Dependent on Foreign Oil? You Bet!

From Nixon to now, every sitting President has promised to make sure that we wouldn’t have a future energy problem … like we do now.

Richard Nixon, 1974: "We will lay the foundation for our future capacity to meet America’s energy needs from America’s own resources."

Gerald Ford, 1975: "I am proposing a program, which will begin to restore our country’s surplus capacity in total energy. In this way, we will be able to assure ourselves reliable and adequate energy and help foster a new world energy stability for other major consuming nations."

Jimmy Carter, 1980: "The single biggest factor in the inflation rate last year was from one cause: the skyrocketing prices of OPEC oil. We must take whatever actions are necessary to reduce our dependence on foreign oil – and at the same time reduce inflation."

Ronald Reagan, 1982: "We will ensure that our people and our economy are never again held hostage by the whim of any country or [oil] cartel."

George H. W. Bush, 1990: "And third, the Congress should, this month, enact measures to increase domestic energy production and energy conservation in order to reduce dependence on foreign oil."

George W. Bush, 2006: "And here we have a serious problem. America is addicted to oil."

It’s truly misleading when politicians talk about "America’s addiction to oil," because that’s like saying the human body is addicted to blood: You can’t call it an addiction if it’s essential to the system’s normal functioning. What Americans are addicted to, or at least used to be addicted to, is winning economically – and in the current age of oil, winning requires energy. So we can manufacture, ship, do research, run our businesses, and so we can both go to work to earn money and go shopping to spend it. That’s not an addiction, that’s our economic society.

A more accurate statement is that we have somewhat wasteful energy habits. No, we’re not as wasteful as we were in the sixties and seventies; as I’ve pointed out here before, America’s GDP has doubled since 1975 for every barrel of oil we use. And yet that statement was also true back around 1990; obviously, we have been backsliding a bit over the last 18 years.

What amazes me is how no one ever wants to discuss how to cut back on our energy use without affecting our lifestyle. Instead, the conversation is always the same: Drill more, drill now, drill here – and by the way, let’s never be dependent on foreign oil again.

Dream on.

Exactly What Do We Mean by "Foreign"?

First, what do we really mean when we say that we want to stop our dependence on foreign oil? Does anyone really care that we get millions of barrels of oil a day from Canada? After all, that qualifies as foreign oil; and just last week ConocoPhillips announced a $7 billion pipeline project to bring even more Canadian oil to U.S. refineries as far south as the Gulf Coast. Alternatively, does anyone really care that we receive oil from Mexico? Probably not.

Basically, when there is some public outcry that we should quit importing foreign oil, that’s really code for "We should quit importing Middle Eastern oil. And just for fun, let’s stop importing oil from Venezuela too."

I don’t think that can happen in the foreseeable future.

Lately we’ve heard plenty of pundits screaming that we should be drilling as many likely locations for new oil supplies as we can in the Gulf of Mexico. However, locating those oil hot spots requires a specific type of oil-drilling ship. As of this week, not only are all of those oil ships spoken for, but if you ordered a brand new one today you might be able to take delivery of it in 2012 – 13. They’ve all been presold until then. So, should you stumble upon a huge new oil field 30,000 feet under the Gulf, realistically it might be somewhere around 2016-17 before your local refinery could turn its contents into gasoline.

Can We Still Use Foreign Words?

Speaking of gasoline, when the cry goes out to stop importing oil, does that also mean we quit importing refined gasoline and diesel (from "our coded friends")? According to the Energy Information Administration, Saudi Arabia has been shipping us an average of 1,604,000 barrels of petroleum products per day in 2008, up 150,000 barrels a day from last year. Meanwhile, other "cartel" members from Venezuela to Algeria, Iraq to Kuwait have been responsible for supplying another 2,623,000 barrels of petroleum products per day.

I’d hate to think what the retail price of gasoline, diesel and aviation fuel might have hit this summer without those 4.22 million barrels of additional fuel each and every day. And yet, if we are going to stick to the position that we are going to end this mindless addiction to economic success (i.e., importing Middle Eastern oil), our national honor should dictate that we refuse their gasoline and diesel too.

Let’s Irritate the Landlords

On the flip side, how dare these Middle Eastern countries flaunt their continuing oil wealth? How dare they purchase American goods – such as the recent $8 billion order placed for Boeing jets by the UAE’s Etihad Airlines and another $4 billion worth of jets ordered by Fly Dubai? Many of these "unstable" regimes prove just how unreliable they are by ordering their military goods and aircraft from U.S. suppliers. Now GE has entered into another $8 billion joint venture with Abu Dhabi. Don’t they know we want to stop doing business there?

Now we are faced with the ultimate fiscal challenge. These same unstable and so-called terrorist regimes, which have become the targets of the "let’s show them who’s boss" crowd, have had the audacity to become some of the largest purchasers of our US Treasury notes.

That’s right, the holdings of our national debt by proxies for Middle Eastern nations have been increased by 44 percent in just the first four months of this year. In fact, it is anticipated that by the end of July, these countries will hold more of our twin national deficits than Japan, the current major lienholder on America, which owns $592.2 billion. Unlike China, best known as our cheap manufacturer of choice, which holds only $502 billion of our debt and has cut back on its overall holdings by 3.6 percent in the past year, these oil-rich nations have managed to help stabilize our economy by purchasing so much debt that we can continue to keep interest rates low. Not to mention the fact that they have contributed billions to saving some of our best-known national lending institutions.

Nothing But the Truth

No politician, running or elected, is going to tell you the truth about this, so it might as well be me. We couldn’t get off of Middle Eastern oil and petroleum products today if we wanted to, for all the reasons I just discussed.

If we’d successfully given the Middle East the air, we wouldn’t have been complaining about the price of oil at $128 or $4 a gallon gas – we would have had to deal with $200 oil and gas at $6 – $7 a gallon. It would have been extremely difficult to sell off our national debt, so Washington would have been forced to raise interest rates substantially to entice other foreign buyers to pick up the fiscal slack for us. And right, wrong or indifferent, from military goods to Boeing airliners to wood and many other items, the one bright spot in our economy – exports of American goods – would likely fall into negative territory.

Moreover, let’s say the Magical happens and six months from today we never need another drop of oil from that region. Do you believe that we would therefore willingly relinquish our military responsibility for protecting the world’s oil trading lanes? You think maybe the Chinese navy would take over that duty? I could be wrong, but I’d bet that’s really not in the cards for America.

Take Oil out of Current Politics

Now, we can all get together and fix this currently broken energy system – but it is not going to happen overnight. Detroit is already making moves; Ford has announced it will retool some factories to build its popular and fuel-efficient European models. Chrysler’s ENVI program promises to have electric or hybrid models within four to five years. GM cut back truck production by another 150,000 vehicles and continues to maintain that its Chevrolet Volt, estimated at 100 mpg plus, will make it to market by 2010.

Rex Tillerson, CEO of Exxon, told the New York Times last weekend that we need an energy policy that covers 15 to 20 years, not the two-year program that fits national election cycles. I suspect he is right: We had that once in this country and it put us on a prosperous path for almost 30 years. Moreover, it was intelligently done; looking back on the mid-eighties or nineties, who among us suffered or were constricted in our movements? Nobody? It’s time to do that again.

Or we can just keep yelling for more oil drilling now or blaming some oil-producing nations for our discomfort. Yes, it is more diverting to be frustrated, but actually doing something smart to stop that frustration is probably more productive.

© 2008 Ed Wallace

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Society. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day, contributes articles to BusinessWeek Onlineand hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. E-mail: wheels570@sbcglobal.net