Why We're Suddenly Paying Through the Nose for Gas

As the pain induced by higher oil prices spreads to an ever growing share of the American (and world) population, pundits and politicians have been quick to blame assorted villains -- greedy oil companies, heartless commodity speculators and OPEC. It's true that each of these parties has contributed to and benefited from the steep run-up. But the sharp growth in petroleum costs is due far more to a combination of soaring international demand and slackening supply -- compounded by the ruinous policies of the Bush Administration -- than to the behavior of those other actors.

Most, if not all, the damage was avoidable. Shortly after taking office, George W. Bush undertook a sweeping review of US energy policy aimed at expanding the nation's supply of vital fuels. The "reality is the nation has got a real problem when it comes to energy," he declared on March 14, 2001. "We need more sources of energy." At that time many of the problems evident today were already visible. Energy demand in mature industrial nations was continuing to grow as the rising economic dynamos of Asia, especially China, were beginning to make an impact. By 2002 the Energy Department was predicting that China would soon overtake Japan, becoming the world's second-largest petroleum consumer, and that developing Asia as a whole would account for about one-fourth of global consumption by 2020. Also evident was an unmistakable slowdown in the growth of world production, the telltale sign of an imminent "peaking" in global output [see Klare, "Beyond the Age of Petroleum," November 12, 2007].

With these trends in mind, many energy experts urged the White House to minimize future reliance on oil, emphasize conservation and rapidly develop climate-friendly alternatives, especially renewables like wind, solar, geothermal and biofuels. But Dick Cheney, who was overseeing the energy review, would have none of this. "Conservation may be a sign of personal virtue," the Vice President famously declared in April 2001, "but it is not a sufficient basis…for sound, comprehensive energy policy." After three months of huddling in secret with top executives of leading US energy companies, he released a plan on May 17 that, in effect, called for preserving the existing energy system, with its heavy reliance on oil, coal and natural gas.

Because continued reliance on oil would mean increased reliance on imported petroleum, especially from the Middle East, Bush sought to deflect public concern by calling for drilling in the Arctic National Wildlife Refuge and other protected areas. As a result, most public discourse on the Bush/Cheney plan focused on drilling in ANWR, and no attention was paid to the implications of increased dependence on imported oil -- even though oil from ANWR, in the most optimistic scenario, would reduce US need for imports (now about 60 percent) by just 4 percent.

But this produced another dilemma for Bush: increased reliance on imports meant increased vulnerability to disruptions in delivery due to wars and political upheavals. To address this danger, the Administration began planning for stepped-up military involvement in major overseas oil zones, especially the Persian Gulf. This was evident, for example, when then-Defense Secretary Donald Rumsfeld gave early priority to enhancement of American "power projection" to areas of instability in the developing world. Then came 9/11 and the "war on terror" -- giving the White House a perfect opportunity to accelerate the military expansion and to pursue other key objectives. High on the list was the elimination of Saddam Hussein, long considered the most potent challenger to US domination of the Gulf and its critical energy supplies.

But the invasion of Iraq -- intended to ensure US control of the Gulf and a stable environment for the expanded production and export of its oil -- has had exactly the opposite effect. Despite the many billions spent on oil infrastructure protection and the thousands of lives lost, production in Iraq is no higher today than it was before the invasion. Iraq has also become a rigorous training ground for extremists throughout the region, some of whom have now migrated to the oil kingdoms of the lower Gulf and begun attacking the facilities there -- generating some of the recent spikes in prices.