eligible for Department of Energy loan guarantees, backed by a $250 billion lending cap. Furthermore, projects could be prioritized on the FAST-41 dashboard with binding federal timelines, while Congress may introduce a 25% investment tax credit, akin to incentives used for semiconductor plants in Arizona and Ohio.

Aligning America’s refining capacity with domestic light crude production not only fortifies fuel supply during chokepoint closures but also secures margins within U.S. control, providing strategic advantages in international diplomacy.

Alvin Camba, Ph.D., the lead scientist and director of research at Lyvi, directs SIGMA, a program enhancing America’s critical material supply chains in partnership with the U.S. Department of Defense. He collaborates as a nonresident fellow at the Atlantic Council’s Indo-Pacific Security Strategies and a senior research fellow at Associated Universities, Inc.
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