Costlier Oil Bitter But Needed Medicine for America

Higher oil prices could be a blessing for the nation that would force us to use less petroleum bringing benefits here and around the globe.

Published: 30-Mar-2005

The price of internationally traded oil rose to an all-time high recently, exceeding $57 a barrel before dropping slightly.

The record price was bad news for the American consumer, for whom the price of gasoline has risen, with some brands in some places selling for more than $3 a gallon. It is bad news as well for the American economy, threatening a slowdown that could cost jobs, since high oil prices retard economic growth.

Paradoxically, however, the long-term interests of the United States would be best served by an oil price that rose to an even higher level and stayed there. This would lower the American, and worldwide, consumption of oil in general and of imported oil in particular.

That, in turn, would not only reduce the total amount of money that Americans spend on energy, it also would bring substantial political, economic and environmental benefits to the United States and other countries.

High oil prices would reduce overall consumption by promoting conservation: Americans would use less oil. For example, the new hybrid cars that run on a variety of fuels would become, because they use far less gasoline than standard automobiles, economically attractive. Americans (and others) would buy many more of them than they do now.

High oil prices would also encourage the use of substitutes for imported oil. The expensive-to-obtain oil contained in shale rock, which is abundant in the United States, and in tar sands, which are plentiful in Canada, would become economically competitive with - and could therefore replace - oil pumped in other parts of the world.

The ensuing reduction in both overall oil consumption and the use of imported oil would make the world far less dependent on the increasingly uncertain political stability of the part of the world with the lion's share of the planet's oil, the Middle East, and especially on the political stability of the country with the largest oil reserves, Saudi Arabia.

The consequent reduction in the flow of oil revenue to Saudi Arabia would make it more difficult for the people and government of that country to support the fundamentalist Islamic preachers, mosques and schools that have produced many of the world's anti-Western terrorists, including the majority of the hijackers who attacked New York and Washington on Sept. 11, 2001.

Reducing oil consumption and therefore oil imports would also promote democracy around the world by weakening governments that use their oil revenues to secure their own power and resist demands for political freedom. The regimes of Vladimir Putin in Russia and the ruling mullahs in Iran fit this description. Many other countries are reluctant to pressure or even criticize them because they import energy from Russia and Iran.

Importing less oil also would strengthen the United States economically. It would reduce the nation's large trade deficit, which the American government must attract $2 billion each day in investment or loans to close. The resulting debt increases the resources that must be used to pay interest on it and so cannot be used for more productive purposes.

The deficit could cause even greater damage if other countries balked at providing the needed loans, which would necessitate a sharp and economically harmful rise in American interest rates.

Finally, the decline in overall oil consumption that sustained high prices would trigger would have a salutary effect on the world's environment. It would reduce the emission of the "greenhouse gases" that cause global warming. The American refusal to sign the Kyoto Protocol, the global treaty designed to limit the production of those gases, has created ill will toward the United States around the world. A significant decline in the American use of oil would help dissipate that.

The best way to reduce the American dependence on foreign oil and the country's overall oil consumption would be to supplement market forces by raising the price of gasoline gradually, perhaps by increasing the federal gasoline tax by 25 cents each year for eight consecutive years. (It also would be useful to raise the number of miles per gallon that automobiles sold in the United States are required to achieve.) Such a policy is, unfortunately, highly unlikely.

Congressional resistance to tax increases in general, including the gasoline tax, is strong, and reflects the preferences of American voters. Without such measures, however, American consumers will be at the mercy of an increasingly volatile global oil market, and all of the adverse consequences of the world's dependence on imported oil - the support this provides to terrorists and dictators, the threat it poses to the American economy and the damage it does to the world's environment - will continue.

Michael Mandelbaum is professor of American foreign policy at The Johns Hopkins School of Advanced International Studies and the author of "The Ideas That Conquered the World"



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