Student Post: Thoughts on Oil Assignment for Jan. 26

I think it is very unwise on the part of environmentalists who support Federal legislation to ‘protect’ environmental interests in the US, with little or no consideration for the market impacts of such legislation.  Since the US reached “peak oil” production in the 1970’s, we have expanded to now be importing 60% of US oil needs from foreign countries, including Saudi Arabia, Venezuela, and other countries hostile to the oil consuming ways of the United States.

Markets for products like oil are inherently unstable, as John D. Rockefeller quickly discovered when he began to monopolize the control of oil refineries in the late 1880’s to stabilize the price of oil developers in the United States.  Since then, after the breakup of Standard Oil due to antitrust laws, first it was the Texas RR Commission which stabilized the price of oil for years (by limiting the output for decades) before the ‘peak oil’ was hit in the United States in the 1970’s and full production then ensued.  Since then it has been Saudi Arabia and OPEC that has worked to stabilize the price of oil so the price doesn’t spike up enough for consumers to limit their use of oil and producers of energy to seek out alternatives. 

But every now and then we are reminded how unstable oil prices can be with disruptions in supplies and huge price hikes (4x previous price ranges), followed by overproduction when oil use falls in response to rapid price increases (like in 2008 when oil ran up to $147/barrel at its peak, to drop to $30/barrel just a few months later). 

While environmentalists like to tout new plans to ‘save whales, fish, or walruses’, the entire US economy can be adversely affected by the whims of the world’s oil producers and speculators in the world oil market.  It seems to me that protecting the world economy from disaster via price stabilization policies is far more important than protecting whales.  We need to be more mindful of the power of the marketplace to affect legislation.  I also find it somewhat amusing that most of the major legislation concerning energy regulation has occurred due to a disaster in the US in some form or another (the Exxon Valdez, Three Mile Island, Chernobyl, etc), not a well thought out, cost/benefit plan.  The US should not handcuff ourselves to environmental interests when the plight of the country can depend on our response-ability – in other words, our ability to respond to the needs of our country. 

If world oil prices were to repeat their price spike of 2006-2008, effectively more than quadrupling the price, we would effectively go from the current price of $100/barrel to $400/barrel.  The world economy as we know it (and the US economy in particular) would end abruptly, or at least be forever impacted by the shocks applied to it.  Amid predictions of world ‘peak oil’ theories, to have handcuffs on oil producers in the form of permanent legislation that protects “whales” is ridiculous.

Instead, we need to have a coherent, national policy that stabilizes the US economy and the price of oil as well as other energy.  The goal of being less dependent on foreign oil should be paramount.  ‘Whale’ protection just doesn’t cut it anymore.

Bottom Line: We need flexibility of federal laws regarding environmentalism that provides for protection for habitat and ‘whales’, but not at the expense of the economic stability of the nation.  These laws should be automatically repealed or rescinded for a time period when the nation’s security or economic stability is affected, which is surely going to come in the near future due to some “new” destabilizing market force once world ‘peak oil’ is achieved.