Reducing dependence on foreign oil

From Amit’s Thoughts

The United States imports more than half the oil it consumes. There are a lot of people here who say we should do X Y Z to “reduce the dependence on foreign oil”. The problem is that X Y Z usually involves reducing demand.

If we reduce demand, prices will go down.

If prices go down, the oil that costs the most to produce will be the first to be dropped. What oil is that? The domestic oil.

So if we reduce demand, a larger portion of our oil will be foreign. We'll shut down domestic oil production, which will increase our dependence on foreign oil. If our oil supply ever gets cut off, we'll be in more trouble than if we had been using more oil, because our infrastructure will have decayed.

To keep prices high, we need to make sure that our reducing demand doesn't lower the price of oil much. The way to do that is to encourage China to consume more oil. That will drive the price up, which will reduce consumption here in the U.S., without leading us to shut down production of oil. Maybe we'll even become an oil exporter. (Ha!)

Labels: future