So we’re dependent on foreign oil. How bad could that be?
As it turns out, pretty bad.
“The U.S. continues to import 7 or more million barrels of oil per day from global oil sources, including Africa, the Middle East and Venezuela,” explains John Hofmeister, the former CEO of Shell Oil. “It remains hostage to the volatility and misfortunes of oil prices and geopolitics, over which it has no control. “
That means oil prices can spike when a pipeline blows up halfway around the world; Iran tests a missile; or even when OPEC merely announces it is holding a meeting. Essentially, because we import oil that is priced on a global market, any sort of international incident or supply disruption increases the price we pay for a gallon of gasoline.
Now, no one likes tightening their budgets even further because they’re paying more at the pump. But the effects on the wider economy are even more troubling. Every item you buy at the grocery store or convenience store or home improvement depot had to be transported there somehow — sometimes from thousands of miles away. And if oil prices spike, the cost of getting those goods to market also spikes. That means the cost of everything from bread to shampoo to gardening supplies goes up, and people buy less. Combine that with the fact that people are already spending less because of the increased amount they’re forced to pay for gas, and you have the perfect breeding ground for a recession.
This isn’t just conjecture — there’s hard evidence to support these ideas. It’s no coincidence that an oil price spike preceded 10 of the last 11 U.S. recessions.
And there’s only one way out.
“A concentrated effort to displace imported oil with alternative domestic fuels is the only way to become energy independent,” Hofmeister argues.
If we diversify our transportation sector to run on multiple fuels — ethanol, natural gas, electricity, hydrogen, or something else entirely — we can inoculate ourselves. If the price of oil goes up because Iran’s Ayatollah has a fit or because militants attack a pipeline, we can just switch to another fuel source. We will be safe from the dangers of being dependent on foreign oil.