Are We Ready for the Next Oil Shock?

Could a mere 4 percent shortfall in daily oil supply propel the price of a barrel to more than $120 in a matter of days? That’s what some oil market experts are saying, and if they’re correct, we face the very real possibility of an oil shock wave that could send our economy reeling. Such a rapid rise in fuel costs would have profound effects that could severely threaten the foundation of America’s economic prosperity.

The global oil trends now at work — rising consumption, reduced spare production capacity and high levels of instability in key oil-producing countries — all increase the likelihood of a supply shock. But unfortunately energy debates in this country often suggest a profound misunderstanding of these international economic dynamics. Calls for “energy independence” notwithstanding, oil is a fungible global commodity, which means that events affecting supply or demand anywhere will affect oil consumers everywhere. A country’s exposure to world price shocks is thus a function of the amount of oil it consumes and is not significantly affected by the ratio of domestic to imported petroleum.

The magnitude of our dependence on oil puts stress on our military, strengthens our strategic adversaries and undermines our efforts to support democratic allies. Each year the United States expends enormous military resources protecting the chronically vulnerable oil production and distribution network while also preparing to guarantee international access to key oil-producing regions. This allocation of forces and dollars diminishes the military’s capability for dealing with the war on terrorism and other defense priorities.

Considering the potentially devastating impact of an oil crisis, the time has come for new voices, especially those of business leaders and retired national security officials, to join the call for meaningful government action to reduce projected U.S. oil consumption. Our respective personal experiences — running a global transportation and logistics company and spearheading the establishment of an independent U.S. Central Command in the Middle East — convince us that America’s extreme dependence on oil is an unacceptable threat to national security and prosperity.

Washington Post