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January 28, 2011

What Does Oil Cost?
Posted by Jacob Stokes

Iraq oilRight on time, just as DC recovers from the salmon-induced hangover of the president’s State of the Union address, the U.S. Chamber of Commerce begins calling the administration’s plan to shift the country’s energy mix away from oil and coal “unrealistic” and insisting it’s too costly. Is the Chamber right? Let’s examine.

If shifting to clean energy is too costly, what does the status quo cost? As Gen. Wes Clark points out, the costs are enormous in terms of the money Americans send overseas:

It’s an $821-million-a-day addiction to foreign oil. That’s $300 billion a year, or about $1,000 for every American—man, woman, and child. In June we sent $27 billion abroad; in July it was over $29 billion.

Our dependency on foreign oil costs more than the wars in Iraq and Afghanistan. It’s about 60 percent of the total U.S. trade deficit. If we weren’t sending the money away, it would be enough to repair America’s woeful infrastructure in a few years. Enough to send every child in America to college, and fix public education to boot. At a time when we’ve lost 8 million jobs, it would be enough to hire 3 million Americans at $100,000 per year, or almost 8 million at about $40,000 per year.

If a foreign country came here and said, “Pay us this tax,” we would consider it an act of war. Yet when a political party discusses trying to recapture $300 billion a year in taxes, it’s political suicide. Americans pay billions of dollars per month to foreign countries—some of them incubators of terrorism, nearly all of them unstable dictatorships—and it isn’t even a campaign issue.

And those are only the dollars we measure. Energy market scholar Peter Maass points out that a simple accounting from the trade balance misses a huge amount of the total costs, which are difficult to quantify. But a full accounting would likely show what anyone seriously watching already knows: it’s extremely expensive. Maass explains:

This is one of the tricky things about oil, the hidden costs, and one of the reasons we are addicted to the substance -- we don't acknowledge its full price.

If we wish to know, we can. An innovative approach comes from Roger Stern, an economic geographer at Princeton University who in April published a peer-reviewed study on the cost of keeping aircraft carriers in the Persian Gulf from 1976 to 2007. Because carriers patrol the gulf for the explicit mission of securing oil shipments, Stern was on solid ground in attributing that cost to oil. He had found an excellent metric. He combed through the Defense Department's data -- which is not easy to do because the Pentagon does not disaggregate its expenditures by region or mission -- and came up with a total, over three decades, of $7.3 trillion. Yes, trillion.

And that's just a partial accounting of peacetime spending. It's far trickier to figure out the extent to which America's wars are linked to oil and then put a price tag on it. But let's assume that Rumsfeld, in an off-the-record moment of retirement candor, might be persuaded to acknowledge that the invasion of Iraq was somewhat related to oil. A 2008 study by Nobel Prize-winner Joseph Stiglitz and Harvard University budget expert Linda Bilmes put the cost of that war -- everything spent up to that point and likely to be spent in the years ahead -- at a minimum of $3 trillion (and probably much more). Again, trillion.

Both of these accounting measures attempt to add up the costs in dollars, but surely the Chamber of Commerce cares about American security writ large. So to get the full picture, any accounting of the cost of oil would also have to include strategic costs, the tactical costs and the costs of climate change to our security. Those are even harder to measure than the costs of importing oil or the costs of securing supply and transport of the stuff,  but again, no serious person would say the costs aren't enormous. The military understands this, and they’re leading the way when it comes to cutting back on its energy needs. The armed services know it’s time to get serious about what is and is not too costly or unrealistic for America – sadly, the Chamber of Commerce does not.

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Enough to send every child in America to college, and fix public education to boot. At a time when we’ve lost 8 million jobs, it would be enough to hire 3 million Americans at $100,000 per year, or almost 8 million at about $40,000 per year.

The military understands this, and they’re leading the way when it comes to cutting back on its energy needs. The armed services know it’s time to get serious about what is and is not too costly or unrealistic for America – sadly, the Chamber of Commerce does not.

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I mean, the most salient point here is that the U.S. Chamber of Commerce has huge, powerful American oil and gas companies as a considerable bloc of its membership, not the American people or American security interests writ large. The Chamber might pay lip service to the public good, but it is concerned with one thing: Protecting the profits of its corporate members. And for oil and gas companies in times of rising prices, profits are GOOD.

It's even more head-smackingly absurd that the Chamber can't look far enough into the future to realize that soon, renewable-energy companies will be needing political representation as well, and they might not be too quick to apply for membership at the U.S. Chamber of Commerce if that organization is already lobbying against them on the Hill. The Chamber is acting as if oil and gas are the ONLY industries that need representation, totally ignoring the OBVIOUS up-and-coming alternative-fuels industries. These people are literally too dumb to even get capitalism right.

The war on the Western Front is an invaluable study in terms of strategy, operational leadership and battle tactics. The future reorganisation of Pakistan and Indian Army was done based on the experiences of 1971.

The Chamber might pay lip service to the public good, but it is concerned with one thing: Protecting the profits of its corporate members. And for oil and gas companies in times of rising prices, profits are GOOD.

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The Chamber is acting as if oil and gas are the ONLY industries that need representation, totally ignoring these all things are great to know about it.

The military understands this, and they’re leading the way when it comes to cutting back on its energy needs. The armed services know it’s time to get serious about what is and is not too costly or unrealistic for America – sadly, the Chamber of Commerce does not.
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Oil prices have risen 7.35% since the beginning of the year, while gasoline futures have risen 10.67%.

Oil prices have risen 7.35% since the beginning of the year, while gasoline futures have risen 10.67%.

The question now is whether turmoil in the Middle East and Northern Africa could lead to a sustained cutback in production or delivery disruptions that could drive those prices much higher and push the U.S. as well as other countries back into recession. Supply-driven oil shocks, like the ones that came with the 1973 oil embargo and the 1979 Iranian revolution, were factors in past recessions.

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