PRICE SLUMP REVIVES U.S. SECURITY ISSUE

U.S. oil and gas producers, rocked by falling prices for crude oil, are trying to force President Bill Clinton's hand. The Independent Petroleum Association of America and other groups have asked him to "make an immediate adjustment" in oil imports on national security grounds.

Dec. 13, 1993

3 min read

The tactic is shrewd and fascinating. Politically, the national security context for energy issues has been dormant. It nevertheless has legal standing under Sect. 232 of the Trade Expansion Act of 1962 (TEA), the legislative history for which establishes that increasing domestic oil production is a legitimate national security aim. TEA gives the President authority to limit imports if he finds that they threaten national security. It is under this law that IPAA now seeks unspecified action from the administration.

THE PRESIDENT'S OPTIONS

So what is Clinton supposed to do? Presidents have acted under TEA before-setting import quotas and fees and prohibiting imports from disfavored nations. But Clinton has reasons to think twice about options from this list: the North American Free Trade Agreement and Middle East peace negotiations, to name just two. Still, crude oil prices have plunged, some measure of domestic production will be lost if prices stay low for long, and the law says that at some point falling production warrants a presidential response.

A path of least resistance won't be hard for Clinton to spot between this political rock and economic hard place. It's the plan that the Department of Energy was to have released late last week for increasing U.S. oil and gas production. By most accounts, the measure-not available at this writing-aims mainly at removing some of the regulatory obstacles to oil and gas work in the U.S. IPAA and other producer groups obviously want more than that. Yet official recognition that the U.S. does much to prevent domestic oil and gas production is something that the industry should applaud.

In fact, the TEA petition might give the administration whatever political cover it might need for the DOE initiative against industry's detractors. The Clinton team now can nod toward the notion that rising oil imports threaten national security, point to the DOE move, and justifiably claim to have acted in areas where other administrations feared to tread. As long as oil products are cheap, who outside of oil and gas producing states will argue?

The tough question is whether the administration and producers pushing the TEA petition really want policies oriented to significant volumes of domestically produced oil. Will the U.S. increase leasing of federal land in major exploratory frontiers? Will zooming environmental requirements and liabilities go away? Will producers be able to recover capital to the full extent of their exploration and production investments? Will the government ease taxes and regulatory costs that hasten decisions to shut in stripper wells during price slumps? Those are the big-ticket issues that anyone serious about domestic production must address.

OTHER DIMENSIONS

Producers should not shake the national security tree too hard. Lawmakers might look anew at the issue and ask about other dimensions, such as refining and consumer interests, and see other perspectives on crude prices. In the current political climate, they might ask whether they'd serve national security more by manipulating consumption than by manipulating production. They might even ask whether, in the modern oil market, domestic production has much to do with security at all. For producers, answers to questions like these could add up to a sharp knock in the head.