Jerry Heaster Column
The Kansas City Star, Mo., January 16
When will Americans accept that there's no such thing as oil dependence or independence? There's only oil, and where it comes from is not as crucial to America's welfare as how much is available globally.
Since the first oil embargo crisis a generation ago, many Americans have been obsessed by the goal of reducing U.S. dependence of foreign oil, particularly oil from the volatile Middle East. This is understandable, but not realistic.
If, for instance, drilling were allowed full-bore in the Arctic National Wildlife Refuge, it wouldn't make America's geopolitical relationship with the Mideast oil sheiks any less critical to our national interests. It's a good idea to make use of any and all domestic resources possible, but only because additional supply -- from anywhere -- will help restrain price.
As for Mideast oil producers cutting off U.S. supplies, there are two realities that make threats in this regard empty ones. One is that foreign producers need to sell their oil as badly as the world needs to buy it. It's doubtful there is an oil-producing country able to sustain itself economically without its oil export revenue.
Another reality is that once oil goes on the market, the commodity doesn't know who owns it. Even during embargoes, the United States managed to ensure adequate supplies of imported oil. Perhaps OPEC oil was withheld from U.S. markets, but those who received it were able to ship oil to America from other sources. Oil is, in the economist's lingo, fungible. Quality variances aside, we can make do as well on Russian or North Sea oil as we can Saudi oil.
To be sure, rearranging the supply chain and the contracts involves hassles, but the oil is always there. A good thing, too, because as the world's biggest consumer, America could never get by on its domestic production alone.
Even if America became self-sufficient, it would not necessarily cause a decline in the cost of our petroleum products. Many Americans think less oil dependence would automatically translate into lower costs at the gasoline pump, but this ignores oil's global market. As the daily oil quotes reveal, the price spread among worldwide producers is modest.
If America produced more oil than it could use, domestic prices still would be determined by the global market. The only way to prevent this would be laws against allowing the market to determine prices, which would defeat the purpose of encouraging more production. Oil and natural gas shortages in the '70s were more a function of misguided energy regulation than any shenanigans by OPEC.
When it comes to hopes for lessening U.S. dependence on foreign oil markets, the wish is the mother of thought. Moreover, even if it were possible to achieve, it wouldn't translate into an energy nirvana because the oil market doesn't end at the water's edge.
OPEC may pretend it is able to use cartel powers to prop up oil's price, but it has never been able to do so over the long term. Why? The higher prices its cutbacks cause inevitably are undone because rising prices lead to increased production by OPEC and non-OPEC producers alike.
Such is the nature of markets. |
