The Myth of American Energy Independence
It’s election season again, and the onslaught of doom and gloom from both political tribes designed to frighten and motivate voters is in full swing. One of the main buzzwords politicians and media pundits throw around is the topic of energy “independence” as the simple and only solution to high energy prices.
There is no doubt that true independence would result in less exposure to the price fluctuations caused by the political and economic turmoil and the demand and supply forces imposed by the rest of the world, but how can this be achieved?
According to many politicians and media talking heads, all we have to do is pump more oil domestically than we import from foreign sources. Voila, we will be energy-independent and safe from world oil market price fluctuations and the geopolitical actors who control it. But is this true?
Miriam Webster defines independence as “not subject to control by others; not relying on something else; not affiliated with a larger controlling unit.”
Based on this definition, can we honestly say that the price of American energy has ever been independent?
Contrary to what we are being told, the fact is that whether America is a net exporter or a net importer of oil has minimal bearing on the price at all. Increasing or decreasing overall production will certainly affect the price. However, the source of that oil doesn’t matter when the world market sets the price.
Think of the oil market as a giant pool filled by pipes from all world producers. The pool rises and falls from the forces of world supply and demand. Suppose one producer pumps more into the pool. In that case, the other producers can pump less to keep the price stable or cut production enough to lower the supply sufficient to raise the price.
Conversely, suppose one contributor to the pool pumps less in an attempt to raise prices. In that case, the other producers can raise production to offset the increase and thus keep the price lower.
This happened in 2020 when Trump had to convince the Saudis to cut production to RAISE the price of oil to save the U.S. oil industry from collapse. While touting $2.00 gas as a success of his administration, he was also negotiating to raise the price of oil because the oil market was artificially low.
This was not necessarily a bad thing. Protecting America’s oil industry and thousands of jobs is a worthy goal. Still, politicians on both sides of the aisle have failed to explain that this doesn’t mean energy prices will be low.
So, if we were producing so much oil in 2020 that we were net exporters, why would we have to worry about what the other producers were doing? After all, if the definition of independence is to be a net exporter, then why does it matter how much the Saudis or the Russians are producing? Unfortunately, you can’t have your oil and burn it too.
For instance, as in 2020 when oil production in the U.S. hit its prime, to put U.S. oil companies out of business, OPEC and their partners, including the Russians, conspired to increase output. The result was an increase in supply well beyond demand which tanked oil prices. Remember all those oil tankers sitting off the coast full of oil with nowhere to unload? At one point, the price of a barrel of oil actually went negative!
Conversely, suppose OPEC and the world’s producers wish to raise the price of oil and squeeze the American economy. In that case, they have to cut production to offset the increase in American production to the point where it offsets the increase. This is not my definition of independence!
How can the American energy supply be independent when its price depends on what is happening in the world?
We need to remove our oil from the world’s pool.
To be truly independent, America must take its oil supply off of the world market and isolate our dometic pool of oil from the world pool. This can be achieved in one of two ways.
The government can prohibit the importation of foreign oil and the exportation of U.S. oil.
The second is to enact a massive tariff on imported oil to create a floor price for domestic crude set at an amount where domestic producers can stay in business.
Both methods have drawbacks and consequences that are too broad to discuss here. Either way, the immediate result will be a sharp increase in energy prices in the short run. Of course, the price will stabilize eventually. Still, the average cost would be tremendously higher because of the pool’s small size.
The domino effect felt across all sectors of the economy would be a burden on the American consumer as higher energy costs get factored into the price of all goods. Suffice it to say that there would be significant adjustments in the price of energy during the conversion, making it politically untenable.
Being a net exporter and producing more energy is a good thing. Providing thousands of jobs and filling the government coffer with lots of tax money is good for our economy. However, this is not independence. As a matter of fact, if we continue to rely on oil for energy to maintain America’s standard of living and place in the world as a superpower, we will have to remain dependent on the whims of a chaotic world oil market mostly controlled by anti-American actors.
Given all this, I have to raise my brow, and with a constipated Tucker Carlson look on my face ask, why is no one on the left or right talking about this? I’m just asking the questions.
