Oil and the Price of Instability

There is much excitement around the world regarding the massive protests in the Middle East and North Africa. States such as Egypt, Libya, Bahrain and Tunisia have been the sites of uprisings against dictators including Libya’s Col. Muammar el-Qaddafi and Egypt’s Hosni Mubarak.  Presently, thousands of protesters have clashed against Col. Qaddafi’s militias in Eastern Libya. Hundreds have been killed by the regime in what President Obama has described as “outrageous” and “unacceptable” violations of “international norms and every standard of common decency.”

These uprisings present the vexing issue of balancing the need for stable oil exports and supporting human rights and democracy.   For example, concern is growing that social unrest is growing in Bahrain.  A critical ally to the United States, Bahrain does not produce much oil but instead allows the United States to keep a critical military base.  From that base, the United States polices the Persian Gulf ensuring that oil exports are not interrupted by a potential Iranian disruption.  Eighteen percent of the world’s oil travels through that waterway.  If Bahrain’s King Hamad ibn Isa Al Khalifa resigns and the new regime is hostile to the United States, the ability to ensure that oil exports are safe may be compromised.

Beyond maintaining stable exports, there is the issue of price.  Libya is a brutal dictatorship yet it shows that small exporters matter.  While Libya produces only two percent of the world’s oil, it makes the world’s highest quality sweet crude oil.  The problem is that eighty five percent of their oil goes to Europe with one-third alone going to Italy.  If Europe is forced to look to Algeria or Nigeria for oil, prices could skyrocket in the United States.  If Col. Quadaffi’s regime falls, Europe’s scramble for sweet oil will be magnified by its limited capacity to refine other oil types.  A resulting slow down in the European economy could harm the U.S. economy.

With oil prices breaking one-hundred-dollars per barrel and the U.S. economy having just lost eight million jobs in the recession, the question is clear.  Is the United States willing to support freedom movements at the expense of possible increased oil prices and instability which could damage our economy?

One comment

  1. NYT columnist Thomas Friedman writes on this point frequently. Throughout his columns, he emphasizes that as long as America is this reliant on oil, we will be forced into compromising political positions.

    His suggestion, which I would support, but which would never survive today’s political process, is to institute a tax on a gasoline.

    Friedman has suggested that the US institute a tax that would keep the price of gasoline at approximately $4 a gallon – regardless of the market price of oil. The tax would serve several purposes: it would generate revenue to pay down the debt, it would partially immunize the american economy from the whims of OPEC, it would encourage American businesses to develop green technology and hopefully in turn spur economic growth. All these measures will also result in benefits for the environment.

    But as Friedman is well aware, once the word “tax” is attached to any proposal, the proposal is doomed to fail. But isn’t this a logical solution that would benefit the American economy? I think it would solve many of the foreseeable problems that Sean discusses above.

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