VIEWPOINTS : A LEVY ON OIL: THE PROS AND CONS OF AN IMPORT TAX : It Would Improve National Security, Ease Budget Deficit

While the Reagan Administration’s secret initiatives in Iran are increasingly being viewed as a major foreign policy blunder, some redeeming value may yet flow from this bizarre exercise.

The Administration claims it sold arms to Iran, not as a swap for hostages, but rather as a means of opening dialogue with moderate elements of the Iranian government. This, they say, served our “geopolitical” and “national security” interests.

While the particular ploy used to approach the Iranians merits the scorn and ridicule being heaped on the Administration, the concerns cited by the President are legitimate.

The geopolitics of the region and our own national security interests are entwined, and the knot is being turned tighter each day. After all, more than half the world’s oil reserves are located there. Iran’s 1,000-mile border with the Soviet Union adds another dimension to the strategic importance of this area.

Our interests in this region were underscored by the 1972-73 Arab oil embargo, in which Americans learned firsthand what dependence on foreign oil could mean.

Now, however, the stakes are much greater. The potential demise of the U.S. petroleum industry will leave us desperately and permanently dependent on the Persian Gulf.

If the President is serious about addressing this facet of our geopolitical and national security concerns, he can do so in a far more straightforward and productive manner than the ill-advised clandestine capers now being uncovered. He can simply impose an oil-import fee.

Critical Condition Today

Few, if any, will disagree over the critical condition of the oil industry today. Even Interior Secretary Donald P. Hodel warned recently that we “have seen the near destruction of the (oil) exploration industry.” This is no exaggeration.

In December, 1981, there were 4,797 rotary oil rigs in operation domestically. There are now barely 900 rigs in operation, a decline of 80%.

Hodel says that as our oil demand increases and domestic production declines, U.S. oil imports could reach 50% by 1990, 60% by 1995 and 70% by 2000.

What has happened? In late 1985, the Saudis dramatically increased their oil production, causing the world price of oil to plummet to about $9.50 a barrel from $28 in a few months.

The price has edged back up to about $15 per barrel, but U.S. oil production onshore is not economic for oil prices much less than $20 per barrel, to say nothing of drilling costs offshore in the remaining unexplored frontiers.

The Administration concedes the problem but so far has only managed to commence (during the last election) an energy security study. Business Week magazine recently reported that this study will be classified.

And yes, it again proposes repeal of the windfall profits tax, which would be helpful if there were any prospect of profits from new domestic oil exploration.

The Administration’s proposals in a phrase would tie the tourniquet on below the wound.

Tax credits would seem less appropriate than an oil-import fee given the impecunious state of our Treasury.

On the other hand, according to the Congressional Budget Office, a $5 import fee on crude oil coupled with a $10 import fee on refined petroleum products would raise $8 billion to $12 billion annually to offset the federal deficit.

Prices at the gas pump would rise perhaps 12 cents per gallon.

There are opponents to an oil-import fee. Not even the oil industry itself is in agreement.

But the oil-import fee is the least painful alternative which actually addresses the problem.

Even today, according to the Energy Department, OPEC controls 95% of the spare oil production capacity in the world. If we are willing to lose our domestic oil industry, OPEC would be quite willing to step in as a substitute.

When the price of oil rockets upward, and it will if OPEC is again given control of the world oil market, then our domestic production will require years to respond.

Under existing law President Reagan could impose an oil-import fee tomorrow if he makes the requisite national security findings.

This would not be an easy decision for the President, who has opposed the idea in the past.

But surely it would be much less painful and far more productive than the disastrous adventures he has already authorized.