A Declaration of Energy Independence

How Freedom from Foreign Oil Can Improve National Security, Our Economy, and the Environment

Jay Hakes

• Publisher: Wiley
• Year: 2008
• Print ISBN:
  9781119112518
  9780470267639
• Edition: 1
• eBook ISBN:
  9780470419496
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

If you've wondered about how America can break links between oil consumption, terrorism, and the war in Iraq, A Declaration of Energy Independence: How Freedom from Foreign Oil Can Improve National Security, Our Economy, and the Environment will show you how our country can gain energy independence and solve its energy crisis. Written by a top energy expert, this book outlines seven economically and politically viable ways America can more efficiently use and produce energy. Find out how carbon fuels negatively impact our lives and understand the political framework of the energy crisis.

PART ONE

The Problem of America’s Energy Dependence

Chapter 1

America’s Plunge into Reliance on Foreign Oil

For about a century, the United States dominated the expanding world oil market, able to dictate terms to other nations great and small. Then in the early 1970s, the country quickly plunged into dependence on imported oil. Private lives were suddenly disrupted by gasoline lines, and public officials struggled to convince the electorate they had effective solutions to America’s new energy woes. The story of how this dramatic reversal of fortune happened provides a necessary foundation for figuring out how to reduce our current dependence on imported oil.

THE SPECTER OF OIL IMPORTS

In the late 1940s, America reached a major energy milestone. After nine decades of more oil going out (mainly as gasoline and other products) than coming in, the country became a net importer. By 1950, net imports were running about half a million barrels a day, or about 8 percent of U.S. consumption. The transition from oil-exporting nation to oil-importing nation was not unanticipated.¹

Before the end of World War II, the wise men of government and industry began to ponder some emerging new realities. It appeared America could not sustain its prodigious increases in oil production much longer. Moreover, oil from the Middle East, while still minor, would clearly play a much larger role after the war. Reserves there went well beyond any discoveries the world had ever seen. Moreover, with sparse populations and low levels of industrialization, these countries had little need for the oil themselves, making their growing levels of supplies available to Europe and eventually the United States. The warnings of the period resonate even many decades later.

Sumner Pike, a member of the Securities and Exchange Commission (SEC) with experience in the oil business, raised alarms in 1942 about the threat of future reliance on imported oil. He cautioned, “I visualize with a good deal of horror our sudden necessitous entrance in some not far distant day into the foreign markets, and boy at that time will we be held up!” He recommended against restricting imports from the Middle East, advising, “We might just as well get started in those markets as early as possible and while we can do those countries some good, and effect the transition from an exporting to an importing nation gradually in the meantime not trying to find all our domestic oil at once.”²

Two years later, Eugene Ayres, head of research and development for Gulf Oil, urged that national security be given priority over low prices. He wrote Franklin Roosevelt’s energy czar Harold Ickes that cheap imports would block the development of alternatives to oil. He proposed a tax on all liquid fuels other than approved substitutes to create an incentive for private industry to contribute to national security.³ Despite their differences on tactics, Pike and Ayres agreed on one thing—the United States had to do something to ward off future dependency on foreign oil.

Although the amounts of oil imported were initially quite modest, independent producers soon complained about the “increasing flood of oil from foreign lands” and the adverse effects on their businesses. Both domestic production and imports continued to grow, however, due in large part to a growing national appetite for gasoline.

A transportation boom required new roads to handle the traffic. In 1956, President Dwight Eisenhower launched the 40,000-mile interstate highway system (eventually expanded to over 47,000 miles), intended initially to facilitate the easy movement of military equipment during wartime. To pay for construction, the two-cents-a-gallon federal tax on gasoline was upped to four cents. One oil company executive complained gasoline was being taxed off the market, because the average motorist could not afford the rising tax bills. The new levy had the opposite effect. It financed a road system that encouraged the expansion of commercial trucking, family vacations, daily commutes, and, hence, the demand for diesel fuel and gasoline.

BUILDING A WALL

Political muscle opposing foreign oil in the late 1950s came from two influential Democrats from Texas—House Speaker Sam Rayburn and Senate Majority Leader Lyndon Johnson, both active advocates for petroleum interests in their state. Congressional leaders demanded protection for American producers and gave the president authority to block imports when in the interests of national security.

Despite his worries about adopting protectionist policies, in March of 1959 Eisenhower announced binding quotas on foreign petroleum, set at a stringent 12.2 percent of U.S. production. The caps were more generous for oil unloaded at West Coast ports and from overland sources (i.e., Canada). The rules made it particularly difficult for imports delivered to ports on the East Coast, in effect closing the door on increased deliveries from the Middle East. The quotas, though rarely remembered even by careful students of American energy policy, would prove far from temporary and would have significant impacts on later vulnerability to foreign pressure.

