Oil, Patriotism, And Terrorism

What a fascinating juxtaposition of articles on oil and politics today. In the National Review online, Doug Bandow writes about the political aspects of the US-Saudi relationship and the oil supply. Bandow points out some of the most important economic aspects of technological change, economic dynamism in the oil industry, and a chillier relationship with Saudi Arabia:

Further, some 300 billion barrels of unrecovered oil, ten times our proven reserves and more than known Saudi resources, lie in beds of shale under the United States. They are not counted, however, because they are not currently worth developing. But as prices rise and new techniques are developed, they may become economically recoverable. Moreover, energy companies are looking for new oil deposits around the world, including the Caspian Basin, Russia, South China Sea, and West Africa. Estimates of as-yet-undiscovered potential recoverable oil range from one trillion to six trillion barrels. At current consumption rates the Energy Information Administration estimates that we have enough oil for another 230 years and “unconventional” sources, such as shale, that could last 580 years. And even these figures are based on existing prices and technologies. Higher prices would stimulate exploration, as well as production of alternative fuels and conservation, reducing oil consumption.

In short, an unfriendly Saudi Arabia might hurt America’s pocketbook; it would not threaten America’s survival. (In contrast, control of the Gulf by a hegemonic rival notably the Soviet Union would pose a significantly different, and greater, security threat, but that prospect disappeared with the end of the Cold War.) Thus, it is worth risking Saudi displeasure in order to try to starve al Qaeda of funds.

In a similar but less economically focused vein, Robert Redford writes today in the Los Angeles Times (registration required) that the strongest show of patriotism would be to wean ourselves from fossil fuels. While Redford recommends more intrusive government regulation to bring that weaning about than I condone, he makes the point that the higher are the perceived costs of our use of fossil fuels, the more value we see in substituting alternatives for them. Bandow’s argument points out how market processes enable us to learn and discover what we think the real costs are of buying Persian Gulf oil, and how technological change and human creativity create alternatives.