There is an agitated chorus of voices in America laying blame at the feet of the Obama administration for not doing enough to end our dependence on foreign oil. "Drill baby drill" is a rallying cry. They complain about his push for the Saudi's to up production, his concessions to Brazil and his moratorium in the Gulf.
But before you jump too quickly onto that band wagon and sing along, step back for a minute and look the whole thing over with a bit of a broader perspective.
Point One: There are many places in the world where oil reserves are currently being tapped. The technology is in place, the equipment up and running and oil is flowing. Getting that production on line is a very expensive undertaking. Keeping the apparatus running is an expensive chore. And almost all of that technology and the supply of equipment, machinery, technicians and parts feeds a part of the oil industry in America, the cost of which is paid by the producing companies and amortized over time into the price of oil.
Starting new production, with new equipment over American reserves would not likely decrease the price of oil since the start up costs would be tremendous and would be recouped, of course, by the companies through the price of their oil.
Point Two: There is a growing belief that oil is not a limited resource, but is rather the byproduct of the gases being released by the earth's core which when cooled in the upper layers of rocks, shale and sand, condenses into oil. The issue is still being debated whether oil is a "fossil fuel" or "abiotic", but there is not much of a debate over how much oil exists. And it is quite clear that the vast majority of the world's proven oil reserves are not in North America. In fact, the middle east has three times the oil of all North American sources, including Canada combined.
Remember, the price of a commodity like oil, (unlike the value of the dollar, the price of services or of manufactured goods), is affected by two factors: supply and demand. The supply side can be manipulated, but "demand" is no longer defined by "need". Demand now includes the profit predictions of investors.
Take for example the "dot.com" bubble of the 1990's. Stocks in any number of new Internet companies continued to trade higher and higher with few of those price increases tied to the profitability of the companies themselves. Rather, the stock prices shot up on speculation that the "stock prices" alone would go higher.
Similar thinking affects trade in oil. Delivery contracts are purchased based upon predictions of how future, or developing, events will affect supply or simply on the basis of how much higher the speculator thinks his stock will go. "Demand" therefore is not defined solely by public consumption, but by the "demand" for, or desirability, of the stocks themselves, factors which are not likely to result in lowering the price of oil merely because it is produced in the United States.
Point three: Unmined oil is considered in the United States to be a "mineral interest". These are owned as property rights by indivduals. At least as of now the government has not nationalized those private property interests and so the decision to mine those minerals or not is still solely that of the owner. Nothing the Obama administration is doing or not doing can, thus far, force an owner to drill.
On the other hand, to think that the oil industry could not persuade Obama to allow drilling if the owners of the mineral interests really wanted to drill, is quite frankly naive. These are people who play a game at a much higher level than the chorus of voices singing "drill baby drill" seems to grasp. They are much better at exciting the public, raising the oil prices at the pump and keeping their anger directed where they want it directed than those being manipulated would like to admit.
In addition, if the oil companies cannot get what they want out of government, with the millions of dollars spent on Washington lobbyists and the millions paid to help elect one candidate over another, public discontent isn't likely to be more successful. Just think about it, the oil companies don't have to sell their American oil unless and until the public is softened up to high enough prices to make it worth their while. In the meantime they will continue to make huge profits selling us foreign oil at a mark-up and let their oil sit in the ground.
Point four: Let's assume that our demand for oil itself remains or increases. Let's also assume that oil is not renewable and one day the rest of the world will run out. So long as we can convince them to sell us their last drops, and we then hold what is left, we get two huge benefits.
First, we have oil, they don't. This means the decisions we make now might lead to a brighter future for America compared to the rest of the world. Its kind of like Mom and Dad telling you to save part of your earnings for a rainy day, even though you argue that all of your friends are doing things and going places and you just don't understand why you can't spend like they do.
Second, assuming that by then we have all the oil that's left, what kind of price do you think we could charge to sell them ours? And what kind of benefits might this provide? Well, just look at what Alaska did.
When Alaska leased its oil reserves on the North Slope and the land for the pipeline, the state received so much money that it was able to create what is called the "permanent fund". They never spend the fund itself, but the return they get on the investment is enough that they have no income tax and each resident of the state gets a check for nearly $2,000 per year. That's right, they have no state income tax and on top of that, a family with three kids will get a check for somewhere near $10,000 as their share of the interest on the permanent fund, EVERY YEAR!
So, before we go jumping up and down screaming how we need to be tapping our own oil reserves, let's take a deep breath and consider all of the other possibilities which appear from taking it all in with a broader perspective.
I'm no fan of Obama, and I'm certainly not coming to his defense, but let's not allow ourselves to become pawns in someone else's game either.
Remember, think, study, analyze, debate and then decide. Reactions and reflexes are possessed by nearly all animals. Critical thinking is what separates us from the rest.
