US didn't bite the bullet when it should have

What is more frightening to the average American: An outbreak of anthrax or paying $ 10 for a gallon of gasoline? It's a good bet that, outside of major population centres, most of the country would choose the latter.
At a time when the price for crude oil is at a two-year low and demand has collapsed because passengers aren't flying and the global economy is in a slump, ten bucks a gallon seems a remote possibility, let alone one Americans should be worried about. But with the risk of the US military campaign in Afghanistan spilling over into other Islamic nations, specifically into civil war in Saudi Arabia, the possibility that a major interruption in oil supplies from the Persian Gulf exists -- a scenario that could cause the price of crude to go through the roof.
For every 1 mm bpd of oil taken off line, world oil prices could increase by $ 3-$ 5 per barrel, according to the US Department of Energy. If that price were to increase to $ 10 a barrel, the Organisation for Economic Cooperation and Development estimates it would cut 0.2 % from US economic growth and boost consumer prices by 0.4 %.

The lessons of the oil embargo of the 1970s and the Gulf War in 1991 taught the US the wisdom of relying on multiple sources for its oil -- but it has a long way to go. Although today it still imports as much as 55 % of its oil, nearly 22 % of that, or 13 % of total net imports, comes from the Gulf, with the remainder supplied by non-Arab nations like Canada and Venezuela.
While its reliance on Gulf oil has dipped since 1991, its real consumption of oil from that region has grown from 1.8 mm bpd in 1991 to 2.4 mm barrels in 2000. As a result, the US is as vulnerable as ever to political and economic volatility in the Mideast, particularly because the Gulf accounts for 65 % of the world's oil reserves and 28 % of production. A long-term embargo of oil from that region, for whatever reasons, would be disastrous for not only the US economy but for the rest of the world.

Oil is a commodity, sold on a world market at a world price. Even if the US got all of its crude from, say, Canada, Mexico and Venezuela, a major disruption, regardless of whether it was in Saudi Arabia or Nigeria, would drive up the price of oil across the board. Obviously, the bigger the disruption, the greater the impact.
The US, like most industrialized nations, has a temporary buffer against short-term disruptions: the Strategic Petroleum Reserve. Created in 1977, it today holds about 570 mm barrels of crude that contain approximately 90 days' worth of oil, which the President can tap in the event of an energy crisis. It has only been used twice, once during the Gulf War and then last winter when President Clinton released 30 mm barrels to offset an OPEC price raise that would affect home-heating oil prices -- a blatant attempt to win support for Al Gore's presidential run.
Inevitably, it all comes back to how much energy Americans use and how much they are prepared to pay for it. If the prices become toohigh, politicians get nervous because people -- and companies -- vote with their wallets. Similarly, Congress is equally sensitive to grumblings from the automotive, oil and transportation industries whenever mention of higher fuel costs or a call for more efficient cars and planes threaten their profit margins. The upshot is that despite the awareness of the long-term strategic, economic and environmental risks associated with America's dependency on fossil fuels, little is being done to change it.

"We chose as a nation to go after the lowest form of energy, even after the oil embargo of the 1970s, and didn't bite the bullet when we should have," says Guy Caruso, a senior associate specializing in energy market analysis at the Centre for Strategic and International Studies in Washington, DC. According to Caruso, between 2001 and 2020, the bulk of global energy consumption will continue to be provided by fossil fuels, rising marginally from an 86 % share in 2000 to 88 % by 2020.
Caruso goes on to say that the Persian Gulf's share of world oil production will expand as production in North America and Europe, the world's most stable regions, will decline and that fully 50 % of estimated total global oil demand will be met from countries that pose a high risk of internal instability. In addition to the possibility of relaxing laws that prohibit drilling in environmentally protected areas like the Arctic National Wildlife Refuge, it also means that nations like Iran, Iraq and Libya will play an increasingly important role in meeting growing global demand, a reality that may require a dramatic shift in America's foreign policy. "A crisis in one or more of the world's key energy-producing countries is highly likely at some point in the next 20 years, but given the current situation, it could happen sooner rather than later."

As consumers in most oil-importing nations can attest, oil prices don't need a crisis to be high. While Americans enjoy among the lowest gasoline prices in the world, motorists across Western Europe and Asia have been grimly shelling out between $ 4 and $ 5 a gallon in recent years. Over the same period, Americans have enjoyed prices that average around $ 1.50.
(Home-heating oil prices, on the other hand, are more consistent around the world.) Yet if crude oil is fungible, with a world price that is the same for buyers in American or Bangladesh, why the huge price discrepancy for gasoline? The main reason is taxes. Most people in industrialized nations outside the US are used to paying enormous taxes on gasoline that go to pay for everything from new roads to healthcare. But the high prices serve another purpose: They actually help to make people consume less fuel and inspire the auto companies to design more fuel-efficient cars.

The US efforts over the years to increase gas taxes have been defeated in Congress. Democrats vote against a hike because they view such taxes as regressive and unfair to working families. The Republicans oppose it as they oppose all taxes, especially ones that could harm the key industries -- and important political contributors.
"Congress has decided that basic fundamentals of energy policy as practiced by virtually every other nation are off-limits," says Pietro Nivola, a senior fellow at Brookings Institution in Washington, DC. "Where is it written that Americans have a Constitutional right to $ -a-gallon gasoline?" The news is not all bad, though. Forward strides in technology actually mean that less energy is required to produce a dollar 's worth of gross domestic product than ten years ago. Even though overall US imports of oil are up, the only sector that uses more oil in absolute terms is the transportation industry. Natural gas use has increased and, according to the DOE consumption, is expected to double in the next 20 years.

Hydroelectric, solar and geothermal power, on the other hand, still only make up about 6 % of total energy consumed in the US In order to create new energy sources that would supplement or replace its dependency on imported oil, the US would need to undergo a radical and probably expensive shift in its approach to foreign, economic and domestic policy.
The tendency in the past has been to pass the buck to future generations, but now that the world once again finds itself facing a crisis in a region made so important by its vast oil reserves, now may be the time to make more meaningful efforts to find alternative energy sources and avoid being sucked into similar danger in the future.