January 17, 2002
Putting Our House In Order

By Mortimer B. Zuckerman, Editor-in-Chief
U.S. News & World Report - January 21, 2002 issue

President Bush may say that a tax increase would be passed only over his dead body, but what will he do-what can he do?-about the equivalent of a tax increase now imposed on us by the Saudis?

With exquisite timing, the self-serving Saudi-led oil cartel we call OPEC has already begun cutting supplies so as to boost prices, hitting global incomes just when the world is in the throes of a recession. And why should Saudi Arabia care that this is a recession intensified by the fallout from 9/11, or feel any responsibility that Osama bin Laden is a Saudi, or that his money is Saudi and that 15 of his 19 terrorists were Saudis, or, perhaps most of all, that the Saudi regime funds religious schools throughout the Muslim world that brainwash children with anti-American hate?

The Saudis know that oil is critical. The price spike during the crisis in 1972-1973 caused a GDP decline of 4.7 percent in the United States, 2.5 percent in Europe, and 7 percent in Japan. But the threat is even greater now. In the year ending March 2000, price rises cost consumers around the world about six times as much as the spike in the early 1970s-$15 per barrel, or $869 billion. If anything, the world economy's vulnerability is even greater today.

We are held hostage, and there's no light through the bars of our cell. The United States now imports close to 60 percent of its oil, or about 11 million barrels a day; about half of that comes from the Middle East. This will grow to 80 percent by 2020, at which time two thirds of our oil will have to come from the Middle East. No matter what happens to bin Laden, we will remain dependent on a handful of countries located around the Persian Gulf, especially since non-OPEC oil will begin to dry up by the end of this decade. Saudi Arabia alone sits on a quarter of the world's proven reserves-and like other sources in the region, its extraction costs are among the world's cheapest.

Grim risks. The instability in the Middle East that made prices go through the roof in the 1970s and in the early 1980s is still with us. As the Economist magazine pointed out,
"It may not matter, so far as the price of oil is concerned, whether the Saudi regime is friendly to the West, but it certainly matters whether it is rational." That is a relative question, given the fact that after 9/11 we have a keener sense of the frailty of the Saudis. Should a Taliban-like regime take over the country and its oil fields, we would face grim risks. Such a radical regime could choose any number of reasons to "justify" a cutoff of supplies to the West. However the political games play out, the United States, as the leading superpower, cannot escape a responsibility to protect the world from having oil used against it as a weapon. We cannot tolerate having at our throat a bunch of volatile sheiks, kings, generals, and dictators. We have kowtowed all too often to this bunch, hazarding the ideals, reputation, and safety of America through a deepening involvement with their decadence, a stain with which most Americans are blissfully unfamiliar.

America must confront its vulnerability now. It will take years to wean us of dependency. A decade ago, when access to oil at reasonable prices (and the rule of law) was menaced by Saddam Hussein, we fought a successful war. But we let the decade go while doing virtually nothing to reduce the risk of catastrophe. Now we are in a second war. Americans have been put in harm's way once again by an enemy fueled by oil money and by a terrorist network whose principal objective is to destabilize Saudi Arabia. It is very well to say, as some do, "Don't worry; look at the decline in prices we have enjoyed." Such complacency is unjustified. The price drops were the result of the world slowdown; when the global economy revives, the pressure on prices will resume. Well, says the do-nothing brigade, "No matter who runs these countries, they will have to sell us their oil. We are the only buyers." That begs the question. A monopoly seller is in a position to sell on terms equivalent to political or economic blackmail. The do-nothing set may say that would never work with a resolute United States, but they forget: We are not alone. We must remember that our allies in Europe and Japan may be willing to make compromises, private or public, that we would abhor. They might be asked, for instance, on pain of a shutdown, to change their attitude toward Iraq, or Iran, or toward terrorism and financial pressure on al Qaeda. Or perhaps the pressure point will be Israel, or their own relationship with the country the questioner might style "the Great Satan."

The terrorist attacks have made it clear that the risks of destabilization are much higher than we were previously willing to acknowledge publicly and will be sharply higher for the foreseeable future. The American public understands this. In a poll conducted after 9/11, almost 40 percent said that protecting our national security is the most important reason for a comprehensive energy plan to reduce our dependency.

But what energy plan? What is our best defense? Exploitation? Conservation? Next week, I'll return to explore the options.