Published October 08, 2013
Across the Middle East, churches are burned to the ground, priests are murdered, and Christians are forced to flee their ancient communities.
At the same time, the Iranian regime is working to achieve a nuclear weapons capability and committed to exporting murderous anti-American terrorism.
And most recently, the use of chemical weapons by Bashar al-Assad’s regime in Syria has the region on the cusp of coming unglued.
Yet dependence on the global oil market distorted by a cartel of producers in the Middle East limits our nation’s ability to respond to these grave security challenges.
Our dependence on the global oil market is a function of oil’s domination of the transportation sector: 93 percent of the energy consumed by America’s cars, trucks, motorcycles, buses, planes, trains, and boats is generated from petroleum.
Overall, the transportation sector accounts for 71 percent of U.S. petroleum demand.
Advances in unconventional oil and natural gas production technology have significantly increased domestic supplies. In fact, a new forecast from the U.S. Energy Information Administration finds that this year the United States will overtake Russia as the top producer globally of petroleum and natural gas.
Unsurprisingly, this domestic energy boom is creating jobs and reducing our nation’s trade deficit. In 2011, the oil and natural gas sector contributed 9.8 million full and part-time jobs to the economy. Increased production has helped stabilize global oil supplies and created an opportune moment to confront Iran’s nuclear weapons program through strengthened sanctions.
For all of these reasons, expanded domestic production of oil and natural gas should be applauded and encouraged.
Yet this current production revolution has unfolded in spite of President Obama, as the president and his administration have pursued anti-production policies that have failed to leverage the full potential of oil and gas exploration on federal lands and in federal waters.
Through their own hard work and persistence, rather than through a pro-production environment from Washington regulators, private oil and gas companies have achieved these great gains on behalf of the American people.
It is, however, not enough to replace imported oil with domestic product. Despite growing domestic oil production, the average U.S. household spent in 2012 a record $2,912 on gasoline; in 2002, before the expansion in U.S. production, the average was just $1,235.
In fact, whether the oil consumed by Americans is produced in North Dakota or Saudi Arabia, the exposure of the United States to manipulated and volatile oil prices will remain.
This vulnerability results from the pricing of oil as a fungible commodity determined on a global market impacted by a range of factors beyond our control, including OPEC’s manipulation of supply.
When OPEC cuts production and increases global oil prices, its members capture a premium from American consumers. When OPEC increases production and manipulates the price downward, the price gets so low as to make the development of alternatives, and some sources of domestic oil supply, uneconomical.
Through such anti-competitive practices, OPEC works to preserve the effective monopoly oil enjoys as a transportation fuel and, in so doing, harms the economic growth and security of the United States.
And the problem could be getting even worse.
Recent reports state that leaders from Saudi Arabia approached Russia with a proposal to collude on oil prices in exchange for cooperation – or lack of opposition – on the Syria crisis.
Were such a devil’s pact ever to be executed, it would effectively bring Russia and its huge oil stockpiles – the eight largest in the world – into the OPEC fold.
Such intervention in the free market exacerbates oil price volatility and inflicts real costs: every U.S. economic recession for the past four decades has occurred along with a spike in oil prices.
The solution to the problem has seemingly contradictory components. The United States should both aggressively expand domestic oil production, and consume less oil while diversifying the fuel base.
This approach will help the U.S. reap the economic benefits of oil while minimizing the exposure of the economy to price spikes inflicted by OPEC, geopolitical uncertainty, or other factors.
Accordingly, more lands and offshore areas should be opened to drilling and unnecessary restrictions on energy exploration should be removed.
At the same time, we should respond to OPEC’s manipulation of the global oil market through policies that reduce our vulnerability by displacing oil from the transportation sector.
These policies must seek to restore competition among transportation fuels, rather than accepting oil’s monopoly on transportation fuels.
One specific initiative would be to dedicate a portion of revenues generated by opening new federal lands and waters to drilling for basic research and development of new vehicle technologies. This mechanism would address the problem without raising taxes and does not involve the government preferring individual, well-connected corporations.
Ideally, the free market would be allowed to operate unfettered to produce competing fuels that would challenge the oil monopoly in the transportation sector. Unfortunately, OPEC’s explicit attempts at price fixing make such an outcome impossible, unless action is taken.
By delinking our transportation sector, and therefore our economy, from an un-free global oil market, we can accelerate job growth and liberate American foreign policy from the constraints created by the need to placate Middle Eastern producers.
The combination of increased domestic oil production and reduced consumption through energy research and development represents a vital opportunity to strengthen prosperity and energy security.