WASHINGTON -- From President Bush's worry about America's "addiction to oil" to the debate surrounding alternative fuels, our alleged vulnerability to foreign oil producers is a major part of the national security debate. But a new policy analysis from the Cato Institute sheds light on the true nature of the oil market, dispelling the falsehoods underpinning current U.S. foreign policy.
In "Energy Alarmism: The Myths That Make Americans Worry about Oil," professors Eugene Gholz and Daryl G. Press argue that fears about the United States' "energy security" are overblown. They acknowledge that the oil market is complex and subject to internal and external disruptions, but stress that above all, "market forces, modified by the cartel behavior of OPEC, determine most of the key factors that affect oil supply and prices." Without a doubt, global demand for oil is growing, and will continue to increase. However, oil supplies are not as endangered as they seem -- weakening arguments that military action or democracy promotion is needed to secure America's "oil interests."
"Peak oil" theorists have cautioned -- erroneously -- for decades that world oil reserves are dwindling. But due to improved technology and the rise in oil prices, reserves that were once too difficult or costly to tap have become profitable -- and as such, the world's ultimately recoverable resources have actually grown over time. Rebutting another myth, Gholz and Press argue that China's much-hyped purchase agreements with oil producers will not preclude American access to oil, but "merely change the pattern of the global oil trade."
Despite its flaws, the oil market works, and has historically compensated for shocks without massive damage to the global economy. The authors examine five examples of supply disruptions and conclude that concerns about the implications of political disruptions in the Middle East are exaggerated, as history demonstrates that supplies and prices quickly rebound from such interruptions.
Gholz and Press acknowledge that energy concerns exist, and that problems could emerge. But they caution that "possible policy responses should be evaluated on the basis of their ability to enhance supply and reduce price," and not on paranoia. "Using that metric," they write, "investments in oil exploration and extraction technologies are far more attractive than foreign policies that support dictators or attempt to police or democratize violent regions."