Dependence of Foreign Oil and Other Myths of Addiction

On March 30^th, speaking at Georgetown University, President Obama challenged Congress and the country to reduce dependence on foreign oil by a third by 2025, half from stepped-up domestic fossil fuel production and half from increases in energy efficiency/alternative energy. Noting that the U.S. consumes 25% of the world’s oil and has 2% of the world’s oil reserves, the President told the world that something’s gotta give.

Great plan, except for the foreign oil part. Here’s the bad news from a down and dirty economist’s perspective. Other than varying levels of the quality (purity) of the oil, oil is oil. It doesn’t have a passport or local citizenship. It doesn’t matter where oil comes from (even if we could import zero “foreign oil”) – that doesn’t impact the price one whit… if global demand for oil increases the price by 20%, then oil produced in the United States rises by 20%. It also rises 20% for oil produced in dreaded Iran. It’s not where oil is produced that determines price; it’s simply a reflection of global demand. From an economist’s perspective, think of all the oil produced on planet earth – including Iran and Venezuela – being poured into a giant and uniformly priced virtual global vat (the world’s marketplace) from which all purchases are drawn. As China and India add millions of cars to the road each year, that demand alone will keep Iran’s military well-supplied for the foreseeable future. Commodities – like oil and natural gas – are… er… commodities.

Step-up domestic production? Great plan except domestic oil reserves, even in Alaska, are not nearly as plentiful as days past (when the U.S. could rival Saudi Arabia in oil output), and a lot of that oil is off-shore or in hard-to-separate oil shale or in frozen and hard-to-reach frozen arenas (read: expensive and prone to environmental disasters). We’d be drawing down our own supplies for near term uses, pretty much depleting those reserves for the truly longer term. Maybe that’s just enough time to wean us off the fossil fuel addiction – which has to be the underlying philosophy – but we are burning away our natural resources (when we could be draining away the natural resources of “others”) and risking massive economic losses with environmental catastrophes, much like the recent BP off-shore oil rig disaster in the Gulf.

Politicians – from Nixon to Carter, Bush to Obama – have made the same argument for a long time now, as gasoline prices skyrocket… most recently because of the Libyan civil war and the loss of nuclear power in Japan… a real threat to the planned “recovery” from the recent “recession that’s really feels like a depression that economists tell us is over when, except for fat cat Wall Street financial types, we still have horrific unemployment, tanked housing values and state and local deficits that may sink us all and is hardly over by a long stretch.” Whew!

Obama: More oil leases on federal land, a push to move towards natural gas (which we have in greater abundance), particularly in public transportation systems (yeah, like cities and towns have lots of free cash to update their local busses!!!!). But the March 30^th Washington Post provides us with a measure of where we are today in oil imports: “Obama faces a plethora of obstacles in the push for less reliance on foreign oil. One is the appetite of the U.S. economy. The federal Energy Information Administration forecasts that the United States will import a net of 9.7 million barrels a day of crude oil and refined petroleum products in 2011 and 10 million barrels a day in 2012. Net imports accounted for 49 percent of all U.S. liquid fuel consumption in 2010, down from 57 percent in 2009 primarily because of the drop in consumption during the recession.” There are provisions in the 2008/9 federal economic stimulus legislation to push for energy research and new energy products, but thangs ain’t what they used to be with Congressional austerity priorities.

We sent a man to the moon as a direct result of massive scientific development that stemmed from our “shock” at the launch of the first manned satellite by the Soviets (“Sputnik”) on October 4, 1957; we hauled ass and kicked butt! Thank you President Eisenhower! It will take the same kind of personal commitment from each and every American – with supporting legislation from Congress – to push for that same kind of inventive spirit to create the necessary research platforms for alternative energy resources. Spreading myths along the way isn’t going to solve anything!

I’m Peter Dekom, and in a world of catchy political slogans, keepin’ it real is a bitch!