U.S. import strategy

The General Accounting Office says U.S. reliance on low-priced foreign oil is not a bad energy policy. GAO, a congressional watchdog agency, studied the issue recently for the House Budget Committee and issued a report titled: Evaluating U.S. Vulnerability to Oil Supply Disruptions and Options for Mitigating Their Effects. The paper said the U.S. economy realizes hundreds of billions of dollars in benefits annually by using relatively low-cost imported oil rather than relying on more expensive

Jan. 6, 1997

3 min read

WithPatrick Crowfrom Washington, D.C.
[email protected]

The General Accounting Office says U.S. reliance on low-priced foreign oil is not a bad energy policy.

GAO, a congressional watchdog agency, studied the issue recently for the House Budget Committee and issued a report titled: Evaluating U.S. Vulnerability to Oil Supply Disruptions and Options for Mitigating Their Effects.

The paper said the U.S. economy realizes hundreds of billions of dollars in benefits annually by using relatively low-cost imported oil rather than relying on more expensive domestic sources of energy.

"By comparison, oil shocks impose large but infrequent economic costs that, when annualized, are estimated to cost the U.S. economy tens of billions of dollars a year.

"More importantly, substituting more-costly domestic production for oil imports without lowering overall oil consumption would be unlikely to substantially lower the costs of oil supply disruptions.

"In essence, the economic costs of oil price shocks depend largely upon the rise in the price of oil coupled with the nation's level of oil consumption, rather than the level of imports.

"As long as market prices prevail, the price of domestic and world oil will be the same and will rise and fall with changes in world oil market conditions.

"Under these conditions, an incremental decrease in oil imports would reduce the benefits of such imports without substantially lowering the costs of oil price shocks."

Other costs

The paper admitted that oil supply disruptions impose significant economic costs, and reliance on imported oil imposes military and other costs that are not easily measured.

GAO noted the Clinton administration has taken some steps to increase conventional and alternative energy supplies, in order to lower the economy's vulnerability to oil supply disruptions.

But it said those steps will have little effect. The Energy Information Administration forecasts the economy will not be significantly less vulnerable to foreign oil disruptions through 2015, because domestic oil demand is projected to increase in that period.

"Only over a longer period do energy analysts anticipate significant improvements, and that depends on technological advances in such areas as energy efficiency and alternative fuels."

SPR sales options

GAO said the energy experts it consulted about options for reducing the economy's vulnerability to oil supply disruptions said in the short term the U.S. should rely on rapid and large releases of oil from the Strategic Petroleum Reserve to blunt price increases at the onset of a supply disruption.

It reported some analysts urged that the U.S. establish market-oriented triggers, such as the sale of options to purchase SPR oil, to avoid time-consuming government decision-making and ensure a rapid and sufficient drawdown of the SPR at the onset of an oil supply crisis.

Longer term, the energy analysts favored research to develop cost competitive alternatives to petroleum, especially in the transportation sector.

Some said the gasoline sales tax should be raised in order to lower oil demand and increase the cost competitiveness of alternative fuels but also noted the political barriers to such an action.