OPINION/COMMENTARY

Pumping the Bizarre

The tenor of the energy debate now reaching a crescendo on Capitol Hill is increasingly bizarre. The periodic panic over “foreign-oil dependence” is back as is the unshakable faith in the magical power of taxpayer subsidies to deliver a fuel that will replace gasoline in transportation markets without bankrupting the economy. Those ideas have been aided and abetted by the ostensible party of free markets — the Republican party — whose leaders argue not whether the invisible hand ought to be banished but only the manner in which the market ought to be rigged in its absence. The hostility directed at “foreign” oil is ridiculous. The amount of oil we import has no bearing on the impact of world oil-market shocks on our economy. Even if the United States imported no oil at all (and we did not restrict trade), supply disruptions abroad would have a similar effect on our economy as if all our oil came from overseas. That’s because oil is traded in global markets: Anything that affects supply or demand anywhere affects prices everywhere. Great Britain discovered this in 1979. The North Sea crude the U.K. relied upon for all its oil consumption became just as costly as similar grades of Iranian crude when the Shah fell in 1979, an event that increased prices in energy independent and energy-dependent nations alike. Not only would energy independence not help us, removing ourselves from international energy markets in a quest for independence would make us more vulnerable to supply disruptions for two reasons. First, it’s easier for terrorists to disrupt energy production if the sources of supply are geographically concentrated rather than dispersed. Second, if a domestic disruption were to occur and a trading infrastructure were not in place, we would not be able to avail ourselves easily of supplies elsewhere. If reducing foreign-oil imports won’t protect us from supply disruptions overseas, should we reconsider our reliance on oil altogether?...

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