Every year, the United States spends $67.5 billion to ensure the worldwide free flow of oil. Often produced in unstable parts of the world and shipped through insecure chokepoints, the U.S. military works to make sure crude oil from other countries makes it safely onto the global market. Yet while this global oil market benefits some nations, its volatility threatens the American economy and undermines U.S. national security.
From technology to the weather, the factors affecting the price of oil are frequent and varied. One key constant, however, is the Organization of the Petroleum Exporting Companies (OPEC), a cartel that uses its significant reserves of crude and concentrated political power structures to exert undue influence on the world price, affecting the U.S. economy as a result. This influence was felt most prominently and recently in our own energy industry. Amid the rising oil prices of the previous decade, a small group of innovative American producers used new technology to unlock the oil held in U.S. shale formations, long considered to be too expensive and limited to produce. This new production rewrote the energy rulebook, and our oil imports were halved.
Even as U.S. crude production rose, industry watchers were unconcerned about global oversupply, confident that OPEC—led by global swing producer Saudi Arabia—would take its usual approach and cut production. At the November 2014 OPEC meeting on Thanksgiving Day, however, that confidence evaporated. The cartel announced it would maintain its production levels, sending prices into a tailspin. In June 24, the price of oil was $110 per barrel. By January 2016, the price was just $26.
Although the price crash benefits consumers in the short-term, with average annual household spending on gasoline falling almost 21 percent between 2011 and 2015, the U.S. shale industry has struggled. Since January 2015, more than 220 oil companies have gone bankrupt, taking 150,000 jobs with them and nudging parts of the country that benefited from the oil boom back toward recession.
But despite this success in decimating America’s domestic oil industry, OPEC has not finished yet. Spurred on by domestic issues such as social spending, OPEC is shifting strategy and creating more volatility by bringing in Russia and others to collaborate on production as a “supercartel.” The group’s unprecedented influence stems from its control of 90 percent of global reserves, but these entities do not act in the free-market, profit maximizing manner of American producers. They serve instead as government proxies, generating revenues to support regimes that do not share U.S. strategic priorities.
Despite this clear conflict of interest, our military ensures the free flow of their crude because oil is vital to the U.S. economy, powering 92 percent of our transportation system. The global nature of oil pricing means that no matter how much oil we produce, our economic sovereignty remains jeopardized by OPEC and the supercartel.
To counter our reliance on this opaque oil market, we must develop a range of policy responses. First, we must develop more resources here at home. Second, we must modernize our fuel efficiency standards to maximize the benefits from the oil we use. Third, we must encourage the adoption of alternative fuel vehicles running on diverse sources of domestic energy, including electricity, natural gas, and hydrogen. Finally, we must have an honest assessment of our ability to respond to OPEC’s actions to influence oil prices.
Work has already begun in Congress on this final recommendation, through the bipartisan introduction of H.R. 545 by Kevin Cramer (R-ND), Collin Peterson (D-MN), Trent Franks (R-AZ) and David Scott (D-GA). The bill creates a Congressional commission that investigates OPEC’s influence over the global oil market, examines America’s ability to mitigate the cartel’s effects and proposes a range of policy responses—trade, diplomatic, statutory and regulatory—to President Trump and Congress.
As American lives and our economic sovereignty continue to be risked to ensure a free flow of oil for countries that do not share our interests, the time for action is now. The President has rightly prioritized energy security in his America First Energy Plan, stating that his administration wants to, “Become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.”
With President Trump in office, the opportunity to tackle OPEC’s outsized influence has presented itself. The swift establishment of this committee will give it the potential to frame the administration’s energy agenda for at least the next four years—and ensure, most importantly, that our energy system truly works in our national interest.
Ken Blackwell, a former Domestic Policy Advisor to the Trump Presidential Transition Team, is a Senior Advisor to Securing America’s Future Energy.
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