Sound Economic Policy?
Butler and Holmes’ first point, to make “full use of domestic petroleum reserves,” seems a hopeful start. But the devil is in the details: in the 1960s large and prolific volumes of domestic oil were being produced in the Permian Basin in Texas and offshore California—within US territory, secure and abundant. These domestic oil fields did not “peak” as King Hubbert and others today would have us believe. They were shut in. Why? Because Big Oil made a strategic move after 1945 to secure staggering volumes of crude at ridiculously cheap prices from Saudi, Iranian, Iraqi and other sources. The CIA instigated coups to do so, and US troops were deployed to protect the oil routes. California and Texas simply could not compete with the dirt-cheap Saudi Ghawar prices.
If Washington policy makers genuinely seek national energy independence, they should begin with a two-pronged tax incentive strategy which will:
- attract investment to allow for an environmentally-friendly reopening of those offshore US fields that have been shut in
- provide incentives for citizens to convert to more fuel-efficient cars burning diesel.
The Biofuels Fallacy
To suggest that Bio-ethanol is a solution to energy problems is more than misleading. Bio-ethanol is a net energy loser. The killer-diller about ethanol is that it holds at least 30% less energy per gallon than normal gasoline, translating into a fuel economy loss per gallon of at least 25% over gasoline for an Ethanol E-85% blend. No advocate of the ethanol boondoggle addresses the huge social cost which is beginning to hit dining room tables across the US, Europe and the rest of the world. Food prices are exploding as corn, soybean and grain prices go through the roof because of the astronomical—and Congress-driven—demand for corn to burn for bio-fuel.
Bio-ethanol thrives today not on the “free market” merits that Butler and Holmes advocate, but on huge taxpayer subsidies. The Energy Policy Act of 2005 mandates that corn ethanol for fuel rise from 4 billion gallons in 2006 to 7.5 billion in 2012. To make certain it will happen, farmers and big agribusiness giants like ADM get generous taxpayer subsidies to grow corn for fuel instead of food. In the past two years the amount of US corn burned for fuel has passed total corn-feed exports, and it is rising exponentially. World carryover stock reserves of all grains are at their lowest since the end of the 1990s.
If Washington wishes to encourage domestic energy production and influence gasoline consumption, policy makers could:
- create tax incentives to reopen thousands of viable oil wells and support an independent oil industry willing to develop that oil
- fund independent research and development on gasoline engines with greater fuel efficiency
Taking a Look Back
The authors’ suggestion that the United States should develop “strong bilateral measures to deal with efforts by coercive regimes to wage economic warfare” is disingenuous. Given the history of US military presence in the Middle East since well before 2003, it should not be surprising to know that most of the rest of the world increasingly regards the USA as the locus of coercion and “might makes right.” China definitely seems convinced—one reason they have already launched a massive diplomatic and financial offensive into resource-rich African and Middle Eastern states.
To call for Washington to use “the instruments of national power—including military, diplomatic, law enforcement, intelligence, economic, and informational power—in any theater where U.S. interests could be at risk” merely poses as recommendation what has been US foreign policy regarding energy and US national interests since well before the Second World War. The Mossadegh CIA coup led by Kermit Roosevelt in the 1950s was about US energy interests.
Bringing Focus to Fuzzy Thinking
Readers need a clearer idea of what Butler and Holmes mean when they call for Congress to pass measures “to advance freedom in energy markets” domestically and abroad. Is this a call for Congress to enforce the existing US antitrust laws against giant oil majors such as ExxonMobil or Chevron?
F. William Engdahl is an economist and the author of A Century of War: Anglo-American Oil Politics (Pluto Press, 2004). He can be reached at www.engdahl.oilgeopolitics.net.
Related Materials from the Atlantic Community
- Stuart Butler and Kim Holmes present Five Principles For US Energy Security
- Heiko Borchert and Karina Forster argue that EU-NATO Cooperation Could Guarantee Energy Infrastructure Security
- Heiko Borchert and Karina Forster say EU Energy Security Requires Hard Power