Oil is the commodity that built the modern world and is the most important driver of the world’s economy. That also means oil is our economy’s biggest risk factor: All but one U.S. recession in the past 80 years came after a spike in oil prices. Last week’s attack on Saudi Arabia and the prospect of escalating violence among the Middle East’s oil powers is a dire risk to the world’s prosperity.
We can be thankful that the U.S. oil boom, the biggest the world has ever seen, gives us a tool to manage both the economic and environmental risks of oil production. But the Democratic presidential frontrunners’ plans to simply ban American oil would throw this tool away, endangering world prosperity. Former Vice President Joe BidenJoe BidenChina eyes military base on Africa's Atlantic coast: report Biden orders flags be flown at half-staff through Dec. 9 to honor Dole Biden heading to Kansas City to promote infrastructure package MORE says as president he’ll ban new wells on public lands, which produce one-fifth of American oil. Sen. Elizabeth WarrenElizabeth WarrenWarren calls on big banks to follow Capital One in ditching overdraft fees Crypto firm top executives to testify before Congress Massachusetts Gov. Charlie Baker won't seek reelection MORE (D-Mass.) says she’ll ban fracking, which produces two-thirds of American oil. These policies would take nearly all U.S. production off-line. They would be far more devastating to the world economy than any oil crisis the world has seen in decades.
The global economy is more dependent than ever on oil. We are using more oil than ever and nearly all producers are going flat out to meet the needs of a growing economy. Saudi Arabia reports that it can repair the damage from the recent attack and draw down its stockpiles to maintain its oil exports. But more attacks are coming — whether Saudi Arabia retaliates or not, its enemies seem determined to escalate their attacks.
If coming attacks disrupt Middle Eastern oil exports, prices will rise sharply because there are few countries that could ramp up their production to meet a shortfall. Saudi Arabia is the world’s main supplier of “spare capacity” — the country with oil wells already drilled that can produce more when other producers falter. Many of the other producers that have at least a little spare capacity are also threatened by increasing conflict in the Persian Gulf: Kuwait, the United Arab Emirates, Iran and Iraq.
Is the global economy strong and stable enough to shrug off higher oil prices? There’s reason to worry. But the U.S. oil boom gives Americans a powerful tool to manage higher oil prices. The United States is now the world’s biggest producer of both oil and natural gas. When prices rise, the American energy sector boom will accelerate. And though the U.S. doesn’t have much spare capacity at existing wells, it has proven uniquely capable of quickly drilling new wells to ramp up production. Those new wells and skyrocketing American oil and gas exports will help the global economy manage Middle East oil disruptions.
The United States is the world’s leading energy economy. It should also be a leader in addressing environmental challenges such as air pollution and climate change. On the campaign trail, it’s easy to say that there’s no need to choose between the environment and the economy. But here in the real world we must choose how to balance our environmental and economic goals. The Democratic frontrunnners’ bans on American oil and gas would threaten the prosperity of our nation and our world. It’s high-time to hear from pragmatic candidates who want to manage our resources to protect prosperity.
Americans are ready to hear responsible plans to manage our new oil wealth and the unavoidable tradeoffs between the environment and the economy. There are well-tested methods of balancing these goals to ensure a sustainable and prosperous future. One is to ask industry to clean up as much as it can without threatening its continued profitability. This is the route most often taken by successful U.S. air and water regulations.
A more aggressive mode of balancing the environment and the economy would be a pollution price — a tax or fee to emit pollution. If an oil producer can’t pay the cost of its pollution and turn a profit, it would be forced out of business. And the fee raises the cost of fuel and power so some commuters might buy more efficient cars or take advantage of public transportation.
However, in countries that impose a fee on pollution, most oil operators keep pumping and most people keep driving. Ordinary people around the world place such a high value on oil that they’re willing to pay a pollution fee to keep driving their car, running their business and powering the economy.
It’s time for the Democratic candidates to drop the bans and offer serious plans to manage our new oil wealth for sustainable prosperity. Americans already know the candidates want to protect the environment. Now we want to know how they would use our resources to ensure our prosperity and protect the global economy.