Despite the recent buildup, neither increased domestic oil production nor the building of oil pipelines south from Canada will result in energy independence or low fuel prices in the long term.
The volatility of oil prices and the insecurity of global oil supplies pose huge monetary costs on our nation.
The fact is that the price of oil is set by global supply and demand that has fluctuated drastically over past decades.
Despite increased U.S. production we continue to see large fluctuations in prices today.
Recent Iranian threats to close down oil transport through the Strait of Hormuz, a maritime passage through which a fifth of the world’s oil is transported, has caused huge price volatility in the global oil market. While some dismiss the threat as illegitimate due to Iran’s own dependence on the strait, the renewed fears that Iran could block oil shipments in the Persian Gulf sent oil prices up 4% on July 3rd.
This sort of price volatility causes massive unbudgeted spending for U.S. government and industry alike.
To pay for unbudgeted fuel costs in 2011, the Department of Defense (DoD), the world largest consumer of oil, had to come up with more than $2 billion from other parts of its budget.
In order to defend against massive price volatility, our military has been tasked with securing global oil supply lines, such as those in the Persian Gulf.
Increasingly our military has been given the role of not defending our real priorities, but guarding against disruptions in foreign oil supply – in order to buffer world price spikes.
A recent RAND report indicated that 12-15% of the DoD’s budget is directly related to the concern for protecting the Persian Gulf oil supply. The DoD’s 2012 budget shows that $85-$106 billion in annual expenditures that can be traced to our presence in the Gulf. This is the sort of spending our nation cannot afford.
If we are serious about cutting defense spending, moving away from our oil dependency must be part of our nation’s long-term plan.
Part of this initiative should be investing in alternative fuels so that our nation can reduce its oil consumption. Our military’s programs to reduce dependency on oil could be a vital part of this effort.
The military is a market-maker, able to provide the economies of scale needed to make alternative fuels cost-competitive at a commercial level.
The U.S. Navy in a joint partnership with the Department of Energy and the Department of Agriculture has already set forth a FY2013 plan to directly invest in U.S. biofuel companies over the next three years. This plan would bolster the domestic biofuel industry, which could produce cost-effective alternative fuels allowing U.S. industries and the military to reduce their dependency on oil.
By establishing a domestic biofuel’s industry, we have a unique opportunity to buffer against oil volatility in the short term and cut our costly dependence on oil in the long term.
Our nation cannot afford to wait until oil is cheaper than alternative fuels. Our reliance on oil will be more costly in the long-term if we fail to cut our dependency now.