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Wednesday, December 2, 2009

The Mirage of Oil Independence

Energy alarmism leads America into unnecessary fighting, and gets Americans killed. A good paper on this topic is Energy Alarmism: The Myths That Make Americans Worry About Oil.

Let's not perpetuate the myth that "energy independence" would insulate the U.S. economy from oil price shocks.  Great Britain has been an oil exporter for decades, but the law of supply and demand does not recognize borders.  Oil producers will sell to the highest bidder, and even if they didn't, their discounted oil would still end up on the world market.   Nobody -- not OPEC, not Russia, not China -- can do to America's oil supply what America did to Japan's before WWII. The U.S. Strategic Petroleum Reserve could replace every drop of U.S. oil imports from the Middle East for a full year. Even the madman Saddam tried desperately to keep Iraq's oil on the world market.

Free markets will get oil to the right place, and will price oil to account for future scarcity.  The only thing that unregulated oil markets can't do is include in the price of oil the third-party costs imposed by burning it.  The focus of a Libertarian oil policy should be on how to get those costs built into that price.