Our Oil Imperatives
Crude-oil prices have fallen nearly $2 a barrel in recent weeks, mocking last December’s effort by the Organization of Petroleum Exporting Countries to firm up prices at $18 a barrel. A temporary benefit for consumers, certainly, but also no more than a temporary failure for OPEC. The inability of OPEC to fix its price, helped by some cheating on production quotas among its members, won’t last forever. Whatever their current revenue problems, the OPEC countries, and especially the Persian Gulf states that own the largest oil reserves, can confidently look forward to a time when they will once again be able to set world oil prices.
After the two economically devastating oil shocks of the 1970s, no oil-consuming country can face that prospect with equanimity. For the United States, the biggest consumer of all, the outlook is notably bleak. The free fall in oil prices that began in late 1985 has helped keep inflation in check and workers employed, but it has also forced a significant drop in U.S. oil output as wells too expensive to operate have been shut down. By the end of this year the United States will have lost up to 1.5 million barrels a day in oil production. No less worrisome, cheaper oil prices have drastically curtailed the search for new oil sources.
This year the United States will import more than 40% of its oil. By the mid-1990s, according to the most recent forecasts, imports will account for 48% to 60% of oil demand. Even the lower figure would signal a historically high level of dependency, with frightening economic and national-security implications. The oil shocks of the last decade twice plunged the nation into recession, slashed output by as much as 3.5% and led to major increases in inflation and unemployment. Next time things could be a lot worse.
What’s to be done? The first imperative is for Congress and the Reagan Administration to give urgent attention to what is fast approaching. The options to be considered for lessening the rising dependence on foreign oil are clear. They include a new emphasis on energy conservation, revising tax policies to encourage greater domestic oil exploration and production, opening more federal lands to the search for oil and natural gas, and looking anew at alternative fuels. It will be too late to begin responding once OPEC again firmly holds the whip hand over supplies and prices. The time to act is now, and the need to act is compelling.