By Larry Marsh, Kansas City Star Midwest Voices columnist 2009
A variable tariff on crude oil imports set to maintain a price floor of $70 a barrel could force world oil prices down to $50 a barrel and deprive Iran, Venezuela, Russia and Saudi Arabia of oil revenues while putting our oil dollars to work right here at home.
We are continuing to undermine our own national security and that of our allies such as Israel by sending enormous amounts of oil money overseas to Iran and other sponsors of terrorism. Over 80 percent of the world's proven oil reserves are owned by foreign governments many of whom are hostile to the United States.
We can lower the price foreigners get and keep more oil money at home by imposing a variable oil tariff to create a $70 a barrel price floor. World oil prices are currently running around $60 a barrel. An oil tariff will keep more of our demand for oil here at home to benefit our own suppliers. By reducing our demand for foreign oil and increasing our domestic supply of oil, we will force the world price for oil down to say around $50 a barrel.
Instead of the current $60 a barrel Iran, Venezuela, Russia and Saudi Arabia will only get $50 a barrel while our own companies here at home will get $70 a barrel. This oil price wedge will help our own companies while at the same time spurring the quest for alternative energy solutions.
Ironically, setting a $70 a barrel price floor will tend to keep the price of oil from rising above $70 by keeping alternative energy viable during temporary oil price drops and thus allowing long-term investments in alternative energy. Eliminating the up and down roller coaster in oil prices will improve efficiency and productivity by finally allowing consumers, producers and investors to plan ahead.
This is not your typical case of static analysis from your ECON-101 course. We are at a tipping-point between old energy solutions and new ones. China has grasped the significance of this moment and is pushing ahead rapidly on developing new energy solutions. If we don't act now we will be left behind to buy new energy products from China along with everything else.
The quickest way out of this recession is to get business growing again. A sudden increase in business energy investments under the umbrella of a guaranteed 10-year foreign oil price floor of $70 will be a big help. It will more than off-set the mild effects of a slightly higher price at the pump. Having a job is more important than paying a little more at the pump. Now is the time to expand our existing energy investments and create many new ones.
You also have to take into account the lives of our soldiers and all the money that we spend overseas to protect foreign sources of oil. An oil tariff price wedge will reduce our demand for foreign oil and reduce (eventually eliminate) our need to protect foreign oil sources. Less military expenditures mean a smaller budget deficit and lower long-term debt. Why do we continue to crucify our country on this cross of oil? Haven't our military families and taxpayers suffered enough?
By reducing both the quantity of oil we get from overseas and the price we pay foreigners for that oil, we will better protect America and our allies and move more quickly to find alternative energy solutions that emerge naturally from our free enterprise system rather than as dictates or mandates from Congress.
Michael Levy offers additional commentary on this topic in "Why $30 a Barrel Oil Could Save Lives, Bring Democracy to Iran and End The War".
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Also see:
Define energy independence in terms of both oil price and quantity
Carbon tax better than trying to pick alternative energy winner
A Gas Plan for Congress: A dynamic self-adjusting price floor for gasoline
What if Congress were to impose a $2 price floor on gasoline?
New oil tariff would cut consumption, spur renewables
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Larry,
Your columns over the months continue to focus upon the global and national oil industry and energy policy. I always give your pieces a read as you are good at presenting numbers to quantify your points as one would expect from an economist.
As one who’s worked in Nigeria for a time, in a petro-state, a country with elections but barely, and for a foreign oil company, may I suggest that you broaden your horizon with a field trip. Perhaps you have and if that’s the case, a narrative based upon some experience could provide us with a deeper appreciation of what you present.
The security argument is very lame and has become a popular phrase over the past year. In a world where the emerging nations become more resentful of the G8(+), your tariff recommendation provides more fuel for that resentment, I think. Yet writing like yours that does not address the places and people from where this rich resource emerges makes your writing all the more irrelevant and a bit anticeptic.
From a business perspective it’s quant but cozily academic to write dreams as you do without an appreciation of the technology and plain hard work required to harvest fuel for your laptop, whatever we burn. Governments cannot steer energy policy. Petro-dictators are helpless children.
The captains of the ship, I believe, are petroleum and energy companies world-wide. Like the healthcare “industry” and the global defense/military industry, the energy industry appears to be a complex and interdependent system with numerous players and stakeholders.
So…you wish to deprive petro-dictators of what, again?