The Dangers of Foreign Oil Dependence: Are Painful Oil Prices The Way Out?

Another example supporting my post on the vacuum of political leadership today is our national energy policy. The current Administration and Congress have made low fuel prices a plank of the official energy policy of the United States - a great policy for short-term political gain, but disastrous both from an economic and national security vantage in the long run. Our economy is wholly dependent upon this constrained resource (The Washington Post's coverage of a recent oil supply disruption exercise, "Oil Shockwave," details the terrifying extent to which our economy is held hostage by oil), the production of which we have very little control over, and with the economic rise of south east Asia (namely China), we face a not-too-distant future in which demand will outstrip supply, potentially leading to devastating political, economic, and even military conflicts.

A free-market capitalist will recognize painfully higher-priced gasoline as one of two forces capable of reducing domestic demand for foreign oil and incentivizing the private sector to develop widespread, viable alternative sources of energy. While incredibly efficient technology exists, the current economics of energy do not make it feasible for the private sector to produce these technologies on a wide scale.

So how can we do to change the economics of the industry? It is actually very simple - make alternative energy less expensive and make petroleum energy more expensive. To do so, the government should be subsidizing research to the point that automakers and petrochemical companies do not have to choose between developing alternative energy and profits. This is a much bigger undertaking than many make it out to be. Current technologies such as nuclear, solar, and hydropower are only useful for producing electricity, which primarily comes from coal-fired generators; these alternatives will do virtually nothing to reduce our dependence on oil since virtually all of the US oil demand comes from motor vehicles. The focus must first be on hyper-efficient gasoline powered engines, while long-term, the focus needs to be on more efficient and affordable electric and/or hydrogen motors. Additionally, we should be subsidizing the development of alternative energy production capacity until the industry can recognize economies on a comparable scale to current petroleum-based industries.

Finally, instead of seeking to reduce the price of gasoline as our current political leaders are doing, the government should be taking a cue from our European friends and levying considerable taxes on petroleum fuels and petroleum-burning vehicles to minimize the cost-differential incurred by consumers shopping for alternative energy-powered vehicles.

As I alluded to in the beginning of this post, the economics of energy is but only one small symptom of the larger problem our foreign oil dependency represents. Our oil addiction leads us to two gloomy ends.

The obvious one is oil revenues from the US are propping up despotic, tyrannical, greedy, and ineffective governments in the Middle East and Central Asia. These governments found an elegant out for deflecting the poverty-fueled desperation and anger arising from their failed economies - funding radical Islamist mullahs and madrassas who are only too happy to funnel this discontent towards the US and allies. There is no doubt our oil payments are only two to three degrees separated from the bank accounts of al-Qaida, Hizbollah, and the like who fund the terrorists and weapons killing our soldiers and citizens around the globe.

The second long-term outcome of our oil addiction makes Islamist terrorists and their thousands of innocent victims seem mundane. With 1.3 billion citizens and an economy a fraction the size of ours, and growing at a fantastic pace with designs on overtaking the US as the world's premier economic and military power, China (in conjunction with the US) is already straining the current global oil production capacity. The Chinese government is taking advantage of disdain for the US in the Middle East and Central Asia and forging relationships with countries in that region, in addition to South American countries in our own hemisphere. China seems intent on securing guaranteed oil supplies while pushing US influence out of their hemisphere. The current strains we see today with rising oil prices and the Chinese expansion of economic influence (the state-owned Chinese energy firm CNOOC’s bid for Unocal is the most recent example) will only get worse until we collectively surpass the world oil production capacity. At that point, China will resort to military options to secure its energy supplies (as would we), and there are disturbing indications that the inmates may be running the asylum in the People's Liberation Army. Going to war against a country with four times our population and equipped with our military technology is far scarier prospect than anything cave-dwelling Islamist neanderthals can hope to conjure.

It is clear we are at a point where going forward, there are only increasingly devastating economic, geopolitical, and national security repercussions if we do not begin reducing and eventually eliminating our dependence upon foreign oil. It is also clear our current energy policy is leading us in exactly the wrong direction.