If the United States slapped a tariff on OPEC imports, the US could still source the crude it needs from Canada and Mexico. More pipelines from Canada would be needed and boosting production in Mexico would help stabilize economic development and employment in Mexico. CNBC photo by Justin Solomon.
Imposing tariffs on OPEC imports could address US economic and national security issues
By Ed Hirs
This article by Ed Hirs was published by the Houston Chronicle on Nov. 27, 2018.
Cheap oil is back, bought and paid for with the blood of Saudi journalist and dissident Jamal Khashoggi. Add his life to the 6,976 Americans killed and 52,774 wounded in Iraq, Afghanistan and other Middle East wars since the attacks on Sept. 11, 2001. The further out-of-pocket cost for those military conflicts is now more than $5.6 trillion of national debt, which works out to more than $1 per gallon for every gallon of fuel we have purchased since 9/11.
Turns out that oil isn’t so cheap after all.
It is time to recognize that OPEC and Saudi Arabia don’t have our best interests at heart. President Trump apparently hasn’t gotten the memo. Last week he praised Saudi Arabia for keeping oil prices low, comparing it to a “tax cut.” The last time we saw OPEC drive down oil prices like this was 2014. It ended up costing the United States 250,000-plus jobs, $250 billion in capital, and $200 billion in annual gross domestic product. Texans — who now produce more than 4.5 million barrels each day — should be worried about what happens next.
However, there is a way to address both the economic and national security issues surrounding the quest for cheap oil. Trump could take a page from President Dwight Eisenhower’s prescient and strategic policies and impose an oil import quota. This would limit the amount of oil that the United States could import and set a stable price floor for domestic producers. It’s an idea that fits perfectly with Trump’s pro-tariff policy and would provide a boost to Texas and U.S. oil producers while distancing us from military conflicts in the Middle East.
Eisenhower had warned us against allowing the military-industrial complex to drive policy decisions — the tail wagging the dog. And now, his terrible forecast has become explicit policy for the United States. We’re shaping foreign policy around an agenda of selling weapons to Saudi Arabia and sponsoring foreign wars.
We could reverse this by reinstating Eisenhower’s oil import quota, which was first implemented in 1959. Eisenhower knew that no matter who “owned” the oil in the Middle East, they would not be aligned with U.S. interests. He had already fought for those oilfields in World War II, less than 20 years prior. That’s why he set out to protect and prioritize domestic producers.
Eisenhower’s quota remained in place until President Nixon caved in the face of domestic inflation and made the U.S. dependent on foreign oil supplies and subservient to duplicitous potentates.
Reinstating the oil import quota against OPEC suppliers would insulate the U.S. market from the manipulations of OPEC nations. Feared interruptions in oil supplies from OPEC would have less impact, and the United States would be largely immune from devastating future price wars. Both producers and consumers will benefit from higher incomes, higher tax revenues, stable employment and higher GDP.
That needn’t hurt U.S. consumers. Canadians currently produce crude oil that costs less than $25 per barrel without having to sell their souls to a murderous Middle East despot. That oil could be available to U.S. consumers if there were more pipelines across the borders.
Sourcing our oil from all North America would help stabilize our country. The prospect of increased development of Mexico’s resources would work to stabilize economic development and employment in Mexico.
This policy won’t come without its drawbacks. The military-industrial complex will likely suffer without an ongoing U.S. involvement in the Middle East. Instead of relying on endless conflict, the weapons merchants will have to source their funding based on our strategic interests. New weapons systems could be developed for internal use rather than merchant sales. Congress should realize that $5.6 trillion over 17 years of pointless, foreign conflict can be channeled into maintaining a strong military that focuses on protecting our nation’s direct interests.
But the savings in American lives alone, including Khashoggi’s, should be enough.
Ed Hirs is a University of Houston energy fellow and energy economist at UH, and is managing director of Hillhouse Resources, LLC.