Oil: Deeper and Deeper
The great hope for slashing the nation’s $170-billion foreign-trade deficit lies in increasing exports while holding down the demand for imports. The falling value of the dollar relative to foreign currencies should help by making U.S. products cheaper overseas at the same time that many foreign products become more expensive in the U.S. market. Already, though, this anticipated improvement is being imperiled by a renewed outflow of trade dollars. The problem--once again--is oil.
In the wake of action by the Organization of Petroleum Exporting Countries to boost oil prices by $4 a barrel, to $18, the U.S. foreign-oil bill has begun growing by an additional and staggering $1 billion a month. If the base price holds at $18--it could go higher--Americans in 1987 will spend about $54 billion for foreign oil. At the same time dependence on overseas oil suppliers is mounting. This year the United States will consume about 6 billion barrels of oil, the highest level since 1980, with more than 40% coming from imports. Within a few years, given current trends, half of all the oil that Americans use will originate abroad. That has never happened before. In the previous peak import year, 1977, foreign oil accounted for 47.7% of American consumption.
Last year U.S. oil demand grew by 3% over 1985. This year it could go up a further 2%. All this comes at a time when falling prices have led to significant cuts in America’s own oil production. The shutdown of marginal wells--those where it costs more to produce oil than the oil is worth--has seen about 700,000 barrels a day disappear from domestic output. This year U.S. production is expected to decline by another 300,000 barrels a day; some projections put the figure at as much as 800,000 barrels. Each barrel of lost U.S. production must be replaced from overseas. That adds to the trade deficit. It also increases America’s strategic vulnerability.
All signs are that things will only get worse before--maybe--they turn better. The long slide in oil prices has generally been a good thing for economies battered and, in the case of many Third World oil-importing countries, devastated by the OPEC-dictated price increases of the 1970s. But everything has its cost, and a major cost of the cheaper oil for this country has been a plunge in oil production and a drastic falloff in investment to find and develop new oil sources. If oil prices rise, domestic spending to find more oil will grow. Meanwhile, though, years of exploration and development efforts will have been lost.
Some domestic oil producers want a fee slapped onto foreign oil to discourage imports and to allow them to raise their own prices. A fee, though, is no simple matter. Uniformly applied, it could be crippling to heavily indebted exporters like Mexico. If waived for such countries, it could pose political problems in relations with other suppliers. At a minimum, any price-boosting fee would have a significant inflationary effect on the economy.
Congress has concerned itself little in recent years with energy policy, and the Reagan Administration has long since decided that market forces are the best answer to any problem. But as a rising oil-import bill adds to the nation’s trade-deficit woes, as U.S. oil production slides and unwelcome reliance on foreign oil suppliers grows, a strict hands-off policy no longer will do. There are a number of ways to cut energy demand. Recession is one. Conservation is another, and it is the most effective. Conservation means using energy more efficiently, and using less energy overall. A stiff boost in the federal gasoline tax would discourage mounting oil consumption and produce sorely needed revenue. Congress, given the Administration’s apparent indifference to the problem, will have to take the lead in this and other energy conservation efforts. The trade deficit and national security both demand action soon.
