The 40-year energy myth
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This week marks the 40th anniversary of the 1973 oil embargo, when Middle Eastern producers, the members of OPEC, temporarily banned imports to the US to protest its support of Israel in the 1973 Yom Kippur war. “Crude-oil prices spiked, fuel lines snaked behind gas stations and years of stagflation followed”, writes the WSJ. Every president since has made a push to reduce the country’s dependence on foreign oil — despite the fact that US consumers cannot divorce themselves from global oil prices.
Eight presidents and several Middle Eastern armed conflicts later, the US is scheduled to become energy independent by 2020. As of this year, the US is the largest producer of petroleum and natural gas in the world, squarely outpacing Russia for the first time, largely thanks to increased production of shale gas through controversial fracking practices.
What does that mean for Americans? Not much, in the individual sense. As Quoctrung Bui explains, retail energy costs haven’t gone down much, even as the wholesale price of natural gas has plummeted, because much of your electricity bill comes from building and maintaining infrastructure.
Energy independence has much more to do with macroeconomics and foreign policy than the price Americans pay for energy. The conventional wisdom (slash political talking point on both sides) is that cutting foreign oil dependence reduces economic vulnerability, with the example being the effects of the 1973 oil shock.
But Gal Luft and Anne Korin argue in this month’s Foreign Affairs that high oil prices, which first surfaced around the time of the 1973 embargo, have little to do with where the oil is coming from. America, they write, has never gotten more than 15% of its oil from the Middle East and half of our imports come from the Western Hemisphere. The 1973 oil shock was caused by OPEC artificially reducing the world’s oil supply for their own profit, which is what sent the global price skyrocketing (and has kept it high). Because so much of the global supply is produced but other nations, the US can’t control the price even if it is “energy independent”:
If investor-owned oil companies such as Exxon, BP, Shell, and Chevron were sitting on top of three-quarters of the world’s conventional oil reserves, they would be supplying something around three-quarters of the world’s oil. And if not, they’d be slapped with an antitrust lawsuit. Antitrust lawsuits, however, don’t work against sovereign governments…
Robert Bryce wrote about the myths behind “foreign oil dependence” back in 2008, noting that oil is a global commodity with a global price, and “anyone who argues that the United States will be more secure by going it alone on energy hasn’t done the homework”.
And that’s essentially the message from a September report by consulting firm Wood Mackenzie. It forecasts that even after becoming technically “energy independent”, North America as a whole will continue to both export and import oil “for the foreseeable future”. — Shane Ferro
On to today’s links:
Bad investment of the day, Fantex edition – Felix Salmon
Banking is becoming less ‘Rock Star’-ish – Dealbreaker
Steve Cohen’s SAC is near a $1 billion settlement with the DOJ – Reuters
Steve Cohen is not selling art to pay his bills – Shane Ferro