New Oil Jolt

One by one, the big U.S. oil companies are announcing major cuts in what they will spend to search for new oil this year. Exxon and Chevron are the latest; together they plan to slash outlays on exploration and drilling by more than $3.5 billion. The less spent to look for oil, the less oil is likely to be found to bolster the nation’s thin seven-year supply of proven petroleum reserves. Thousands of jobs will be eliminated in the industry by these cuts. The more far-reaching effect could be to boost American demand for foreign oil, with all the risks and costs that this involves.

Oil prices are now down to about half what they were three months ago. That’s good news over-all for the economy. It’s bad news for U.S. oil production. Already thousands of small wells have been shut down because market prices are lower than production costs. As this trend increases, the United States faces the loss of up to 1 million barrels a day in oil output. Cutbacks in exploration and drilling will add further to the drop in domestic production in the years ahead.

The United States is already edging back toward a bigger and more dangerous dependence on foreign oil. As recently as 1979, when the Iranian revolution brought chaos to the oil markets and recession to most of the world, Americans relied on overseas suppliers for more than 45% of their oil. By last year that figure was down to only about 32%. At the same time the sources of that oil had changed radically. Far less oil came in from the politically unstable Persian Gulf--Saudi Arabia, for example, provided only 2.5% of oil imports last year--while imports from Western Hemisphere producers and such countries as Britain, Indonesia and Nigeria rose. But now, disturbingly, imports from Persian Gulf producers are starting to rise.

It would be folly to again let the national appetite for foreign oil soar out of control. The simplest, least onerous, most effective way to curb an unhealthy jump in oil demand is through a higher gasoline tax. That tax should be structured to fill the void created by falling oil prices. Consumers would thus not pay more than they had grown used to paying, while the Treasury would gain tens of billions in needed revenue. A higher tax wouldn’t boost domestic oil production, but it would inhibit the growth in oil imports and lessen chances for a return of the nightmarish gasoline lines that the nation endured in 1974 and 1979.