Are we crazy?
It's hard to watch the ongoing turmoil in the Persian Gulf without a sense of despair. The clear message -- one that's been repeated often since the early 1970s -- is that the United States and the entire industrial world could lose vital oil supplies in a moment. But the message is ignored. There's now hardly a peep in Washington about adopting the essential policies to limit our vulnerability.
Everyone debates the wisdom of escorting reflagged Kuwaiti tankers. No one looks beyond the current crisis. We need an an oil excise tax of 20 or 25 cents a gallon to discourage consumption. We need a larger strategic petroleum reserve, as do the Europeans and Japanese. These measures wouldn't isolate industrial nations from a catastrophic cutoff of Mideast oil. But they would provide time to cope with the social, economic and (probably) military consequences of a prolonged loss of Persian Gulf oil.
The problem is not just for today or tomorrow. It stretches well into the next century. In 1986, the Persian Gulf contained two-thirds of the noncommunist world's 619 billion barrels of proven oil reserves. Large new reserves could be found elsewhere. Inexpensive alternatives to oil could emerge. The Middle East could become an oasis of political stability and common sense. All these things are possible, but none seems probable.
Of course, our position today is stronger than in the early 1970s. In 1986, the noncommunist world used less oil -- despite larger economies and bigger populations -- than in 1973. American cars average 18 miles per gallon of gasoline on the road compared with 14 in 1973. In Europe, coal and nuclear power cut oil use for industrial and utility boilers. New oil supplies from Mexico, the North Sea and developing countries have reduced production by the Organization of Petroleum Exporting Countries (OPEC).
We also now have strategic petroleum reserves. The U.S. reserve totals 530 million barrels, equal to about 90 days of U.S. imports. Excess commercial oil stocks bring total available U.S. oil inventories to about 120 days of imports. In Japan and West Germany, equivalent figures are about 80 days of imports. The industrial world could probably cope with a prolonged cutoff of Persian Gulf oil today. The available stocks of industrial nations equal about 100 days of total imports but more than 200 days of Persian Gulf imports. Higher prices would reduce oil consumption and stimulate extra production.
Nevertheless, today's stocks are inadequate. They need to be judged against the needs 10 or 20 years from now. No one can say precisely what those will be, because no one can judge the odds of a catastrophic cutoff, when it might happen or how long it might last. But the trends are clear. Modest economic growth will probably raise oil consumption, while non-Persian Gulf reserves will be depleted and output will fall. Dependence on Mideast oil would rise.
Energy planners assume that any upheaval in the Persian Gulf would only temporarily reduce oil supplies. Whoever wins would need oil revenues, it's reasoned. That's plausible. The worst case examined in a recent Reagan administration study on energy security was a six-month cutoff of Mideast oil. Unfortunately, the Mideast has a way of defying Western logic. Future conflicts might not have a clear winner. The Iran-Iraq war has dragged on for seven years; Lebanon is in a state of permanent civil war.
Or suppose there were successive crises. In 1993, the West reacts by drawing down its strategic reserves. Calm returns, and oil supplies resume. Then in 1995, there's another crisis, but reserves haven't been replenished. It's doubtful they could be. Even today's modest reserves have been built up gradually over a decade. The margin of safety lies in larger reserves and lower consumption.
But our policy is to dawdle. The U.S. strategic reserve is being filled at a desultory rate of 75,000 barrels a day. At that pace, the target of 750 million barrels won't be reached until 1995. Even that is inadequate. The reserve ought to be enlarged to the original target of a billion barrels. But there's no current planning to do so. These things take time. Site selection, environmental studies and engineering work require up to five years of preparatory work.
As for an oil tax, it's drifted off Washington's political agenda. The Department of Energy estimates that a 25 cent-a-gallon tax would cut oil use a million barrels a day by 1995. Over a year, that's the equivalent of having another 365 million barrels in the strategic petroleum reserve. Considering today's large government budget deficits, an oil tax ought to be a natural.
There is no solace in the fact that the United States relies on the Persian Gulf for only a small portion of its oil imports. Without adequate reserves or effective international sharing, a crisis would trigger a bidding war for all available supplies. The strains on the Western alliance would be enormous. The world economy would probably go into a recession, aggravating trade tensions. The common threat requires common precautions by industrial nations.
We cannot urge our allies to take steps that we won't take. Of course, there are practical problems. An oil tax would be inflationary. To minimize that impact, it ought to be introduced slowly, say a penny per gallon per month. Some large oil-using industries in international trade might be put at a competitive disadvantage. Petrochemicals and agriculture come to mind. Perhaps modest exceptions should be made. But the main objectives are clear: to promote energy efficiency and to fill the strategic reserve while oil supplies are ample.
These measures involve present costs and discomforts to guard against a possible, future hazard. It's a matter of political prudence and social discipline. Events from the Middle East -- the recent riots in Mecca, the ongoing Iran-Iraq war -- are constant reminders that the hazard is real. A sensible society would take heed. And so the question remains.
Are we crazy?