Dependence on Oil...Good or Bad?
- Posted on March 1, 2012
- 138 views
With the world getting smaller and the economies are interdependent, commodity price in the US will follow the global price. So whether we depend on foreign oil to some extent or eliminate it all together the domestic price of oil will be set by the global market and if the price is up companies will certainly not sell it for less just because we are not importing any oil. As it is, the US imports 20% of its needs from Canada and only 8% from the Middle East. The remainder is produced domestically.
On the other hand, if we drive to reduce the global dependence on oil, until we find an alternative, we will negatively impact the US economy and the US consumer.
One fact that most do not realize is that all the oil traded globally is nominated in US dollar. What does that mean? As the demand on oil increase so does the price. As a result the demand on the US dollar will increase and so will the purchasing power of the American Consumer. The Dollar...remains King!
Therefore the drive to reduce dependence on oil may have its benefits, but it will come at a cost that should be mitigated as an integral part of the strategy to reduce dependence on oil. Reducing dependence on oil cannot be approached with a tunnel vision strategy because the lower the dependence on oil the lower the demand on the dollar and the lower the purchasing power of the American consumer. So, what is more...a matter of National Security?
In my opinion there is no alternative to a diversified strategy particularly when it comes to energy and natural resources. This includes diversification in the fuel mix we use, the sources of the fuels, and the markets we target. Although we should continue to develop and advance renewable energy, there is no question in my mind that oil, natural gas, and coal will remain the dominant fuels for the foreseeable future because these fuels are abundant and economical. What we need to focus on is making these fuels more environmentally friendly by aggressively investing and developing new technologies to accomplish that. Yes, with such a strategy, there will remain uncertainties that we will have to deal with. However this approach will mitigate our risks and help...Keep the Dollar as King.
The question for those who advocate to eliminate our dependence on oil, how do you propose maintain the value of the dollar as the demand on the dollar and our purchasing power decrease?