On the whole, quotas on foreign petroleum delivered many of the desired results through the 1960s. Domestic production continued to rise, and U.S. consumers enjoyed stable prices at the pump. Imports were constrained and came mainly from the Western hemisphere, not from the more distant and politically volatile Middle East. With added revenues due to reduced foreign competition and generous relief from federal taxes, American oil companies maintained excess productive capacity, which gave the United States great leverage in world affairs in event of a cutoff in oil supplies. Moreover, with Americans working harder to find oil than the rest of the world, they stayed on the cutting edge of oil technology. Even though importing some oil, the United States remained the world’s major swing producer. It imported oil, but because of its surge capacity, was not yet dependent on that oil.

America’s excess capacity demonstrated its strategic value during the 1967 Six Day War between Israel and its Arab neighbors. Strikes, sabotage, and mob disturbances shut down production entirely in some Arab countries, the result of agitation by Egypt’s populist leader Gamal Abdel Nasser. Exports from the Persian Gulf were briefly reduced by 60 percent, a massive loss of about six million barrels a day to the world market. After the rebellions were quelled, the loss of oil ran about 1.5 million barrels a day—an amount still significant but more manageable.

Problems from the embargo were resolved in about a month by drawing on commercial stocks, cooperation between government and industry redirecting supplies, and surge production from the United States, Venezuela, and Iran. On the whole, the attempt to create an oil crisis as a weapon against supporters of Israel had fizzled.

As Pike warned in the 1940s, import restrictions proved to be a short-term strategy that created even bigger problems later on. They forced Americans to pay more for fuel than the prevailing world price, putting their industries at a disadvantage against foreign competitors with lower costs. The United States was also drawing down its easy-to-develop resources faster than would have been the case with free trade in oil.

Potential foreign suppliers, moreover, came to see the international oil market as more a matter of politics than economics. Import restrictions by the world’s largest oil market during a period of stagnant world demand led to a sharp drop in the price Middle Eastern nations could get for their oil. As an unintended consequence of this chain of events, Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela met in Baghdad to form a new alliance called the Organization of the Petroleum Exporting Countries (OPEC). Members at its founding in September of 1960 sought leverage against consuming nations blocking their access to customers and against international oil companies unilaterally reducing prices. It appeared initially that OPEC would have little impact on U.S. markets, but during the 1960s it did attract additional members—Qatar, Libya, Indonesia, the United Arab Emirates, and Algeria.

In 1968, OPEC passed a little-noticed resolution calling for government sovereignty over all its oil resources. This new policy eventually shifted control of the industry—previously exercised by the major international oil companies—into the hands of the political leaders of the OPEC countries, and made dealing with future crises more difficult.

NEW CHALLENGES

The year 1970 marked another historic turning point in the history of American energy, clearer in hindsight than at the time. United States oil production, after more than a century of steady increases, reached its peak in April. Henceforth, U.S. production would trend down rather than up. Both symbolically and substantively, this reversal, during Richard Nixon’s first term as president, heralded the end of the age of American oil dominance.

The decline in production occurred during a time of explosive demand growth, the greatest ever before or since. During the 1960s, U.S. energy consumption increased a whopping 51 percent, compared to 36 percent during the previous decade. More fuel was needed for new, larger cars with features like air conditioning. Automobiles logged more miles as the increasing popularity of suburban living required longer commutes. Moreover, the fuel efficiency of passenger cars in 1970 dropped to 13.5 miles per gallon.

Americans also displayed a growing appetite for electricity, a rising share of which was generated from oil. More energy was needed for larger houses and offices. In many sections of the country, moreover, air conditioning transformed itself from a convenience to a necessity. In 1960, only 12 percent of U.S. households had installed some form of air conditioning. Fifteen years later, about half had done so.

Rising environmental concerns—reflected first in local regulations and then in the Clean Air Act of 1970—forced a switch from coal to other fuels until new technologies to clean up coal emissions could be developed. Industrial use of coal, for instance, dropped 11 percent from 1966 to 1970, due largely to concerns about air quality. As a result, oil had to help meet both the rising demand for fossil fuels in general and the gap from reduced use of coal.

Declining U.S. oil production, exploding demand, import caps, and new requirements for clean air were creating an almost perfect storm. Midlevel staffers at the Nixon White House worried the prevailing energy trends might create fuel shortages.

