SAFE is committed to protecting American national and economic security by combating oil dependence.
The Oil Dependence Crisis
Oil is the lifeblood of the U.S. economy, providing nearly 40 percent of our primary energy needs, more than any other fuel. Within the transportation sector, petroleum fuels account for 93 percent of delivered energy, and there are currently no substitutes available at scale. This severe oil dependence ties the fate of our economy to the global oil market—and jeopardizes both our national security and economic prosperity as a result.
The problem with relying on the global oil market? It is not a free market. Nearly 90 percent of the world’s proved oil reserves are held by state-run national oil companies (NOCs), which often function as an arm of central governments. Some of the largest NOCs and their national governments are members of a producers’ cartel—the Organization of the Petroleum Exporting Countries (OPEC). The cartel manipulates oil supplies in order to keep prices high enough to fill government coffers, but not so high that alternatives are competitive.
The global oil market is also highly volatile and unpredictable, with soaring demand in emerging market economies and numerous key suppliers affected by regional tensions and domestic political instability. A single unexpected event in any of these countries—war, government overthrow, a hurricane—can send shockwaves through the U.S. economy and almost instantly force American families and businesses to pay higher fuel prices.
Since there are no adequate substitutes to oil, the economic implications are stark:
- Every economic recession during the past 40 years has coincided with a spike in global oil prices.
- The average household spent a record $2,912 on gasoline in 2012. In 2002, the average was just $1,235.
- Even as U.S. domestic oil production was growing at a record pace in 2012, U.S. households, businesses, and public agencies spent a record $900 billion on petroleum fuels.
- U.S. spending on petroleum fuels has exceeded 6 percent of GDP in three of the past five years (2008, 2011, and 2012), similar to spending levels in the wake of the OPEC oil embargo from 1974-78.
Because the fate of the U.S. economy is so closely tied to oil, the U.S. has been forced to spend tremendous resources securing the world’s oil supply. This burdens our military, drains defense budgets, and distorts overseas policy objectives.
The national security costs of oil dependence are both direct…
- A RAND Corporation study placed the ongoing cost to the U.S. military of mitigating the risk of supply disruptions in the global oil market at between $67.5 billion and $83 billion annually.
- As global oil prices have increased, U.S. Department of Defense spending on petroleum fuel has risen from an average of $3.75 billion between 1999 and 2003 to $17.5 billion in 2011.
- Oil dependence frequently distorts U.S. overseas policy priorities and objectives, and empowers hostile foreign actors.
- Oil dependence makes us vulnerable to arbitrary supply reductions by major oil-producing nations and the OPEC cartel, and provides these nations—many of which do not share our values or interests—with leverage over the United States.
As long as America remains oil-dependent, our economy and security will remain vulnerable to high and volatile oil prices and the global oil market. That is why increased domestic oil production cannot solve the problem on its own. Improving America’s energy security requires pursuing both supply-side and demand-side policies – that is, increasing domestic energy production while simultaneously using oil more efficiently and diversifying our fuel base, particularly in the transportation sector.
- Increasing domestic oil production. Producing more oil here at home is critical: it improves the balance of trade, strengthens our economy, and creates high-paying jobs. Combined with more effective oversight, increased production can yield improved energy security while safeguarding the environment.
- Fuel diversity in the transportation sector. Alternatives like natural gas vehicles for heavy-duty trucks and the electrification of the light-duty vehicle fleet represent the best opportunity to break oil’s stranglehold on the transportation sector. By moving to electrification and natural gas, no single fuel source—or producer—would be able to hold our transportation system and our economy hostage the way a single nation can disrupt the flow of petroleum today.
- Increasing efficiency. Oil will remain crucial to the wellbeing of the U.S. economy for the foreseeable future. Therefore, increasing the efficiency with which we use this oil—particularly in our transportation sector—is vital for mitigating the negative impact of high and volatile oil prices.
- Renewing the infrastructure. The potential impact of smart changes to our nation’s infrastructure is both simple and profound: the less time vehicles spend stuck in traffic, the less oil they will consume. There is no shortage of potential solutions available, from congestion pricing, dynamic tolling, accident/incident management, and improved traffic signaling, as well as public transit and other alternatives to traditional, single-occupant internal combustion vehicles.