An international oil embargo of America by all major oil exporting nations; a major disruption of oil transportation lines; or the funneling of oil revenue to terrorist organization. Due to its dependance on foreign oil, these hypothetical worst-case scenarios demonstrate the vulnerability of the U.S., which is struggling under a recession, according to many politicians and scholars.
“What we found, which is somewhat to my surprise, is that the big risks tend to be economic and the political risks are much less of a concern,” said Keith Crane, Director of the Environment, Energy and Economic Development Program at the RAND Corporation, a think tank, who was commenting on the findings of his newly published report, which related the effect of imported oil on U.S. National Security.
The largest risk to the economy, Crane said, is a “large and precipitous decline in the amount of oil,” because the demand for oil in the short-run in inelastic, or cannot change. Therefore, economic laws would dictate that since America cannot change its consumption habits quick enough to match the decline in oil supply, oil prices would rise exponentially, he said.
If oil prices doubled, the United States' Gross Domestic Product would slow by an estimated one to five percent, Crane said, citing the oil price spike last summer as proof of this assertion.
However, the political risks, like the possibility of an oil embargo, Crane believes, are secondary issues. The reason he is not worried about an embargo from any one nation is because they simply do not work.
Embargoes fail because of the global nature of the oil market, which makes oil transferrable, said Crane. Also, embargoes often cause undesired consequences, as seen through the American embargo of Japan during the late 1930s and how this led to the attack on Pearl Harbor.
“Even if we did not import one drop of oil from the Persian Gulf, we would be just as vulnerable economically to a cut-off in that region as if we imported all our oil from there,” said Crane. As a result, while embargoes do not work, any major supply disruption would have an adverse affect on the entire world’s economy says Crane.
But regardless of what happens, Crane believes that America must begin to move towards energy independence. The main plan he unveiled involved an excise tax to artificially raise the price of oil and make it less reliable.
“The most effective policy instrument is to increase an excise tax on oil, I would like to point here that tax revenues don’t disappear they go someplace, and while this is not a politically popular recommendation, they can be returned to tax payers,” said Crane. He wants to see the tax be a level of 30 percent, or $1, which would reduce consumption by 15 percent.
While such a plan may be unpopular, Crane ardently believes that it is the only way to make America energy independent and protect the economy from a major oil shock.
RAND Exec: U.S. Needs To Tax Fossil Fuels
An international oil embargo of America by all major oil exporting nations; a major disruption of oil transportation lines; or the funneling of oil revenue to terrorist organization. Due to its dependance on foreign oil, these hypothetical worst-case scenarios demonstrate the vulnerability of the U.S., which is struggling under a recession, according to many politicians and scholars.
“What we found, which is somewhat to my surprise, is that the big risks tend to be economic and the political risks are much less of a concern,” said Keith Crane, Director of the Environment, Energy and Economic Development Program at the RAND Corporation, a think tank, who was commenting on the findings of his newly published report, which related the effect of imported oil on U.S. National Security.
The largest risk to the economy, Crane said, is a “large and precipitous decline in the amount of oil,” because the demand for oil in the short-run in inelastic, or cannot change. Therefore, economic laws would dictate that since America cannot change its consumption habits quick enough to match the decline in oil supply, oil prices would rise
exponentially, he said.
If oil prices doubled, the United States' Gross Domestic Product would slow by an estimated one to five percent, Crane said, citing the oil price spike last summer as proof of this assertion.
However, the political risks, like the possibility of an oil embargo, Crane believes, are secondary issues. The reason he is not worried about an embargo from any one nation is because they simply do not work.
Embargoes fail because of the global nature of the oil market, which makes oil transferrable, said Crane. Also, embargoes often cause undesired consequences, as seen through the American embargo of Japan during the late 1930s and how this led to the attack on Pearl Harbor.
“Even if we did not import one drop of oil from the Persian Gulf, we would be just as vulnerable economically to a cut-off in that region as if we imported all our oil from there,” said Crane. As a result, while embargoes do not work, any major supply disruption would have an adverse affect on the entire world’s economy says Crane.
But regardless of what happens, Crane believes that America must begin to move towards energy independence. The main plan he unveiled involved an excise tax to artificially raise the price of oil and make it less reliable.
“The most effective policy instrument is to increase an excise tax on oil, I would like to point here that tax revenues don’t disappear they go someplace, and while this is not a politically popular recommendation, they can be returned to tax payers,” said Crane. He wants to see the tax be a level of 30 percent, or $1, which would reduce consumption by 15 percent.
While such a plan may be unpopular, Crane ardently believes that it is the only way to make America energy independent and protect the economy from a major oil shock.