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Greene 18 (3:49)
Topic(s): Foreign Oil / Government
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Video Transcript

It's disturbing that we have struggled with the problem of oil dependence for 30 years, almost 35 years, and there's still enormous confusion about what that problem is and how to solve it. The key to the problem of oil dependence is OPEC, and OPEC's ability to control the market. Sometimes they have more power in the market than in other times. It depends on their market share, mostly. And as a result of that market power, they charge higher prices for petroleum. They can cause price shocks or they can capitalize on price shocks and just keep the price high, as they're doing now, by cutting back production. But they are the essence of our oil dependence problem. And we pay for that in damage to our economy when there are price shocks, and we pay for it in transfer of wealth to essentially monopoly producers.

It costs the Saudis a couple of dollars a barrel, for example, to produce a barrel of oil and we pay $70, $60 a barrel for that oil. All of the difference is profit, pure profit for them. It doesn't have to go back into producing more oil, it can go to anything. And the same for Iran, although they cost a little more to produce oil. Same for Kuwait, and so on. There's an enormous surplus profit to those countries in a barrel of oil.

But the market power of those countries is not unlimited. In order to keep the price high, they have to keep cutting back production. And as they cut back production, they lose market share. And as they lose market share, they lose market power. And we saw that as— when the world responded to the oil price shocks in '73-74, '79-80, by passing fuel economy standards in developing countries around the world, and as the market responded to the higher prices, the market share of OPEC just went down and down and down and down. And finally, in 1986, oil prices collapsed because they had lost so much market share, they weren't able to control the market anymore. But because they have two-thirds to three-quarters of the world's preserves of oil, eventually they'll come back unless we keep being more efficient, we keep developing alternatives and bringing them on market, and we increase our ability to respond to high prices.

Now, that whole experience of their manipulation of the oil market has cost our economy about $4 trillion over the past 30 years. We know how to solve the problem, but we don't keep at— we didn't have— we— well, in effect, we solved this problem of oil dependence in 1986. But we said, "Well, maybe there never was a problem. Maybe OPEC was just a mirage," and we stopped increasing fuel economy standards, we stopped conserving oil, and we stopped our— well, we didn't stop, but we reduced our efforts to develop alternatives. And as a result, the problem came back and it will in the future. We can solve it again and it'll come back unless we keep going. And I think that's the path we have to take. We have to keep improving energy efficiency year after year. We have to keep developing new technology. We have to keep developing alternatives to petroleum. Because now we have not only to deal with oil dependence, but climate change and climate change is not going to go away in 10 or 20 years.