Monday, June 12, 2006

US oil overconsumption aids fundamentalists

Published Feb. 4, 2002 in abridged form at the Duke Chronicle

Prior to Sept. 11, economics seemed to be pitted against environmentalism on energy policy. National security concerns should now put these 2 ideologies on the same side.

Becoming independent of Middle Eastern oil has acquired a new urgency. In the last decade, the Pentagon spent $30-60 billion a year defending $10 billion worth of oil annually. We have lost scores of American servicemen. Our foreign policy has become to a large degree dictated by Saudi Arabia, a nation that uses the blanket of American security to allow oil money to fund bin Laden and his cabal, finance the Taliban and terrorist-training schools in Pakistan, and propagate fanaticism and hate through a worldwide network of Saudi-funded mosques from Indonesia to Europe to the US, while perpetuating gender apartheid, religious intolerance, and oppression at home. The Saudis have not fully cooperated in the 9/11 investigation or shutting down terrorist finances.

The US consumes 7.34 billion barrels of oil (bbl) a year, of which 4.26 bbl are imported. This is commonly thought to explain US military forces in the Middle East. However, the US imports 1.1 bbl from Middle Eastern countries, only 15% of our consumption.

The administration and its conservative allies have proposed an energy policy to wean the US from the Middle East by increasing supplies from the Arctic National Wildlife Refuge (ANWR), US offshore drilling, and the Caspian Sea region in Central Asia. This policy ignores inescapable realities. Out of 1,046 bbl proven oil reserves in the world, 685 bbl (65%) are in the Middle East. That the Middle East produces only 27% of the world’s oil gives it excess capacity. The current proven oil reserves in ANWR, offshore, and the Caspian are 3.2 bbl, 4.8 bbl, and 34 bbl, respectively. Optimistic estimates of additional possible reserves are estimated to be 12.8 bbl in ANWR and 235 bbl in the Caspian, all dwarfed by Iraq and Saudi Arabia alone, which are believed to have over 1,000 bbl additional possible reserves. Further, it costs $1.50 per barrel to extract oil in Saudi Arabia while it would cost over a trillion dollars & decades to develop ANWR, offshore resources, and the Caspian. Given the Middle East’s plentiful & cheap oil, excess capacity, and the prohibitive capital investments to develop other areas, the Middle East will maintain its primacy in world oil production and pricing: it is projected that the Middle East’s share of oil production will rise to 40% in 2020.

Then there is the tyranny of the map. Geography dictates that Caspian oil be pipelined through Russia, China, Iran, Afghanistan, or the Caucasus, all potential quagmires for the US in the future. As the countries in this region are mostly autocratic regimes with nascent Islamic fundamentalist movements, do we really want to breed conflict and terrorism a la the Middle East in the future? This is not an idle concern, given that oil companies have already fuelled the Chechen war, conflicts in the Caucasus, corruption in Kazakhstan, and given money to the Taliban to secure pipeline rights.

Supply-side efforts to eliminate American dependence on Middle Eastern oil are a mirage, even without considering the adverse environmental effects of drilling in Alaska and offshore. The principal thrust of our energy policy should be on reducing demand for oil. First, we should phase out subsidies for oil. Besides military defense of the Gulf, the government gives about $14 billion in direct tax breaks, subsidies for oil production and shipping, and foregone revenue in reduced sales taxes on petroleum products. The mean tax rate on oil companies in 1998 was 5.7%, while for all industries it was 20.1%! Further, the administration, in its economic stimulus bill, wants to give $1.8 billion back as a rebate for 15 years worth of taxes to just 5 energy companies (Texas Utilities, Texaco, CMS Energy, Enron, and Phillips Petroleum (the 1st 4 of which are based in Texas)). Society also bears $40-250 billion of environmental costs annually from oil. Phasing out these subsidies should be accompanied by shifting the costs of oil use from society as a whole to gas users, i.e., reducing income tax while increasing gas tax to reflect the true costs of gas usage.

The resources saved from oil subsidies should be used to promote energy efficiency and developing alternative energy resources. The fuel economy standards implemented by President Carter to combat oil shortages cut our oil imports from the Persian Gulf by 87% over 6 years. In 1986, those standards were rolled back by President Reagan. We should focus on concrete measures: closing the loopholes for SUVs exempting them from fuel economy standards, progressively raising fuel-efficiency standards, and requiring fuel-efficient replacement tires alone would save 1.2 bbl/year (more than we import now from the Middle East and more than 20 times what we could get from ANWR). We should redirect precious capital from oil pursuits into tax incentives for fuel-efficient cars and developing alternative energy sources (e.g., fuel cells, gas-electric hybrid vehicles, ethanol, solar energy). Further measures to encourage mass transit, railroads, conservation, and smart urban growth would pay dividends to consumers and society alike, by reducing fuel costs and environmental problems.

These times require that we think clearly. The traditional policies of nurturing autocratic regimes should be consigned to the dustbin of history. Countries with economies based on resource extraction, whether oil or diamonds, have almost always fallen prey to corrupt cabals. US policy to prop up the Shah of Iran ended in the Islamic Revolution; to counter that, we built up Saddam Hussein and came to depend on the Saudis. To defeat Saddam, we put troops in the Persian Gulf, which helped fuel Osama bin Laden. We have too long prostituted our foreign policy for cheap oil, giving birth to different Frankensteins. Let us not replicate this habit in the Caspian or Caucasus.

These times also require that we think outside of the box, by breaking the old mold of economics vs. environment. Our poverty of imagination has bound us in a rut of dependency. Every dollar that we send to the Persian Gulf because of our gaz-guzzling SUVs is a dollar that can go to the fundamentalists. We should have the means to think about reversing the governing dynamics of our interests: rather than live in fear of Arab embargoes, consider boycotting regimes that cultivate gender apartheid, religious persecution, and terrorism. Efficiency and alternative energy sources will serve our economic and environmental interests better than supply-side approaches, and will keep our foreign policy from being held hostage by dictators and fundamentalists.


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