End Oil’s Boom and Bust
The decline of the world economy has one bright spot. Cheap oil has returned, making a recovery more likely. The price affects not just motorists but every business. Economists say that the $12-per-barrel drop since Sept. 11 is as big a stimulus as a $250-billion tax cut. Prices are now hovering around $18 per barrel.
The price slide is being accelerated by Russia’s increased production. Over the past two years Russia has dramatically increased its oil exports, now expected to rise to 5.34 million barrels a day. The Russian economy has profited greatly from increased oil revenues. Moreover, President Vladimir V. Putin has promised to try to make up any difference should there be a crisis in the Middle East as the United States battles terrorism.
The Organization of Petroleum Exporting Countries, which is mostly made up of big Middle East producers, is desperate to prop up prices and has threatened a price war. The Mideast states that form OPEC’s core can ill afford to lose revenue. These dictatorial countries depend on oil to finance the elite’s lavish lifestyle, to pay for huge military budgets and to keep their restive populations quiet.
The last time prices crashed, three years ago, Saudi Arabia had to borrow money from abroad and attempted to institute austerity measures, which had to be abandoned out of fear of igniting a rebellion. Now, Saudi Arabia is threatening to flood the world with oil to make it ruinously costly for Russia to keep producing; Saudi Arabia has at least 3 million more barrels a day that it can pump. The three biggest oil producers who are not members of OPEC--Russia, Mexico and Norway--will probably reconsider their current refusal to cut back production.
The U.S. should take advantage of the current oil surplus. The Bush administration entered office claiming there was a national energy crisis. The surfeit of oil, however, shows how absurd its insistence on drilling for oil in the Alaskan wildlife refuge was. But this doesn’t mean that the U.S. doesn’t need a coherent oil strategy.
The wild oscillations in price make it difficult for businesses to make calculations about future costs. The sensible thing would be to consider a federal tax on gasoline that could help curb consumption. Automobile mileage standards should be increased. Finally, support for mass transit such as Amtrak should be stepped up.
America’s voracious appetite drove up the cost of oil in the first place. There is no reason that the United States should be so dependent on precarious Middle East states like Saudi Arabia.
If the U.S. takes no action it will find itself in the same boat as before. Consumers will start to consume cheap oil in increasing amounts, driving up the price. The nation has a chance to break this boom-and-bust cycle. It should grab it.
