This entry is cross-posted on the Business Desk blog, where economics correspondent Paul Solman answers your questions on economic news.
Question: I’m befuddled by the “oil independence” movement that is neatly summarized by the slogan “drill baby drill.” This somehow tries to persuade the nation that foreign oil is the enemy. I believe that the vast majority of our foreign oil comes from our two neighbors Canada and Mexico — hardly an evil empire.
If oil is viewed as a diminishing and valuable resource, wouldn’t the logical approach be to save the nation’s resource until the rest of the world’s supply has dried up? Agreed, a strategic stockpile is needed to insure we’re not hijacked as in the 1970s. But why is our national interest served by using up our own supplies faster and faster? The latest spill news all centers on British Petroleum and the newest leases in question are to be issued to Royal Dutch Shell — how does this contribute to our energy independence? Perhaps you could do your “charts and arrows” style explanation that would clear the fog.
Paul Solman: A most interesting letter. Leaving the “charts and arrows” for a video explanation sometime in the future, let me respond in print and the present.
Here’s the latest list of our oil imports from the U.S. Energy Information Administration in average thousands of barrels a day since Jan. 1.
- CANADA — 1,901
- MEXICO — 1,203
- SAUDI ARABIA — 1,128
- VENEZUELA — 1,029
- ANGOLA — 612
- NIGERIA — 607
- IRAQ — 570
- BRAZIL — 365
- ALGERIA — 242
- ECUADOR — 241
- COLOMBIA — 235
- KUWAIT — 218
- RUSSIA — 173
- UNITED KINGDOM — 56
- CONGO — 44
So yes, Canada and Mexico are our primary foreign oil providers but no, they don’t provide the “vast majority” of it. And remember, when it comes to price, every drop matters. Especially when the demand for a product is what’s called “inelastic” — unresponsive to price.
It happens all the time in the energy market. A small drop in supply — due to a sidelined refinery, say, or unease in a country like Nigeria — and the price of oil suddenly spurts.
We explained this phenomenon back in 2001 with respect to natural gas and the California electricity crisis, though I have to plead naivete: Manipulation of the electricity market turned out to be a major part of the story as well.
In any case, foreign oil sure as heck does matter when it comes to price. Oil independence doesn’t automatically mean “drill, baby, drill.” But there are many economic reasons to think it would be prudent policy.