Creeping toward oil as a social good

Like two drivers after a fender bender, politicians are finger-pointing over eye-popping gas prices. They try to find fault first (solutions later). The president has joined this chorus by questioning oil profits. What is the real message in these cries for scalps?

Government must do more.

The US should subsidize more bio-fuel, some say. Or demand higher fuel efficiency in cars. Or give more incentives to oil refiners and drillers. Or release oil from US reserves. Or put pressure on foreign oil exporters.

In January, oil man George Bush called for an end to America's "addiction to oil." Now he asks if oil companies are price gouging.

The list of answers to higher priced energy, viable or not, is endless. What the US really needs first, though, is a consensus on just how much more government intervention is needed in the private business of oil. Yes, Congress passed another energy bill last year. But tell that to someone who just paid more than $3 a gallon.

A creeping federal role in oil has been taking place for decades, primarily for two reasons: One, foreign governments control more than three-quarters of oil reserves through national oil companies. And two, oil prices rise steeply when a crisis hits one of these often-unstable governments, or one of them uses energy as a weapon.

Look at recent months: Oil prices rose when terrorists tried to bomb Saudi Arabia's oil infrastructure. Militants in Nigeria shut down a fifth of that nation's pipelines. Iran threatens an oil export cutoff. Iraq's oil industry struggles with attacks. Venezuela plays politics with oil exports. Russia restricts exports of natural gas. China's government-controlled oil importers, meanwhile, are roaming the earth to lock up new oil supplies, as Japan did before it.

These nonfree market forces can easily kick up prices in a laissez-faire oil economy. Last year, Americans paid 17 percent more for energy than in 2004, making energy the largest driver of inflation. Another oil shock like that in 1973 could cost $8 trillion, or almost two-thirds of GDP. Such a potentiality pushes even free-market conservatives to ask for a larger federal role in oil, simply for national survival.

"No one who is honestly assessing the decline of American leverage around the world due to our energy dependence can fail to see that energy is the albatross of US national security," Sen. Richard Lugar (R) of Indiana said last month. He's calling for oil-importing nations to form an alliance, like NATO, that would rescue one another in an oil crisis and bargain with exporters. He also wants the US to work against another OPEC-engineered collapse of oil prices, like those in 1985 and 1998, which discourages investment in alternatives to crude oil. He asks for a price floor for oil ($35 a barrel). Intriguing ideas.

Each year, Washington's hand in oil markets gets larger. Last year, for instance, Congress blocked a Chinese company from buying the American oil firm Unocal. Such responses are often knee-jerk, partisan, or incomplete.

Now, with an election looming and higher gas prices, the US is in a perfect storm of playing politics with energy. It's time to end blame games and decide whether oil is a social good needing evermore protection.

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