Last week, President Obama announced his “bold, new” goal to reduce America’s oil imports by one-third by 2025. While many critics have rightly objected that the administration offered no program of action to actually achieve that goal, there is a bigger problem. The goal itself is inadequate.
Obama wants to reduce oil imports by 33 percent in 14 years. But oil prices have risen by 44 percent in the past 14 fortnights, and 900 percent in the past twelve years. In 1999, Americans paid $90 billion for all their oil, less than 5 percent of what they paid in federal taxes. At current prices of $108 per barrel, Americans this year will pay over $800 billion for oil, an amount equal to 33 percent of all federal tax revenues, with two thirds of the take going to fill the coffers of foreign regimes. If current trends continue, there is every prospect that oil prices will more than triple by Obama’s 2025 target date, leaving us paying more for oil than we pay to the federal government.
In other words, the Obama plan is a strategy whose stated goal entails the total defeat of the United States in the energy war.
The likely impact of the Obama administration’s surrender to continued petroleum extortion can be predicted by looking at the effects of the oil-price hikes we have suffered for the past four decades, including those in 1973, 1979, 1991, 2001, and 2008. Each oil-price rise has been followed by a sharp rise in American unemployment.
The distress to American workers caused by such events is manifest, but the economic damage goes far beyond the impact on the unemployed themselves. A sustained oil price of $100 per barrel will add $520 billion to the U.S. balance-of-trade deficit. Furthermore, there is a direct and well-established relationship between unemployment rates and rates of mortgage defaults. Thus the $130-per-barrel oil shock of 2008 didn’t just throw 5 million Americans out of work, it made many of them default on their home payments, and thus helped destroy the value of the mortgage-backed securities held by America’s banks. This, in turn, threatened a general collapse of the financial system, with a bailout bill for $800 billion sent to the taxpayers as a result. But that is not all. The destruction of spending power of the unemployed and the draining of funds from everyone else to meet the direct and indirect costs of high oil prices reduce consumer demand for products of every type, thereby wrecking retail sales and the industries that depend upon them. And as the economy goes down, so do federal tax revenues, thereby exploding the national deficit.
This wrecking operation on our economy is being perpetuated by the Organization of Petroleum Exporting Countries (OPEC), a cartel of tyrannies and kleptocracies largely hostile or indifferent to the prosperity of the industrialized West. This cartel, which controls 80 percent of the world’s commercially viable oil reserves, is currently limiting its production to 1973 levels — despite a doubling of the size of the world economy in the nearly four decades since. As a result, we and our allies are having our economies looted as oil prices go through the roof, with even worse consequences falling upon the world’s poorest. An oil impost that causes depression in the advanced world can cause starvation in the Third World.