All seven
presidents of the past 30 years, Democrat and Republican alike, have tried to
wean the U.S. off imported oil. All have failed.
In 1973, President Nixon pledged
to end oil imports by 1980 through Project Independence. The U.S. imported 40%
of its oil that year. In 1979, President Carter said imports wouldn't ever rise
again. They did. Today, with the U.S. importing 60% of its oil, President Bush
says hydrogen power will lead to energy independence.
Mr. Bush is almost certain to be
proved wrong, at least in the next couple of decades.
Despite an increasingly
energy-efficient economy, the U.S. remains hooked on foreign oil for two
reasons. The Organization of Petroleum Exporting Countries, especially Saudi
Arabia and its neighbors, is skillful in its management of oil prices to
maintain America's dependence. And the U.S. lacks the political will to do
what's necessary to weaken the cartel or reduce the American appetite for
oil.
With American troops poised for
war in the Persian Gulf, which dominates oil exports and has two-thirds of
global reserves, the consequences of oil dependency are starker than ever. The
U.S. relies on some of the world's most volatile countries to supply a component
that is critical to American society. Political turmoil in the region, in 1973
and 1979, produced oil-price jumps that ravaged the U.S. economy. In 1991, the
U.S. sent 500,000 troops to the region to expel Saddam Hussein from Kuwait to
ensure that he didn't grab an even-larger share of Gulf
oil.
The primary issue is price. OPEC
manages production to try to keep prices higher than they would be if set in a
free market, but low enough to make alternative fuels and technologies
uncompetitive.
"If we force Western countries
to invest heavily in finding alternative sources of energy, they will," Saudi
Arabia's influential oil minister, Sheik Ahmed Zaki Yamani, said in a 1981
speech at a Saudi petroleum university. "This will take them no more than seven
to 10 years and will result in their reduced dependence on oil as a source of
energy to a point which will jeopardize Saudi Arabia's
interests."
The U.S. could make rules to
force Americans to use less oil or achieve the same end by raising the price
through tariffs or taxes. Of the 19.5 million barrels of oil Americans consume
every day, about 11.5 million are imported. Roughly half the oil consumed in the
U.S. goes for cars and trucks.
Some economists are reviving old
proposals to boost the gasoline tax. Others are crafting new ones. One of
President Bush's favorite economists, Harvard University's Martin Feldstein,
suggests that the government cap overall gasoline sales and distribute fuel
vouchers electronically. Owners of gas guzzlers would buy vouchers from owners
of fuel-efficient cars, creating an incentive to use less gasoline and develop
fuel-efficient technologies without pumping money into the government's
pockets.
But neither the White House nor
the Democratic opposition is interested. Cheap oil benefits the U.S. The lowest
gasoline prices in the industrialized world boost auto sales, tourism and
suburban construction. Lower diesel prices reduce trucking costs and help
businesses along the supply chain.
"If you let the price of oil go
artificially high, it will hurt our economy," says Commerce Secretary Don Evans,
a former Texas oil-patch executive.
Vulnerable to
Instability
At the same time, reliance on
imported oil makes the U.S. vulnerable to instability in Venezuela and the
Middle East, and leaves a key economic lever in the hands of a foreign cartel.
Every recession since 1973 has been preceded by a big run-up in oil prices. And
while only about 20% of U.S. oil imports comes directly from Persian Gulf
members of OPEC, the Gulf effectively sets prices because it produces the
lowest-priced oil and has 90% of the world's extra
capacity.
The only time in the past three
decades that U.S. oil imports have declined substantially was between 1979 and
1983, when they fell by 40%. One reason was the deepest recession since the
Great Depression, which cut demand for energy. Another was the
almost-simultaneous rise both in oil prices after the Iranian revolution of 1979
-- when fears rose again of a cut-off in oil -- and in the fuel efficiency of
American autos between 1979 and 1983, as the U.S. began enforcing new
fuel-efficiency standards. Many Americans dumped gas guzzlers for smaller cars.
