Rare News Desk
The old “no blood for oil” mantra to protest wars in the Middle East oversimplifies a complex situation. Given that Americans burn through 19 million barrels a day and how vital that fuel is to keep our economy trucking, there are few things worth fighting for more than a stable oil supply. But that’s the problem, according to a growing number of industry titans. “The dependence of the U.S. on imported petroleum from unstable and in many cases unfriendly parts of the world has created after nuclear proliferation and biological weapons probably our single largest economic and national security risk,” FedEx CEO Frederick W. Smith warned at the libertarian Cato Institute this week.
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For some reason, God put an abundance of one of the world’s most important resources in places run by awful people: the Saudis, the late unmourned Venezuelan thug Hugo Chavez, and other bad actors. Throw into the mix the developing Third World, which is gulping down black gold by the billions of barrels to feed growth, and you have global consumers facing a long-term problem of rising prices. This dynamic makes the U.S. economy, still the largest, dependant on an undependable commodity.
Making this pickle even more sour is the reality that the laws of supply and demand are skewed because the market for oil is not a free market. This is because the cartel that has its hand on the spigot, the Organization of the Petroleum Exporting Countries (OPEC), manipulates the market. OPEC members own 80% of known oil reserves, 90% of which is under the thumb of nationalized oil companies with little respect for the private market. It hasn’t been uncommon for OPEC to screw with the supply to hike oil prices higher by slowing the flow of crude. The shenanigans of a few sheikhs and rathole dictators thus hit the wallets and pocketbooks of American families because this market manipulation leads to higher fuel prices at the pump at your friendly Chevron or Exxon gas station.
The unpredictable nature of oil prices also puts a squeeze on American businesses. The one-two punch of a sucky economy and increased global competition has made dramatic cost-cutting a major feature of most business models. When sales and revenues aren’t going up, the balance sheet needs to make headway on the expense side. With increasingly thin margins, price volatility adds risky uncertainty on that column of the ledger. Oil is a big part of this equation because petroleum powers 93% of transportation in this country, and transportation costs are one of the largest expenses for many businesses. Corporations need a certain amount confidence in the future to feel safe investing in new jobs, research and development, and expansion of operations; financial unpredictability due to the non-free oil market undermines essential business confidence.
Laying all this out is a new report by Securing America’s Future Energy, or SAFE, a group that seeks to bolster U.S. national security by reducing our dependence on oil. Entitled “Competition in Global Oil Markets,” the study details the financial and security dangers of America’s current energy policies. For example, on the fiscal side, “every economic recession during the past 40 years has coincided with a spike in global oil prices.” Regarding defense spending, “A RAND Corporation study placed the ongoing cost to U.S. military of mitigating the risk of supply disruptions in the global oil market at between $67.5 billion and $83 billion annually,” according to SAFE. Plus all of the tangible and intangible costs of trading blood for oil when conflicts flare up.
This is, of course, only one side of the debate. Ripping on oil does highlight some serious weaknesses in the modern economic model, but recalibrating the energy market is impossible to do without major government intervention, which Washington always fouls up. For sure, we need more production at home and by reliable pals like Canada, but SAFE’s other two recommendations – increased fuel-efficiency standards to decrease usage, and investment in alternative energy, which always means massive federal grants – are dodgier because of their reliance on bureaucratic action. And there are benefits to oil: The stuff is plentiful, still relatively cheap, its effectiveness is proven compared to many quirky alternatives, and it sounds bad-ass guzzling out of a Mustang 5.0-liter V-8 engine. But that’s another story for a different article.
Brett M. Decker is Editor-in-Chief of Rare. Follow him on Twitter @BrettMDecker
