The global oil market is far from free. Nearly 90 percent of the world’s proved oil reserves are held by OPEC and other state-run national oil companies (NOCs), who rely on oil revenues to fund their social and defense spending. The global oil market is highly volatile and unpredictable, and an unexpected crisis in any major exporting country—fueled by regional tensions or political instability—can send shockwaves through the U.S. economy, almost instantly forcing American families and businesses to pay higher fuel prices.
Every economic recession in the past 40 years has been preceded by, or coincided with, a spike in global oil prices. Even with record-setting U.S. oil production, American households, businesses, and public agencies spent a record $900 billion on petroleum fuels in 2012. Without continued growth in domestic production, combined with better efficiency and transportation innovations that give Americans a choice of fuels, the United States remains susceptible to oil price spikes that carry severe economic consequences.
Temporary lulls in the price of oil should not be taken as the end of market manipulation by actors like OPEC and NOCs. When the price of oil drops, investment in new production suffers, and major exporters are forced to find substitutes for declining revenues to finance their spending obligations, burning through billions in foreign reserves or cutting social programs that temper restive populations. The only way to escape this boom-bust cycle and achieve energy security is by drastically reducing oil’s role in the American transportation sector and the economy.
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