U.S. Reliance on Foreign Oil Creates Sizeable Price

Dani Hupper

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Illustration by Asa Mease

Only thrilling news could follow such an uplifting title. But alas, our nation’s foreign oil dependency is far from optimistic.

The real price of oil isn’t shown at the gas pump or the stock exchange. An accurate analysis of oil and petroleum products’ cost would have to account for oil’s colossal (yet overlooked!) externalities –– these include the amount our government spends securing major oil reserves (i.e. the Persian Gulf), mitigating the impact of future oil shocks as well as the economic cost of controlling the size and likelihood of these shocks.

Our nation’s addiction to oil is no newsflash. Today oil accounts for about 40 percent of U.S. energy consumption. More than half of this oil is imported from abroad. Just how much oil is that, did you ask? Over six million barrels every day.

But why does this reliance matter? Isn’t it more expensive to domestically produce a barrel of oil than to import it from abroad? Yes, that’s the theory. But I’d argue that an all-encompassing analysis would demonstrate that our reliance on OPEC (Organization of Petroleum Exporting Countries) has only increased the overall cost.

Some aspects of this analysis would be easily quantifiable. Some economists have put a $7 trillion price tag on U.S. foreign oil dependency from 1970 to 1999. This is calculated considering two factors: how much the U.S. coughs up to steadily import mass volumes of oil and how much our economy suffers due to oil supply disruptions and shocks.

Some aspects of our dependency, however, are not so easily computed. Firstly, the U.S. has taken political measures to reduce the economic impact of these shocks. Most notable is the establishment of the SPR (Strategic Petroleum Reserve) –– 727 million barrels of emergency fuel storage available in the event of a foreign embargo or conflict. PRICE TAG: $64.5 billion.

Possibly more efficient than investing in this expensive insurance policy would be to protect the oil reserves directly (i.e. military force). The U.S. spends billions of dollars every year maintaining reserves in the Middle East and Southwest Asia. But a price check of solely the Persian Gulf (containing approximately 65 percent of the world’s known oil) is a hefty enough cost. PRICE TAG: $30-$75 billion a year.

With billions of dollars at stake, why hasn’t the U.S. government made efforts to reduce dependence on foreign oil? They have, but the attempts have been moderate. There have been taxes, fuel economy standards, and subsidies for domestic oil production. But nobody’s fooled –– reducing our foreign oil dependency has never been a high priority. The U.S. has not put a genuine effort into developing alternative energy sources. The government does not invest in mass transit as much as other countries. We have never had a substantial oil import fee or gasoline tax.

U.S. dependence on foreign oil entangles our nation into political, economic and military issues. These projects come with their own price tags, and must be accounted for when calculating the real cost of foreign oil.