The Magazine

The 'Dependence on Foreign Oil' Canard

The worst justification yet for Obama's energy plan.

Jun 22, 2009, Vol. 14, No. 38 • By JEFF BERGNER
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Oil-exporting nations, moreover, are every bit as dependent for their stability on oil revenues as is the United States upon imported supplies. Their governments are unlikely to survive if oil revenues are suspended even temporarily. We have seen a similar mutual dependence of supply and demand when it comes to foreign debt. Fears that China might "call in" its holdings of U.S. debt are wildly exaggerated, given China's own national interests.

It is always possible that foreign supplies of oil could be jeopardized by something other than government-mandated production cuts. In Nigeria, for instance, separatist attacks have interfered with oil pipelines and so affected world oil prices, if only marginally and temporarily. There is no denying the impact of such disruptions. But the case of Iraq since 2003 is instructive. During Saddam Hussein's final months in power, Iraq produced more than 2 million barrels of crude oil per day. After the U.S. invasion, production declined precipitously; then it gradually, though sporadically, climbed back to pre-invasion levels. This fluctuation in supply far exceeded the problems Nigeria has experienced, yet there was no significant correlation between Iraqi production and the ups and downs of world oil prices over the past six years. Indeed, the rapid rise in world oil prices in 2008 coincided with Iraq's post-surge return as a more or less normal supplier of oil.

There is no such thing as a commodity market, or any other kind of market, where prices remain completely unchanged over time. It is in the nature of markets that prices fluctuate; it is, in a way, the point of a market to send price signals. Even if the United States produced all its own energy, energy prices would fluctuate with supply and demand. We see this with the prices of agricultural commodities, where we are not only self-sufficient, but a large net exporter. A perfectly stable world energy market is neither achievable nor necessary. By and large, the world oil market has functioned in a reasonably reliable manner over three decades that have included numerous geopolitical shocks.

Now, it is true that some of the world's largest oil reserves are located in places where one might wish they were not--Russia, Venezuela, and several Middle Eastern nations. These geological accidents have permitted an outsized influence for nations which might otherwise be of less global consequence. In the long run, this is likely to be more of a problem for these nations themselves than for their customers; oil revenues have covered over the failure of these nations to develop their human capital in a more productive and sustainable manner. As for America's interests, would they be different if we were energy independent? Would our national security policy options be better?

Here is a thought experiment: Suppose the United States imported no oil from the Middle East. None. Further suppose that even if nations like Japan, China, and India continued to import Middle East oil, American energy independence so reduced world oil demand as to mitigate whatever leverage Middle East oil-exporting nations are thought to have. How would American interests, capabilities, and options differ from what they are today?

We would continue to support our democratic ally Israel, and for that reason alone the United States would continue to care deeply about the Middle East. We would also continue to seek a positive relationship with Arab countries. American policymakers would not choose to write off relationships with 400 million people in a key region of the world, even if we imported none of its oil. For these reasons, too, one supposes that U.S. policymakers would continue to seek a workable resolution to the struggle between Israel and the Palestinian people. It is difficult to see what additional leverage the United States would possess if we no longer had in place our major trading relationship with Middle East oil exporting nations.

Similarly, the United States would retain a deep and continuing interest in preventing Iran from obtaining nuclear weapons. This would be true for all the reasons it is true today: because of the existential threat to Israel from a nuclear-armed Iran, as well as the incentive an Iranian nuke would create for nuclear weapons programs in Sunni-dominated nations like Egypt and Saudi Arabia. This would be especially true if these nations feared that an energy-independent America might lose interest in the region. Nuclear proliferation in the Middle East would be bad for the United States under any circumstances.