There's worse. Venezuela, one of America's top crude oil suppliers, has always been a reliable business partner, even honoring its supply contracts when the Arab members of OPEC instituted their boycott. Now, however, that country is run by the rabidly anti-American, pro-Castro, Hugo Chávez. He has raised taxes, sued for massive back taxes (shades of Putin's assault on Yukos), forced the major international oil companies to give state-owned PDVSA majority ownership of their oil concessions, and forged an anti-Yankee alliance with other Latin American oil producers such as Bolivia's Evo Morales.
All of this is bad news for countries such as the United States and the United Kingdom where major companies--BP, Exxon, and others--operate within the constraints of shareholder-imposed requirements to maximize profits. They are private-sector players in a game increasingly dominated by state-run entities pursuing geopolitical objectives that have nothing to do with mere profit maximization.
Putin keeps prices to favored allies below market levels; Chavez makes cheap oil available to Cuba; Middle Eastern countries, with the possible exception of Kuwait, refuse to allow Western oil companies to invest capital and expertise to develop new reserves although the host countries would benefit from such development; China pumps $1.2 billion into Sinopec, a listed company, to cover its losses. These are the acts of power-maximizers, not profit-maximizers.
These geopolitical players have raised the price of the premiums that policymakers in Western oil- and gas-consuming countries should be willing to pay for energy security. Since the risk of supply interruptions and price gouging has increased,
so must the willingness of consuming countries to pay for insurance against those higher risks.
That probably means reflecting this new risk when calculating the viability of nuclear power and other non-hydrocarbon energy sources. It means, too, being willing to finance on generous terms the construction of the proposed oil pipeline to bring Caspian oil to market.
And it means, for America, both adopting a carbon tax and taking a tougher line with Mexico. The Mexican government, rich in oil and natural gas resources, won't allow American firms to help develop those resources. So its economy stalls, and job-hungry Mexicans stream across the border to find work in the United States. It might be time for President Bush to explain to his Mexican counterpart that immigration policy will henceforth only be as open as Mexico's oil investment policy.
None of these steps, or any being proposed by Andris Pielbalgs, the E.U. energy commissioner, will soon reduce the risk created by dependence on suppliers who are more than mere profit-maximizing sellers. Too bad Western Europe's gas-consuming nations didn't heed Ronald Reagan when the actor-cowboy tried to persuade them not to build gas pipelines to Russia.
Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.
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