One obvious way to alleviate the prospective energy crunch would have been allowing more foreign oil—a course advocated by an oil import control task force established in 1969 by Nixon and chaired by Labor Secretary George Shultz. Even though the quotas had already been tweaked to allow more Canadian and Venezuelan oil, the Shultz report, released in early 1970, argued that mandatory quotas forced Americans to pay $5 billion a year more than necessary by blocking access to cheap foreign supplies. The report is worth a close look, because it included the most extensive discussion ever by the U.S. government about the issues affecting U.S. reliance on foreign oil—the same issues that continue to plague us today.

The task force minimized the threat of an oil interruption from turmoil in the Arab states, calculating “to have a problem, one must postulate something approaching a total denial to all markets of all or most Arab oil”—a situation it viewed as highly unlikely.⁴ The report concluded the United States could rely during an energy disruption on its own excess capacity for surge production of almost 2 million barrels a day (a Pollyanna-ish view, since surge production was no longer possible), on extra oil from Canada (which had its own needs for imported oil), and on commercial inventories to cushion the shock.

The task force identified war with the Soviet Union as the biggest threat to oil supplies, since all imports except those from Canada would be at risk. The group concluded that no plans were needed for more than a 12-month interruption of this sort, since it would be hard to keep a war between the superpowers from going nuclear, in which case the U.S. infrastructure, which relied on oil, would be wiped out.

According to contingency plans provided to the task force by the White House, the United States could reduce oil use during an emergency with rationing, similar to measures employed in time of war. It estimated “curtailing nonessential demand” could reduce use of gasoline by 40 percent. The task force was also told of classified plans at the Defense Department for keeping indoor temperatures at 55 degrees during a winter emergency.

Without quotas, the task force estimated oil imports would grow substantially and range from 27 to 51 percent of total use by 1980 (compared to 21 percent when the report was issued). Dropping quotas would create more dependence on the Middle East, but at a level it thought could be handled. The report predicted, “New discoveries and new technology at home and abroad . . . will have a major impact on the security situation in 1985,” thus providing a period during which the United States could draw down its own reserves.⁵

Shultz’ view that oil imports would not be a major problem in the future because of new technologies reflected analysis being done elsewhere in the government. By the beginning of the Nixon administration, the Atomic Energy Commission estimated a quarter of electric generation would be nuclear by 1980, the share would rise to half by 2000, and virtually all electric plants built in the twenty-first century would be nuclear. Other alternative technologies like gaseous and liquid fuels produced from coal (synfuels) and oil shale were also getting attention.⁶

The recommendations of the task force fell short of winning the full endorsement of the many interests that participated in its deliberations, nor even of its own members. The National Petroleum Council testified the likelihood of an interruption was much greater than acknowledged by the economists working on the report, and invoking wartime rationing plans to counter interruptions “would be politically unacceptable to the American consumer” in peacetime.

Two federal departments represented on the task force (Commerce and Interior) also strongly resisted the report’s conclusions and wanted to retain quotas.These members argued the extra cost to consumers was only $1 billion a year, a reasonable price to pay given the turbulence in the Middle East and the need to support U.S. producers.

If Nixon had had his druthers, he would have avoided involvement in the oil import question. The conflict between the northeastern states wanting inexpensive fuel and the oil-patch states wanting protection was a no-win situation politically at a time he was trying to win an ideological majority of new Republicans and conservative Democrats in the Senate.

In a letter to the White House, George H. W. Bush—son of a former United States senator from Connecticut and a rising 45-year-old Republican star in Texas—complained the abandonment of import controls would “wreak havoc on my state and its people.”

A week later, Bush forwarded correspondence from his former business partner J. Hugh Liedtke. The by-then chairman of the Pennzoil Company cited the electoral impacts of Nixon’s pending decision:

I am particularly interested in the possibility that George Bush will run for the senate from Texas. . . . If, in the opinion of the administration, it becomes necessary to materially change the present import quota system, I do not think he can be elected no matter what his support may be.⁷

In his private diaries, top Nixon aide Robert Haldeman confirmed the impact of the elections on Nixon’s decision, “If we do what we should, and what the task force recommends, we’d apparently end up losing at least a couple of Senate seats, including George Bush in Texas. Anticipating Nixon’s eventual announcement, he penned, “Trying to figure out...

Table of contents

• Title Page
• Copyright Page
• Introduction
• PART ONE - The Problem of America’s Energy Dependence
• PART TWO - Seven Economically and Politically Viable Paths to Energy Independence
• PART THREE - Securing Our National Future
• Acknowledgements
• Index
• Notes