US Treasury Reaps Windfall in Oil Crisis
IF Operation Desert Shield doesn't turn into a war, it could prove financially profitable for the United States government. ``We are ahead,'' says Thomas Stauffer, an economic consultant in Washington.
Such a reckoning takes account of today's high oil prices, the fact that the US is a major producer of crude oil and liquids from natural gas, and that Uncle Sam takes a cut of oil company revenues.
Here's how a rough calculation goes. The US is producing domestically 7.18 million barrels of crude per day plus 1.45 million barrels of natural gas liquids. Oil prices, at $37 per barrel, are up about $20 from early July. That means US oil producers are getting about $173 million a day extra in revenues, most of which will be pure profit. Since the marginal corporate tax rate is 34 percent, that means extra federal revenues of about $58.8 million a day, or $21 billion per year.
On top of this, Washington will get an extra $1.34 billion a year in oil royalties from production offshore, on federal onshore properties, and Indian lands, according to an Interior Department calculation.
Then there is the government-owned Elk Hills Natural Petroleum Reserve. The US gets practically all the extra revenue from an increase in the price of the crude produced at this California site. With production running about 56,700 barrels per day, that should provide another $414 million per year - again assuming prices stay up that long.
Altogether, extra oil revenues add up to about $22.7 billion.
In addition, natural gas prices will rise to some extent. Delivery contracts are usually looked at every three to six months. That means some gas producers may be boosting their prices about now. Eventually, Washington could take its share in some extra billions of tax revenues. But how many billions depends on just how much natural gas prices rise.
On the expense side of the ledger, the Budget summit agreement between President Bush and Congress anticipated outlays for Operation Desert Shield in fiscal 1991, which started Oct. 1, at $11.5 billion. That squares with the estimate of Defense Secretary Richard Cheney of about $1 billion per month in added costs. (Members of the armed forces are paid regardless of whether they are in the desert in Saudi Arabia or at their home base. So it is additional costs that must be considered.) Of this $11.5 billion, other countries are expected to contribute $5.8 billion. That leaves the out-of-pocket expenses at $5.7 billion.
At the Department of State, officials calculate that contributions to the Middle East situation from other nations will total about $20 billion. These include around $12 billion from Saudi Arabia, Kuwait, and the Emirates along the Gulf, $4 billion from Japan, and $2 billion from Germany. About half of the total will go to Turkey, Egypt, and other nations in the region that have been hit by the embargo against Iraq and Kuwait or the return home of workers in those countries. The other half, an official said, will come to the US in cash or kind - such as fuel for the US military aircraft and vehicles in Saudi Arabia. (For Egypt, by the way, the extra income from its exports of higher-priced, domestically-produced oil will about equal the lost income of its returned expatriate workers, according to Mr. Stauffer.)
That estimate of $10 billion in contributions is somewhat above the Office of Management and Budget number of $5.8 billion.
Whichever is right, the extra revenues of $21 billion from oil alone far exceed the outgo for Desert Shield. The US, with its hand out for contributions from Western Europe and elsewhere, hasn't been keen to point this out.
However, the US is putting at risk the blood of its sons and daughters in the armed forces, unlike Japan or Germany. Europe and Japan, moreover, get a larger share of their oil from the Middle East than does the US. And over past decades, the US has devoted a larger share of its national output to defense than most of its allies.
Should the jump in oil prices push the US economy, already running at a snail's pace, into recession, then federal revenues overall will decline. That loss could more than offset any more direct profit from the Iraq-Kuwait embargo.