MORE THAN a decade has passed since America experienced its last "oil shock" of the '70s. Where "energy security" was once the hot topic for pundits, drugs and the dissolution of the Soviet empire have become the more urgent subjects. Yet, the apparent stability of world oil markets masks a dependence on imports that leaves the United States more vulnerable to a supply disruption than at any time in its history.
To illustrate: In 1973, imports accounted for roughly 34.8 percent of U.S. oil consumption, and of that amount, only 5.3 percent originated in the Middle East. By 1979, that dependence had risen to 43.1 percent of consumption, with 16.5 percent accounted for by Middle East supplies. By this past June, U.S. oil imports were 52.3 percent of consumption, higher than they were at the time of either of the two oil shocks of the 1970s. More important, as recently as April, 11.5 percent came directly from the Persian Gulf, and the tensions this week between Kuwait and Iraq were an unsettling reminder of that region's volatility.
There is, to be sure, an argument for using foreign oil first and keeping domestic supplies for future use -- the Strategic Petroleum Reserve has been an effective example of this strategy. Moreover, worldwide expansion of oil capacity, development of alternative energy sources and conservation have made the world less vulnerable to disruptions in any one source of supply.
However, there comes a point when the level of dependence is such that the costs outstrip any potential benefits. There is just so much that can be done in the short run should supplies be disrupted.
Some sectors of the domestic economy also pay a price while the nation enjoys bargain-priced imported oil. For example, the downturn in domestic exploration caused a loss of some 1.362 million barrels a day of domestic crude production. This not only affected import levels but cost the nation more than 300,000 jobs in the oil industry alone, as well as many service jobs in related industries.
More significant, though, is the extent to which U.S. dependence on Middle East imports has created a hidden multibillion-dollar subsidy to America's international competitors in Japan and Western Europe. This subsidy grows out of our role as peacekeeper in the region.
The Pentagon assigns around $40 billion to what it terms "Gulf Contingencies." Attributing this entire amount to our import dependence would overstate the true military burden it creates; other strategic considerations would cause us to have substantial presence in the region. Still, a portion of our defense outlays in the Gulf are specifically tied to our need for its oil. In 1988, the National Defense Council analyzed the Gulf Contingencies component of the defense budget for the period 1986 to 1988, and concluded that the cost of oil-related defense outlays in the Persian Basin came to around $14 billion annually (excluding the estimated $600 million annual cost of tanker reflagging operations), or roughly $29.50 per barrel. While this cost does not appear at the pump when you buy gas, it is still a very real price you pay -- albeit indirectly through your federal taxes.
You might argue -- correctly -- that this is what it costs to enjoy use of the petroleum resources from this region. But Western European and Japanese energy consumers enjoy an even larger share of the benefits of our defense of the Persian Basin, without underwriting the cost. As a result, they get what amounts to an $8.2 billion annual subsidy at U.S. taxpayer expense.
In 1988 (the most recent year for which complete figures are available), Japan imported 58.8 percent of its oil from the Persian Gulf, and Western Europe imported 28.5 percent of its supplies from the region, compared with 9.3 percent for the United States. Together, Western Europe and Japan accounted for 58.3 percent of all of the oil exported by Middle East producers.
Furthermore, since energy is basic to manufacturing, the value of the subsidy is multiplied as goods make their way from the factory gate to the store shelf. When that multiplier is taken into account, the full value of the benefit Japan and Western Europe derive is on the order of $18.4 billion per year. Nor is this direct subsidy the only competitive advantage Europe and Japan gain as a result of our assumption of the Gulf's defense burden.
Japan and Europe (because they lack any military presence) also gain the intangible advantage of being perceived as neutral in regional conflicts. As a result, Japanese and European firms are less likely to experience the hostility routinely directed at U.S. firms by nations such as Iran -- and may operate in countries where the United States would clearly be unwelcome.
Obviously, after World War II, no one else could have taken on the exclusive role of defending the Persian Basin. Today, though, does it make sense to continue to give our competitors a multibillion-dollar free ride at U.S. taxpayer expense? The simple truth is that U.S. reliance on imports is reaching an intolerable level, and the time to curb it is before we suffer from another oil shock -- or an attempt by one of the many groups hostile to the United States to target oil loading and transportation facilities.
If addressed properly, U.S. dependence might lead to positive results. It still provides an opportunity to rationalize energy markets and bring prices into line with real costs. It might also stimulate domestic conservation and energy development, and a fair basis for sharing the defense burden with our allies. Without leadership in such directions, however, our energy dependence can only grow, and with it the terrible threat to America's well-being.
Milton Copulos is president of the National Defense Council Foundation.