Wednesday, August 23, 2006

The Funding-Both-Sides Meme

Ever since I learned about the concept a few years ago, I've been watching out for memes, which are defined as "self-propagating units of cultural evolution." The world of energy has several important new memes that are starting to affect not just attitudes but also policies; ideas about peak oil and runaway global warming are spreading rapidly, even if both remain speculative. Another energy meme that I've been following for some time is at the heart of the Geo-Green movement. Call it the "Funding Both Sides" meme, as in, Through our addiction to oil, we are funding both sides in the war on terror. This one is also spreading rapidly, and it's turning up in this year's election rhetoric. How accurate is it, and, more to the point, what can we really do about it?

Credit this meme to Tom Friedman at the New York Times. I'm not sure he originated it, but he's been using it his columns at least since early 2005. He's beating this drum consistently and frequently, including in his recent "Addicted to Oil" segment on the DiscoveryTimes cable channel. But he's hardly the only one repeating it. Today I read about a Senatorial candidate in Tennessee who's picked it up and applied it to our concerns about Iran. He won't be alone in this, I'm sure.

As a statement of fact, it's so simple it's hard to refute. It contains obvious elements of truth, and that's an important feature of good memes. The US currently imports 10 million barrels per day (MBD) of crude oil and another 2 million or so of refined products. At current prices, we're talking about a monthly import tab of about $26 billion. Aside from Canada and Mexico--our two largest suppliers--a sizable portion of this, some 2.5 MBD, worth about $5 billion/month, comes from the Persian Gulf. So Saudi Arabia, Kuwait, Iraq, and the UAE are collecting roughly $60 billion a year in oil trade with us these days. Their governments end up with most of this money, because in all of these countries the government controls the oil industry. From there, it's a trickle-down effect. Just how much of that might eventually find its way into the hands of terrorists is a matter for speculation.

But that's not all. There's a good case to be made that America's sustained high oil demand and self-imposed production limits have helped drive up the global price of oil, so that these countries are getting more money from us and more money from their other customers, due in large part to our actions. The Persian Gulf exports more than 17 MBD, after accounting for domestic consumption. That equates to about $36 billion/month, about 2.5 times what it would have been in 2000, for an extra $20 billion/month. Even if only 0.1% of this ends up in the wrong hands, it's more than enough money to bankroll a large number of Islamo-fascist fanatics.

So you can see that our Funding Both Sides meme has solid, non-trivial underpinnings. My main objection has been to the unspoken portion of it, which goes something like this: we are funding both sides, and there are things we could be doing today, if only we had the right leadership--explaining the necessary actions and sacrifices to us in the right way--that would change this equation dramatically in short order. Unfortunately, that last portion is so unlikely as to be false from a practical standpoint. In the last two years, I've written numerous postings explaining in detail just how big this hurdle is, how long it takes to turn over vehicle fleets, existing power plants, appliances, and buildings to generate enough additional efficiency to reduce our oil demand by even a few million barrels per day.

Although not intended as a message of futility or resignation to the continuation of the energy status quo, I stand by that analysis, and my conclusion that the only lever available to us that could have a material impact in the next two or three years is a much higher fuel tax to squash demand--and that unless very carefully constructed, this could exact a huge price on our whole economy.

But that's not the whole story, either, as a comment on yesterday's posting reminded me. The signals we send to our suppliers--and our adversaries--may be just as important in determining their behavior as an actual reduction in demand that could take years or decades to materialize. Showing them that we are fully committed to a realistic plan for reducing oil imports could change the game, especially for those countries that are banking on their oil reserves to fund their economies--and perhaps international mischief--far into the future. Is that the unspoken message of the Geo-greens--or at least of the Geo- half of these strange bedfellows? If so, then count me in.

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