comment27

Issue #44

Last Update March 2, 2006

Commentary Oil prices are rising again. Besides posing a reelection danger (can you say "Jimmy Carter"?) for President Bush, the most oil-identified president in history, oil price rises pose a danger to the US economy. The oil-friendly, let's drill anywhere administration seems clueless as to the actions that need to be taken, but we have been through this drill before.

The last "oil shock" was engineered by the OPEC nations for geopolitical reasons. The current one seems engineered by pure greed, and a fear by oil-producing nations that their production is peaking and that they had better cash out at as high a price as possible. Other than proposing that we recover relatively tiny amounts of oil by despoiling our nature preserves and shorelines, the president has been silent on the subject. It would be helpful to the American people, and cautionary to OPEC, if someone reminded them what happened last time.

A three-pronged effort broke the back of the OPEC cartel:

A national petroleum reserve was created and filled, to be used as a counterweight to short-term withholding of oil supplies from the market.
Market pressures generated by high oil prices shifted energy uses to alternative sources: natural gas, coal and coal gasification, alcohol supplementation of gasoline for automotive uses, hydroelectric power, and, to a lesser extent, renewable energy resources such as solar power for home heating and electricity generation and wind farms for electrical power.
Reduction in energy use through increased efficiency decreased the need for petroleum: better insulation for buildings, which reduced oil usage for heating, and government-mandated improvements in fuel efficiency for automobiles.

Of the three, conservation had the biggest impact. Energy (and therefore petroleum) use fell to levels of decades earlier; and demand for petroleum dropped so much that the oil producing nations, especially the Arab countries and the Soviet Union, went into an economic tailspin that lasted fifteen years or more and may have contributed to the breakup of the USSR.

To some extent the oil price problem is our own fault. The SUV craze, the peculations of our own energy industry (including the rigging of California oil prices during the Enron years), and the lack of any serious conservation or alternative energy policy in either Congress or the executive branch have convinced OPEC that we will pay any price for oil, without fighting back.

We know what to do. We have done it before. We merely require the political will.