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ARE WE BEHOLDEN TO OIL PRODUCING NATIONS?
A view appears to exist that America is more dependent on the receipt
of mideast oil than the supplier is dependent on the revenue from its sale.
As a result we find contentious argument both inside and outside of government
as to the need and methods for making our economy less dependent on foreign
oil. Whether demand be diminished through reducing consumption by way of
conservation, more fuel efficient vehicles and other state of the art technology
break throughs - or - supply increased by drilling anywhere including the
Arctic, the issue must be addressed sooner rather than later. Whatever
decisions are made their
results will not be able to be realized for some time to come.
In the meanwhile rhetoric emanates from various sources including elements in various Arab countries calling for an embargo on oil deliveries to the west. Reaction even prior to this rhetoric has already has shown itself in the action of the majority of our weak kneed "so called” allies. We find difficulty in gaining the support that should be forthcoming in regard to our need to neutralize Saddam Hussein and in regard to our policy towards other "evil" regimes. Does rational analysis justify this fear of loss of oil? Let's look at some fundamentals.
For any product there is a supplier and a user. In order for the supplier to maximize its revenue it must sell a sufficient amount of its product at a given price to the user whose degree of demand will depend on that price. In the case of private enterprise, if the manufacture of a product is curtailed, there will be a lack of sufficient revenue to sustain it and if that situation continues it will eventually go bankrupt. The case for countries whose economies rely inordinately heavily on the income from the sale of a product is a bit different. Reduction of revenue from the curtailment of shipment of a product can create economic imbalances fomenting possible backlash from elements of their society.
It should be apparent that oil producing countries need the demand existing in our country as much as we need the product. That is not to say we should not reduce our dependence on that supply but simply to place the issue in its proper perspective. The point being we, nor our allies, should allow governments of oil producing countries to use the tactic of threatening our respective oil supplies to waffle on our principles. In fact, we should do everything we can to both increase our domestic supply and reduce our demand for oil so as to place the pressure on them to reform their governments; to move them towards a democratic form that will encourage development of economies less reliant on the sale of oil.
We also should note that the last thirty years have brought additional sources of supply from other than mid east countries. The governments of these countries are not necessarily in concert with following the directives of OPEC even for those that are members. When it becomes apparent it will affect their respective economies they will act in their own self interest.. In fact it is likely that these other countries would increase their supply to offset decreases in the mid east supply. The added income to their respective economies would in all probability make that decision a given. Russia, a non OPEC member would certainly find any economic benefit a reason to provide additional supply.
There are also other important economic factors virtually insuring the continued flow of mideast oil. For instance, the real price of mid east oil in terms of equivalent purchasing power is about the same as it was 30 years ago. At the same time the population of mid east countries during the last quarter century has increased dramatically so that the income per capita (Saudi Arabia) is now half of what it was in 1980. 60% of the Arab population is under the age of 25 meaning that in future years there will be a dramatic increase in working age population that in the past has been subsidized by the government in various ways. Of those that are employed, in the range of 90% work for the huge bureaucratic government structure in cushy non productive jobs. Since the 1970's over 90% of the work force in the private sector has been imported. In addition, the educational system has not included subject matter that would prepare students to fill those jobs now performed by foreign workers. With oil revenue per capita on the decrease there is no way the oil spigot can be even moderately closed. However, involuntary limiting of supply could occur should damaging of the oil producing equipment and fields occur that were beyond the control of a respective government.
Although we are beholden to events beyond anyone’s control, are we beholden to oil producing nations? The obvious answer is no and our leaders should pay heed to threats of reduction in the supply of oil from mideast countries in that light. Recent action by Saddam Hussein imposing a 30 day embargo is meaningless except for those in the oil business or financial markets using any news to move prices for profit. Price fluctuations in the market place will average out over the weeks and months as the fundamental economic forces as heretofore stated will rule the day. Staying our course based on the truthful analysis of the facts and reacting accordingly is the only reasonable approach to the conduct of foreign policy. There is no substitute to acting from a position of principle and strength.
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