About Time We Dulled the Oil Weapon?

Bear with me because the last time I’ve heard this proposed, or even mentioned, was in the late 1980’s. No, im not talking about the twilight of hair metal, I’m talking about an import tariff on oil. The 80’s was a weird transition period from the oil embargoes and incremental price hikes of the 70’s to the oil glut Americans embraced during the roaring 90’s. People were confused, and in their desire to make sense of a changing global economic landscape, they gave more credence to what I believe are some pretty damn good ideas.

Foreign oil dependence is a problem. This we know. When oil is cheap, it’s a problem we can’t do much about. But when oil is at 100 dollars a barrel and the only lifestyle changes we observe in the typical American involve starving themselves the first two weeks of January, something is wrong. Obviously the economic incentives for large-scale investment into alternative technologies are not even strong enough at $100/barrel oil…so why not give the market a boost?

Imagine a $10 tax on every barrel of imported oil. Suppliers will reduce exports to the US in favor of more lucrative markets in Asia. The rapid development of China and India will ensure that the global price of oil doesn’t rise dramatically, if at all, and the government rakes in tens of billions of dollars. Being an economically thrifty consumer always involves stealing as much of the producers’ surplus as you can, and what better way than to tax them directly?

This seems like a crazy idea when every American is screaming for lower gas prices, but people are having trouble understanding that high oil prices are here to stay. OPEC is already operating near capacity, so even increasing supply (which they won’t do no matter how loud we cry) will not substantially ease prices. Then there’s the “fear premium” that has always existed, and will always exist until the US and Iran are buddy buddy again, or until Iraqi oil production is stabilized. Finally, high oil prices are partly a result of a weak dollar. Only when Americans stop living beyond their means and build a semiconductor or two (the good old days) will we stabilize our currency and possibly see oil prices drop.

In the meantime, our government should see this period of high prices as an opportunity to take a long-run approach to our economic prosperity (as difficult as that may be for the cronies running our country). If we take the revenues from an oil tariff and put them towards a “Manhattan project” on renewable energy, we may just be able to develop a viable alternative to the love-hate relationship we have with oil. Most importantly, we’d be using Saudi Arabia’s own money to do it!