NCPA - National Center for Policy Analysis

Mideast Unrest Is Not the Only Cause of High Oil, Gas Prices

February 23, 2011

The ongoing turmoil throughout the Middle East highlights the continuing and pervasive vulnerability of the U.S. economy to oil price instability, yet the Obama administration continues to thwart any efforts to increase domestic oil production, according to H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis.

Overdependence on supplies of oil from what are now increasingly unstable regions of the world throw into stark relief the need to develop our own domestic reserves of oil.

An additional 1 million to 2 million barrels a day in increased U.S. oil production would have an inordinate impact on oil prices beyond that expected from the additional amount of oil, because oil prices are driven, in part, by fear of uncertainty of future supply, says Burnett. 

Burnett points out:

  • This risk premium would be reduced if the United States brought more oil to the market; since oil traders could count on the oil being delivered, they would not fear supply disruption from political turmoil or conflict.
  • Since the oil production would be developed privately for profit, the U.S. oil would not be used as a political tool and profits would be reinvested in improved technology and new supply development rather than to pay off political constituencies while the capital equipment and production declines (as occurs in Venezuela and Mexico, for example).

The need to remove unwarranted roadblocks to increased domestic production would also improve the continuing recession and overall malaise in the U.S. economy, Burnett points out.

Source: H. Sterling Burnett, "Roadblock on Domestic Oil Production Even More Costly Now," National Center for Policy Analysis, February 22, 2011.

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