The Threat to National Security and Economic Security of Importing Foreign Oil and the Policy Objectives

Introduction

Energy security may broadly be described as a state of affairs characterized by conditions and policies that safeguard the health of the US economy against circumstances threatening significant short- or long-term increases in energy costs. It is a concept with many dimensions? only one of which the problem of dependence on a world oil market characterized by substantial price volatility and exercise of market power will be addressed in this paper. Even the energy security aspects of oil dependence are numerous: some are geopolitical (e.g.? efforts to promote the stability of oil-exporting regimes)? while others revolve around geological or technological issues (e.g.? the payoff from R&D investments to expand domestic liquid fuel reserves). However? the topic addressed here the economic costs of US oil consumption and import dependence occupies a central place in energy security policy analysis and debate. The exposition proceeds as follows.

The premium has two main components? one reflecting US monopsony power in the world oil market and ability to lower oil prices by reducing imports. The other reflects disruption costs from potential future oil price shocks including temporarily higher oil payments to overseas suppliers and a range of adjustment costs throughout the economy as industries respond to higher energy prices. Both monopsony and disruption components are difficult to pin down accurately? as a number of factors are uncertain? such as how OPEC would respond to a cut in US oil imports? the likelihood of future price shocks? and the extent to which the private sector takes into account the risk of price shocks.

National Security

On argument of national security - we cannot solve our problem of national security by saying that mitigating imports and sending money to unfavorable exporters solves a threat of national security.

Importing less oil (and therefore sending less money overseas) will only cause more oil to be exported to China and India

This will also furnish a better relationship for China with Iran: causing what could be an even greater threat to national security as Iran enriches Uranium

World Oil Reserves by Region

Chapter 3? Risks

“According to simple production theory the economic consequences of disruptions are expected to be related to the US expenditure on oil relative to the gross domestic product (GDP)? and to decline as that oil factor-shares declines. Hamilton observes that the historical experience does not conform to the simple factor-share argument. The drop in GDP following the five most notable oil supply disruptions since 1950 far-exceeded the loss predicted by the oil factor share.”[1]

This and other empirical test lead Hamilton and Huntington[2] and Brown[3] to conclude that the relationship between oil price shocks and output is more subtle and complex than originally thought? with shocks working their way through the economy in many sectors by indirect channels than can be surprisingly powerful (Lieby 4).

Beyond the risks to our currently-fledging economy? there are deficits that we accrue as a result of our parasitic oil-addiction: we lose $159.9 billion in ...