Military action to influence oil-producing nations ineffective, expert says

Oil prices also increased dramatically when the United States intervened to tip the balance in the 1973 Arab-Israeli War. Oil prices remained even higher while the United States helped Iraq prolong the Iran-Iraq War.

“It is fortunate that oil has long since stopped being strategically important to the NATO alliance, since U.S. intervention in Middle East conflicts has evidently had the opposite of any desired effect on oil prices.”

According to Singer, higher prices do not themselves cause overall problems in the global economy.

“As increases in exporters’ petrodollar earnings recycled through the global economy, the global sum of the local purchasing power of gross domestic products continued to grow at an annual average rate of 3 percent during the high oil prices years of 1973 to 1986.”

By 2003, the U.S. ratio of use of oil to GDP was half of what it was in the 1970s, and the GDPs of the United States and other major oil importers “have continued to grow despite a recurrence of high oil prices.”

Singer said that U.S. energy currently relies on a combination of subsidies and tax breaks, regulatory mandates, and petroleum end-product taxes aimed at reducing the fraction of oil that comes from imports.

“This policy has three fundamental flaws,” Singer said. “One: It is piecemeal, thus leaky. Two: Its most economically effective components are politically unpalatable. Three and most importantly: It ducks the need for effective international cooperation in dealing with OPEC (Organization of Petroleum Exporting Countries).”

Meanwhile, he said, U.S. subsidies and tax breaks for alternatives to oil imports increase energy use.

“This applies to a variety of measures, like exempting ethanol from motor fuel taxes and domestic oil depletion allowances,” he said.

“Regulatory mandates like corporate average fuel economy standards for automobiles and light trucks and minimum ethanol content in gasoline reduce oil use only in part of the economy.

“The net effect is to encourage the use of more petroleum for economic sectors that escape regulation, such as heavy trucking, aviation, heating and petrochemical feedstock. Taxing the petroleum industry end products like gasoline has a similar effect.”

Moreover, Singer said, subsidies for alternatives to imported oil have only proven politically feasible when oil prices are high, eventually becoming unsustainable when oil prices temporarily decrease.

“Conversely, tax breaks for domestic oil production have been popular when oil prices are low, but come under political attack as contributing to producers’ ‘windfall profits’ when oil prices increase.”