Trickle-Down Oil Economics

When the United States and NATO allies committed to military intervention in Libya, it was no secret that political instability in the Gaddafi regime would also affect Libya's production and output of oil. That country, with a deep history of conflict with America, accounts for less than two percent of the world's oil supply, but even two percent accounts for 1.6 million barrels each day -- nearly one-fifth as much oil as is produced every day in the U.S. (9.8 million barrels).

The global oil market took notice, and energy prices surged to annual highs. The effects of high prices at the pump rippled through our economy, too. We've seen this scenario play out before, with gas prices floating higher, higher and higher -- and staying there at least through the Fourth of July.

But that is not the end of the story. The solution to the unrest in Libya and its diminished oil production was to secure a commitment from Saudi Arabia to increase production to offset the lull in supply, which is probably only temporary. The Saudis possess the most production capacity in OPEC, of which Libya is a member. And Saudi Arabia is suspected to have the ability to easily boost its output from 8.6 million barrels per day to more than 12 million.

As expected, Libyan oil has dropped out of production. So far, however, OPEC countries have not made up the difference, as promised. Why should they honor their commitment when prices are climbing and the world's economies have no alternatives of their own? Why should they increase their contribution in the marketplace when America is unwilling to pump more domestic oil?

In America, these are questions we allow OPEC nations to answer in their own interests again and again. Despite the lessons of history and the strength of our case for a national energy policy, this Administration has not committed to seriously increasing domestic production of oil, natural gas, and alternative energy resources that can be used today to offset the threat of the next energy crisis on the horizon -- and there is always an energy crisis on the horizon.

As long as we rely on countries like Libya to supply the world with oil -- even if that oil is not destined for the shores of the United States -- uncertainty, political instability, and fluctuations in supply will disproportionately affect the price of the gasoline that goes into our cars, our jobs and our economy. And as long as we rely on the OPEC cartel to trickle down oil supplies to us, we will always experience energy shortfalls when prices trend higher. And as long as the market is dominated by fierce competition for oil from emerging economies like China, we will negotiate prices from a weak position.

Clearly there is something wrong when the most important factor in American commerce, manufacturing and agriculture follows a path from Libya to Saudi Arabia to China to the United States.

Breaking the cycle of dependence on foreign oil requires sound policy and political agreement. Innovation is essential. And everyone must agree that domestic supplies of energy are important in the short-term, not as a quick fix to reduce costs, but as a bridge to an energy future that is cleaner, more reliable, less expensive and all-American.