Why the U.S. Is Vulnerable

By RICHARD HORNIK WASHINGTON

After the U.S. suffered through two oil shocks during the 1970s, politicians vowed never again to let the nation be vulnerable to petroleum blackmail. That brave promise has gone unfulfilled. America today is as dangerously dependent on imported oil as it was a decade ago.

George Bush's hands would have been freer if the U.S. had used the past 10 years to develop an effective policy that reduced its thirst for foreign crude. It has not done so for two major reasons. First, concerns about protecting the environment have hampered the development of domestic alternative energy sources such as offshore oil and coal. Second and more important, any effort to wean the U.S. from foreign energy sources would require forcing consumers to pay a higher price for gasoline and other fuels. In the early 1980s, when the price of crude rose to more than $40 per bbl., imports fell by half. But as prices slumped to as low as $10 per bbl., consumption and imports leaped to new highs. Says Richard Rippe, chief economist of Dean Witter: "We were far too complacent about letting the current price tell us where energy policy should go."

The U.S. could have learned a lesson from other industrialized nations. Both Europe and Japan are far more reliant than the U.S. on imported oil. But fuel taxes make energy costs for their consumers two or three times as high. As a result, Japanese citizens use about only a third as much energy as their American counterparts. Though experts have urged raising U.S. energy taxes for years, American voters steadfastly resist the idea. They then complain bitterly when producing nations hike their prices.

Fortunately, the U.S. did take some actions that have made a replay of the oil shocks of 1973 and 1979 less likely. Price controls that distorted energy markets have been lifted, and most of the restrictions that made it difficult for industries to shift to whatever fuel is cheapest have been removed. Most vital is the Strategic Petroleum Reserve, 590 million bbl. of crude that the government has been stashing away in salt domes in Louisiana and Texas since 1977. Though the reserve is designed to combat shortages that might arise during a crisis, some members of Congress and many energy economists are pushing the Administration to announce that it would be willing to release some reserves to help keep fuel prices down. While Bush hinted Wednesday that he might be willing to do that, the decision has to be made soon to be effective.

In the short run, the U.S. has few options other than to dump its strategic oil reserves if it wants to increase supplies. Other much needed measures would have little if any impact for a year or more. But perhaps the latest crisis will finally drive home the point that America must take steps to keep its economic well-being from being hostage to the whims of faraway nations.

TAXES. Americans pay too little for energy generally and for gasoline in particular. A 50 cents per gal. gasoline tax phased in over five years would encourage conservation and raise $50 billion in revenues. It would also help the environment by reducing CO2 emissions and other pollutants.

ALTERNATIVE FUELS. Part of the revenue from higher gasoline taxes could be earmarked for development and use of clean renewable energy sources such as solar power and geothermal energy. These are too expensive to compete with oil even at its present higher price, but would be financially viable if petroleum prices soar higher still.

NATURAL GAS. Though gas is the most abundant and environmentally benign fuel in the U.S., development has been hamstrung for decades by complex regulations. Most of those rules have been relaxed, but local resistance to pipelines has reduced its availability to new industrial customers.

OFFSHORE EXPLORATION. As the Exxon Valdez disaster demonstrated, oil tankers are far more threatening to the environment than offshore drilling platforms. For that reason, the U.S. should open more areas for offshore drilling.

NUCLEAR POWER. If acceptable waste-disposal techniques and fail-safe reactors can be developed, nuclear power would be a boon to the fight against greenhouse gases and oil dependency. The U.S. should support the development of a prototype second-generation nuclear "walk-away" reactor, one where even if an accident occurred, it would not cause an immediate runaway meltdown.

Although global energy markets cannot be controlled, America's allies have demonstrated that a national economy can be better insulated from outside shocks. Says Petroleum Finance Co. president J. Robinson West: "The U.S. system encourages more than any other a boom-and-bust cycle in energy." Perhaps the latest crisis in the Persian Gulf will finally spur the American political system to face up to a problem it should have dealt with long ago.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola

CAPTION: PETROLEUM SUPPLY AND DEMAND