President Reagan ended oil-price controls, setting off a boom in domestic
drilling and arresting, through the mid-1980s, the downward spiral in U.S. oil
output.
Prices hit $40 a barrel in 1979
-- $100 a barrel at today's prices, after accounting for inflation -- and were
expected to double during subsequent years. Saudi Arabia worried that high
prices would backfire. And to reduce U.S. imports, President Carter championed
an $88 billion plan to develop synthetic oil from abundant U.S. reserves of coal
and shale.
So Saudi Arabia started selling
oil at prices several dollars a barrel lower than the OPEC $34-a-barrel
standard. Then, in 1985, as the cartel was facing increasing competition from
Alaskan and North Sea oil fields, Saudi Arabia and Kuwait engineered a price
crash. After a meeting in which OPEC decided to go after market share rather
than prop up prices, Sheik Yamani, the Saudi oil minister, said to several
reporters: Let's see how the North Sea can produce oil when prices are at $5 a
barrel. At low prices, the Persian Gulf countries have an unbeatable edge. In
the mid-1980s, it cost them a couple of dollars a barrel to produce oil. It cost
about $15 to produce a barrel off the coast of Britain and Norway or in the
U.S.
The move was a warning to the
U.S.: Forget about energy independence. Besides being the world's largest
consumer and importer of oil, the U.S. is also one of the largest producers. The
price decline, to about $12 a barrel, was so devastating to the economies of
Texas, Louisiana and other oil-rich states that then-Vice President George H.W.
Bush toured the Persian Gulf in 1986, urging countries to rein in their output
and raise prices.
"Isn't that what you wanted? A
free price in oil," OPEC's president, Rilwanu Lukman of Nigeria, goaded Mr. Bush
when the two met in Kuwait. Mr. Bush eventually reached an understanding with
Saudi Arabia's King Fahd, to limit production and seek a 50% rise in oil prices
to a target price of $18 a barrel (or $30 in today's dollars). Over the years,
OPEC has adjusted its target range and now generally aims for between $22 and
$28 a barrel.
OPEC's strategy has largely
worked. Since the mid-1980s, the U.S. thirst for oil has increased. President
Carter's synthetic-fuel program couldn't compete with the new OPEC prices and
was ridiculed for its massive, money-losing projects.
The U.S. is far more
energy-efficient than it was in 1973, when Arab nations cut off oil exports to
the U.S. because of America's support for Israel during the October war. It
takes about half as many barrels of oil to produce each $1 of economic output
today as it did 30 years ago, according to Cambridge Energy Research Associates,
a consulting firm.
But most of the gains in fuel
efficiency came in the early 1980s when oil prices were high. Electric utilities
and other large customers switched to natural gas, which was seen as a cheaper
and cleaner alternative, and less vulnerable to disruption because it was
produced in the U.S. and Canada. In 1979, 13.5% of electricity was produced by
oil; that figure dropped to 4.1% in 1985 and about 3% today. Home heating went
through a similar transformation, from oil to natural gas.
When oil prices declined after
1985, the pace of energy efficiency slowed. The U.S. became somewhat less
dependent on oil mostly because of long-term changes in the structure of the
economy, not because of energy-saving technology. Nine energy-intensive
industries -- aluminum, agriculture, chemicals, forest products, glass, metal
casting, mining, steel and petroleum -- account for 80% of industrial energy
use. Many of those industries are in decline. Newer ascendant ones, such as
software and communications, don't use as much energy. Petroleum accounts for
40% of total U.S. energy consumption, down from 50% in
1973.
In the 1990s, gasoline prices
fell lower than they had been since the oil embargo of 1973, taking inflation
into account. OPEC was determined to keep prices relatively low to retain market
share and scare off rigs in other regions. The American government didn't
require further increases in automobile fuel efficiency. With the economy
surging, consumers flocked to minivans, SUVs and other fuel
hogs.
To lessen dependence on oil,
economists say, the U.S. would have to raise the price of gasoline
substantially. It would take an additional $1-per-gallon tax, on top of the
average current tax of 41 cents, to reduce gasoline consumption by about
one-fourth, according to Congressional Budget Office
estimates.
