Oil Dependence

Oil addiction. More than war, terrorism or debates on immigration, nothing threatens the stability of our society more than our reliance on this unstable fuel source. 2011- 2012 was a year that showed us just how uncertain the oil supplies we depend on can be. With supply shocks in the Middle East and a recession in Europe, crude oil prices fluctuated widely between $95-125. Our dependence on unstable oil supplies can have two repercussions, namely that it distorts the decisions that society makes and leads to political tensions. The solution to this is not simply drilling deep sea oil wells closer to North America or securing long term contracts in the Middle East. I believe that what is needed is a market led structural shift to stable, renewable energy sources.

First, the fluctuation in oil prices tends to send distorted market signals to society. Historically, low oil prices compounded by heavy government subsidies have made American society dependent on oil. Given concerns over the finite oil resources, a gradual reduction in oil subsidies over time is critical to weaning off our oil dependence without causing much discomfort to consumers. However, the rapid highs and lows in prices prevent the government from taking long term decisions regarding reduction of subsidies. At the same time, oil price peaks, such as in 2011- 12 hit people hard and cause public resentment against any subsidy reduction, which is seen as compounding the problems of the average American. Such fluctuations in price make it hard for the government to take both short term and long term actions. In the short term, fluctuations in prices make it hard for the government to pinpoint a level of subsidy that provides relief but is not excessive. In the long term, it prevents the government from helping our society move from its dependence on oil.

Second, oil supplies have been the source of political tensions throughout history. From the disruption of supplies due to revolution in Libya to...