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Real Cost of Oil Equates to $10 Gallon Gasoline

"A set of oil supply disruptions similar in scope to those of the 1970 could carry a price tag as high as $8 Trillion - a figure equal to 62.5% of our annual GDP or nearly $27,000 for every man, woman and child living in America," warned Milton Copulos, president of the National Defense Council Foundation and Senior Fellow at the Institute for the Analysis of Global Security (IAGS).

Copulos, a founding member of the Set America Free Coalition, presented these figures yesterday at a Senate Foreign Relations Committee hearing on "The Hidden Cost of Oil." In his testimony he released newly updated figures of his 2003 study "America's Achilles Heel: The Hidden Costs of Imported Oil," a comprehensive analysis of the external costs of imported oil. The study computed the externalities of imported oil and divided them into three basic categories: Direct and Indirect economic costs, Oil Supply Disruption Impacts and Military Expenditures in a non-war year. 

Adding up the above, the hidden cost of oil imports skyrocketed to $779.5 billion in 2005. That would be equivalent to adding $4.10 to the price of a gallon of gasoline if amortized over the total volume of imports. For Persian Gulf imports, because of the enormous military costs associated with the region, the "hidden cost" was equal to adding $7.41 cents to the price of a gallon of gasoline. When the nominal cost is combined with this figure it yields a "true" cost of $9.53 per gallon.

This year, Copulos said, will present an even higher cost. "Because the price of crude oil is expected to remain in the $60 range this year, expenditures for imports are expected to be at least $320 billion. That amounts to an increase of $70 billion in spending for foreign oil in just one year. That increase would raise the total import premium or "hidden cost" to $825.1 billion, or almost twice the President's $419.3 billion defense budget request for fiscal year 2006. If all costs are amortized over the total volume of imports, that would be equivalent to adding $5.04 to the price of a gallon of gasoline. For Persian Gulf imports, the premium would be $8.35. This would bring the "real" price of a gallon of gasoline refined from Persian Gulf oil to $10.86. At these prices the "real" cost of filling up a family sedan is $217.20, and filling up a large SUV $325.80."

"It is important to understand that even though external costs are not be reflected in the price at the pump, they are very real and we pay for many of them through our income tax," said Anne Korin, chair of the Set America Free Coalition. "Copulos' study is a disturbing reminder that the U.S. economy is bleeding and that hundreds of billions of dollars that could have stayed in the U.S., producing jobs and investment opportunities, are finding their way to the coffers of those who wish us harm."

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