Importing Oil - Risky Business for US
THE decade of the 1990s began with the announcement that the United States now depends on oil imports for 46 percent of its needs - a record level. Domestic oil production is in decline, and practical non-oil alternatives are, at best, out of favor. Unfortunately, as our import dependency increases, so do the risks - strategic, economic, environmental - associated with it.
Overdependence on imported oil involves subtle but real strategic and political risks. Virtually all of the increases in oil shipments over the past several years have come from the Middle East. Over $6 billion more was spent on Persian Gulf oil in 1989 than in 1982. Even if there were never again an oil embargo, the simple fact of our critical dependence on fuel shipped from that region can distort our political and foreign policy interests. How soon we seem to have forgotten the confluence of events that compelled us to deploy the US Navy to the Persian Gulf in 1988.
Less subtle are the economic risks of oil imports. At $50 billion oil imports are second only to autos and auto parts as a component of the trade deficit. Indeed, oil imports now account for about 40 percent of the total. Even if oil prices do not rise by the end of this decade, oil imports could by then contribute over $65 billion a year to our trade deficit.
Because of forces already set in motion, this outcome is too certain to be deemed a risk; it is virtually guaranteed. The risk involves our gamble that oil prices will remain moderate. If oil prices should suddenly rise after our dependence on foreign imports has been firmly established, the economic penalty would be huge. The Dow Jones average, something of an economic early warning system, already responds quickly to even modest oil-price changes.
The Valdez spill was a harsh reminder that moving large quantities of oil may carry very real environmental risks. As tanker traffic continues to increase with oil shipments from halfway around the globe, the risks of environmental disaster will rise accordingly.
The simple fact of the matter is that the only way to reduce the various hazards associated with importing oil is to consume less of it and its products. Expanding domestic exploration to shore up our declining production is vital, too, but is only a stopgap. The US has limited oil resources - about 5 percent as much as OPEC. Conserving oil by using it more wisely is vital as well, and, in fact, the US uses 23 percent less oil per unit of GNP than it did 10 years ago. But these two solutions are not sufficient, given the size of the problem. Renewable technologies such as wind and solar energy hold some promise, but they simply cannot compete economically with cheap or moderately priced oil.
This leaves coal and nuclear energy. Ironically, over 95 percent of all the additional energy production in the US since the 1973 oil embargo came from coal and nuclear energy, two of our most embattled domestic energy industries. Coal expansion is in serious jeopardy because of overzealous environmental restrictions. And the hypothetical risks of nuclear power have received much more media attention than has nuclear power's proven track record in displacing imported oil. In large measure, the use of oil to make electricity plummeted in the US since the first oil embargo because of the construction of nuclear power plants. Nuclear energy now supplies one-fifth of the nation's electricity and has actually displaced almost 4 billion barrels of oil imports since 1973.
This nation is on the verge of turning its back on the three options that can knock foreign oil dependence down: offshore oil, coal, and nuclear energy. Our society has done itself a disservice by engaging in endless hand wringing about possible but improbable risks associated with domestic energy industries over which it has some measure of control. On the other hand, we have done very little grappling with those risks imposed by our oil-import policy, risks which grow out of the political instability of a region where we have remarkably little control.
When will we wake up?