Europe and Japan have especially
high gas taxes -- $3.16 a gallon in Britain; $1.75 in Japan -- so drivers there
overwhelmingly choose smaller, fuel-efficient vehicles. "To reduce oil
consumption, the most obvious thing to do is to tax gasoline and make fuel
economy a desirable feature," says Loren Beard, a senior manager for energy
planning at DaimlerChrysler AG in Detroit.
Overall, Germany, France and
Japan need only half as much oil as the U.S. to produce the same amount of
economic growth. Given the higher gasoline prices in Europe and Japan, the
International Energy Agency in Paris expects their oil imports to grow more
slowly in coming decades than those of the U.S.
Political
Poison
But even small gasoline-tax
increases are political poison in the U.S. The first President Bush agreed to a
five-cent-a-gallon tax increase in 1990 despite his famous "no new taxes"
pledge. Partly because of that, he lost his re-election bid. President Clinton
pressed for a broad energy tax in 1993, but settled for a modest
4.3-cents-a-gallon levy. Officials in the current Bush administration say they
considered higher gas taxes when they put together their first energy plan in
2001, but quickly rejected them in any form.
A tax increase by itself
wouldn't solve the oil-import problem. Higher gas-pump prices would lessen
demand for oil, which could lead to a glut and lower wholesale oil prices. OPEC
could cut back on production, to boost prices, as it did when oil prices slumped
in 1998. If OPEC encouraged prices to sink, the U.S. and other consuming
countries would have to consider soaking up extra supply -- by greatly expanding
the reserves of oil they maintain for emergency use -- in order to prop up
prices and prevent OPEC from gaining an even-stronger hand in controlling
supply.
Boosting supplies of oil outside
the Persian Gulf would also help make the U.S. less dependent on OPEC. But the
Bush administration hasn't been able to persuade Congress to start drilling in
the Alaska National Wildlife Reserve, and environmental regulations have put
much of the Rockies, along with the Atlantic and Pacific coasts, off-limits for
new rigs. Oil companies are using technology to extend the lives in old fields,
but domestic supply continues its long swoon to about 5.8 million barrels a day,
one-third less than when President Nixon set his energy-independence goal in
1973.
Elsewhere, Russia, central Asia
and Africa are expected to broadly expand production over the coming decades.
Even when taken together, however, these oil regions don't have the reserves to
affect U.S. reliance on the Persian Gulf, which has the bulk of the world's
reserves in cheap, easy-to-tap fields. OPEC nations "are back in charge," says
Vito Stagliano, an energy official in the first Bush
administration.
Rep. Charles Rangel of New York,
the top Democrat on the House Ways and Means Committee, says the U.S. may be
able to use its military might to change the oil balance of power. If the U.S.
seizes Iraq's oil fields during a war and turns Baghdad into a reliable ally,
that could reduce the concerns about U.S. reliance on Persian Gulf oil. "If we
control all that oil," Mr. Rangel says, "we don't need a damn gasoline tax." But
the political consequences of the war are hard to foretell, especially if Saddam
Hussein destroys Iraq's oil wells, or if other Gulf oil fields become terrorist
targets. A democratic Iraq is also likely to see the economic virtues of
strengthening OPEC, not weakening it.
President Bush is looking for a
technological fix. He has seized on the technology of hydrogen-powered fuel
cells, budgeting $1.7 billion over the next five years to try to produce
hydrogen-powered cars and trucks. But the challenges are daunting. Hydrogen now
costs four times as much as gasoline, fuel cells are clunky and expensive, and
the U.S. lacks an infrastructure of hydrogen pumps to match the nation's
gasoline stations.
And OPEC is ever vigilant to the
possibility that the U.S. could kick its oil habit. In the late 1980s, Kuwait's
oil minister shooed away a businessman who approached him at a bar in a London
Hotel. Sheik Ali Khalifa al-Sabah explained that the man "wanted to sell me on
an engine that works on water. If I thought it worked, I would have bought it
and killed
it."