With the price of crude oil reaching new highs almost daily, the time is fast approaching when only the United States, Canada, the European Union, Japan, Russia, and a handful of other nations, including small, wealthy oil-producers like Saudi Arabia, will be able to afford petroleum based products. If there were ever a formula for global political instability, the cheap oil endgame, as it is presently being played out, is surely a paradigm for disaster.
Although there are endless international conferences on how to cope with the problem of climate change, there are no such meetings to deal with the global problem of excess demand and dwindling supplies of crude oil. The likely profound geopolitical implications of this crisis have been met with stony silence by the U.S. government, the United Nations, the World Trade Organization, the World Bank, and the International Monetary Fund. Although the International Energy Agency monitors global energy demand and supply, it does not address geopolitical issues. For the most part, the global response to the geopolitics of peak oil can be summarized by one word, “denial.”
When Vice President Dick Cheney convened a secret meeting of energy industry executives and government officials in early 2001, there could be little doubt that the end of cheap oil was high on his agenda. Unfortunately, there is considerable evidence to suggest that the only option he and President Bush have ever seriously considered for dealing with the problem is military might. For over seven years the underlying rationale for our behavior in the Middle East has been based on the politics of nihilism. We will use whatever military force is necessary to maintain control over the flow of oil in the Middle East. We are currently involved in two oil wars, and appear to be on the brink of starting a third one with Iran. “Might makes right” is the guiding principle of America’s foreign policy with regard to oil.
The U.S. Congress has been singularly unimpressive in its inability to respond to the oil crisis. Among the inane proposals put forth by various Congressional leaders are temporary elimination of the federal excise tax on gasoline, intervention in the oil futures market, curtailing the flow of oil into the Strategic Petroleum Reserve, and threatening to stop the shipment of arms to Saudi Arabia. The effects of such actions would be marginal at best and could actually exacerbate the problem.
Senators Clinton, Obama, and McCain appear to be clueless as to the geopolitical consequences of the cheap oil endgame. They have never even acknowledged that such a problem might exist.
If the U.S. government wants to bring down the price of crude oil, there are only two options available, either decrease the demand for oil or increase its supply as well as the supply of other sources of energy. The latter alternative is problematic at best and will require long lead times to implement. But the Congress could have a dramatic influence on demand by slapping an additional one or two dollar per gallon excise tax on all motor fuel consumed by cars, trucks, busses, and SUVs. A one dollar per gallon tax could generate as much as $175 billion in revenue annually which could be used to beef up AMTRAK and improve mass transportation nationwide. Such a tax would yield a double bang for the buck. First, there would be an income effect reducing the amount of disposable income available to purchase gasoline. Second, there would be a substitution effect as a result of making alternative forms of transportation more attractive. Together both effects should lead to reduced gasoline consumption. A similar excise tax could also be imposed on aviation jet fuel.
One thing is for sure, the problem of peak oil is not going to go away any time soon, no matter how much we pretend otherwise. Markets alone will not solve the problem. The risk of global instability, violence, and possibly even World War III is enormous. Oil-consuming countries and oil-producing countries need to begin a serious dialogue now. The future of the planet may depend on it.
Rebél
Thomas H. Naylor
June 1, 2008