What's Not to Like About Cheap Gas

This RePosted article comes at the suggestion of a reader, Howard Schmitt of Pittsburgh, who recently came across a 1999 Post essay about the perils of cheap gas and praised it for its prescience. That essay, originally published in The Post's Outlook section, is "reposted" below, along with the article that originally accompanied it.

We're grateful for Mr. Schmitt's generosity. He also got us thinking: What other columns or editorials from The Post's archives would you like to read again? Are there past opinion pieces that you think are newly relevant? Do you remember editorials or columns that were spot-on -- or dead wrong? Do you wonder what the Post had to say about a particular historical event that might shed light on what's happening now?

Send your suggestions to reposted@washingtonpost.com. We don't expect you to recall headline, byline and date. And we can't promise that we'll get to every request. But give us as much guidance as you can -- and explain why you think it would be helpful or interesting to read again now. Then we can start digging through the archives.

Where Cheap Gas Takes Us: The Threat Abroad in That Bargain Fill Up

By Teresa Wyszomierski

Mar. 7, 1999

With gasoline prices at less than a dollar a gallon--an all-time low--it's getting easy for Americans to fill up their gas-guzzling Pathfinders or Tahoes without a twinge of worry. But the same low fuel prices have also set two trends in motion overseas that could prove disastrous for the economy of the Middle East, the fortunes of Western oil companies and, ultimately, the pocketbooks of those same American consumers.

First, profit-hungry U.S. energy companies, which aggressively pursued alternative sources of oil after the 1973 Arab oil embargo, are now beginning to seek out cheap investment opportunities in the Persian Gulf. If the trend continues, America could once again become overly dependent on oil from the Middle East. Second, the region's growing economic instability, prompted by the low fuel prices, is fomenting scattered social and political unrest. This could leave Americans more vulnerable to disruptions in supply, such as physical attacks on pipelines and other oil installations.

Despite some attempts to diversify, most Middle Eastern countries have remained "petrodollar" economies, deriving most of their foreign exchange earnings from oil exports. The United Arab Emirates, for example, derives 60 percent of its income from oil sales. In both Yemen and Iran, oil accounts for more than 80 percent of total exports. In Saudi Arabia, oil income has risen steadily since 1993 as a percentage of government revenue, and oil sales now account for 35 to 40 percent of its GDP.

The drop in crude oil prices, due in part to falling demand from the battered economies of Asia and in part to an excessive buildup of oil production, has already had an impact on both Middle Eastern economies and Western oil company profits. Throughout the Persian Gulf, budget deficits have widened dramatically, necessitating both tax increases and significant cuts in government spending.

Iranian ministries have received less than half of their proposed budgets this year. The Yemeni government, which lost half its income, has cut 55 percent from its budget since 1998 and raised taxes significantly despite fierce opposition in parliament. The Saudi government, which lost one-third of its revenues last year and is now $13 billion in the red, has adopted an austerity budget for 1999 that includes cutting state spending by almost 16 percent.

In the West, oil company revenues have also been eroded by a season of economic crises in Asia and several mild winters in North America, creating lower demand for heating oil and gasoline, and thus making it impossible to charge consumers higher retail prices. Chevron's and Texaco's reported incomes declined by between 40 and 50 percent in 1998. Corporate balance sheets have been damaged as well, with petroleum inventories being adjusted to reflect lower and lower market values. And because oil prices are not expected to recover soon, near-term profitability and long-term survival are assured only to those producers that can lower their production costs.