The war against Covid-19 has at least two main fronts. We are simultaneously battling a virus while searching for effective treatments and a vaccine. Lawmakers and policymakers are also attempting to make sure the recession that will be caused by our “Great Time Out” doesn’t turn into a sustained depression.
There’s a third front on this war currently being waged against the U.S. that has taken a back seat to the Covid-19 response. it is one that deserves attention, given the perilous position we find current economic conditions.
Under the pretense of fighting each other, Saudi Arabia and Russia have teamed together to put world oil prices in freefall. There were times in this country that this kind of news would be cause for rejoicing. These are not those times.
Six years ago I wrote a column saying it was time for America to declare energy independence. Every President since Richard Nixon has called for this as a national policy, but with little hope or action to make it happen.
For half a century we’ve been held hostage by the OPEC cartel, necessitating our country’s foreign policies to remain intertwined into conflicts with thousands of years of history and ill-will. Until now.
In the last quarter of 2019, the United States became a net petroleum exporter. The pipedream I wrote about years ago had become reality, thanks in large part to the emergence of the U.S. shale industry.
The technology to produce shale is improving rapidly, and the production of U.S. oil has been increasing dramatically. The cost to produce this shale is relatively higher than the costs to pull oil out of the ground in Saudi Arabia or Russia, and the financial structure of the U.S. industry is complicated by excessive corporate debt used to finance newer exploration efforts.
Russia and Saudi Arabia have not enjoyed losing market share to the United States. In early March, Russia torpedoed a meeting of OPEC by refusing further cuts to maintain market equilibrium. Saudi Arabia responded by flooding the market with excess oil. Oil prices were cut in half over the next few weeks.
The two aren’t fighting each other. This is a coordinated effort by a monopolistic cartel to bankrupt large portions of the U.S. industry.
Tens of thousands of high paying domestic jobs are at risk. Our national security and economic footing are being undermined by these actions.
This would hurt even in the best of times. In current times, this would be devastating.
To end this battle and focus on our country’s other pressing issues, we need to take a cue from the 80’s movie War Games. The only way to win is not to play.
We need to extricate ourselves from the world oil market. U.S. oil prices should be set by domestic production and consumption. We need to immediately place tariffs on the import of oil and refined petroleum products, in order to define the U.S. oil market as a solely domestic one.
The U.S. should not bail out the domestic players that are overly leveraged, nor should we further subsidize domestic oil production. We should just redefine the market within our own boundaries, and then let the laws of supply and demand do their work.
For my friends that want to respond “free market”, I would posit that there’s nothing free about trading with monopolies. If Russia or Saudi Arabia were domestic corporations behaving this way, they could be sued under anti-trust laws for treble damages.
For my friends that hate oil companies with every fiber of their being, I would suggest that if you want a policy path toward additional renewable energy, defining the boundaries of the petroleum industry within the U.S. borders would allow for more stable prices. This would make it easier to do cost-benefit analysis for alternative sources and have a reasoned debate on the tradeoffs with respect to jobs created vs jobs lost when setting future policy.
Our country has recognized the need to control its own destiny with respect to energy for five decades. That dream is now a reality.
We can continue to debate how much oil our country should consume versus how quickly to adopt alternative energy applications. Let’s act now, however, to ensure that this debate is decided solely within our borders.
Charlie Harper, a Fayette County native, is the publisher of GeorgiaPol.com and the executive director of PolicyBEST, an Atlanta-based pro-business advocacy group.