The Department of Energy study on energy security, released in March 1987, focused renewed attention on the danger of rising oil imports.
As a result of last year's oil price collapse, declines in domestic oil production coupled with increases in U.S. demand have boosted imports by one million barrels per day (mbd). The Department of Energy projects continued increases in oil imports: from 5.2 mbd, about one-third of U.S. consumption, in 1986, to 9 mbd, about one-half of projected U.S. consumption, in l995. Pressure is building for some kind of action.
What's wrong with importing oil? In part, the concern is that U.S. dependence on this strategic resource jeopardizes national security. But the underlying fear is that terrorism, sabotage, or the spread of the Iran-Iraq conflict in the Persian Gulf could lead to interruptions in oil supplies. This overlooks an important fact: Oil is a fungible commodity. Thus, any major reduction in supply would cause a leap in price to oil consumers everywhere. This would hold true in the United States even if imports were reduced to zero.
Importing oil does not present a special problem, provided the United States can protect itself from large and unpredictable price swings controlled by outside forces. To understand Washington's concern, however, and to devise appropriate policies, it helps to look at the events leading up to the current situation.
Lessons of the past decade
Three events, closely connected, dominated 1986:
·As the result of Saudi changes in oil production, the price of oil collapsed from nearly $30 a barrel to less than $10 a barrel, then rose to around $18 and stayed there.
·Sheikh Ahmed Zaki Yamani, Saudi Arabia's oil minister for 25 years and the man whose pronouncements had become the symbol of Arab oil power, was fired.
·Saudi Arabia's previously unquestioned supremacy within OPEC was challenged by Iran's radical Islamic government, which countered Riyadh's oil output and pricing decisions with political and military threats.
The reasons for these upheavals go back to 1979, when oil prices began to shoot up after a slight decline during 1974-1978. The 1978 oil price of $12 had been close to optimal for Saudi Arabia, producing a maximum stream of long-term profits. But the fall of the Shah of Iran in late 1978 led to a sudden decline in Iranian oil production. This created a buying panic among oil-consuming countries concerned about future supply, which quickly pushed the price to $36 and higher.
Much of the concern was undoubtedly fostered by pronouncements from Washington about an impending oil crisis. Beginning with his famous energy statement of March 1977, President Jimmy Carter referred to a coming oil shortage as the "moral equivalent of war." Backed by a CIA report - later discredited - and some equally dubious academic studies, Carter concluded that the demand for oil would exceed the supply by
...
Read Full Article
|
