Using foreign oil is not a problem

November 6, 2001

Free Market Foundation

While the potential for war in the Middle East has some worried about the security of Americas energy supplies, Jerry Taylor of the Cato Institute says oil imports aren’t a problem and energy independence isn’t a solution. He argues:

Even if every drop of oil America consumed came from domestic sources, a cutback in oil production by the Organisation of Petroleum Exporting Countries (OPEC) would raise Americas oil prices as high as if all its oil came from Saudi Arabia.

That’s because there is no regional market only global markets for oil, and regional prices always rise to the world price.

For example, in 1979, Great Britain which was totally energy independent was hit as hard by oil price spikes as Japan, which was dependent on oil imports.

And as for military capabilities, the U.S. Defence Department says it could fight two Desert Storm-sized regional wars almost simultaneously using only an eighth of U.S. domestic oil production.

Taylor argues that attempting to achieve energy independence would be economically harmful, because Persian Gulf imports are significantly less expensive than domestic petroleum or non-fossil fuel alternatives.

There is a case for drilling in the Arctic National Wildlife Refuge (ANWR) in Alaska, but it won’t bring down oil prices and isn’t necessary for U.S. national security, says Taylor:

At its best, ANWR might produce one million barrels of oil a day a 1.25 percent increase in global production.

That would decrease world oil prices from $20 a barrel to $18 not inconsequential, but hardly a cartel breaker.

However, assuming five billion barrels of economically recoverable oil, the oil would have a discounted value of $30 billion a lot of additional wealth for an economy in recession.

Source: Jerry Taylor (Cato Institute), Reliance on Foreign Oil Isn’t That Significant, Dallas Morning News, October 16, 2001.

For more on Energy http://www.ncpa.org/iss/ene/

Note:See The importance of Alaskan oil to the U.S., another of this weeks Policy Bulletins, for a contrary view.

FMF\30 October 2001