The falling price of oil may be pleasing consumers by producing cheap gas prices at the pump, but the bigger picture shows the U.S. needs a true energy dominance policy.
Although the full scale of the coronavirus’s impact on the U.S. may not yet be known, it increases the pernicious effects of slumping oil demand that has dragged prices down. Yet, now add the economic attack of Saudi Arabia and Russia’s engineered price shock that has further rocked our domestic industry, and it should remind us that we need such a strong policy.
After years of portraying itself as a “market manager” solely concerned with oil price stability, Saudi Arabia finally dropped the façade in spectacular fashion. After failing to reach an agreement with Russia to collude on oil production cuts, the kingdom slashed prices and promised to flood the market with oil, sending global prices tumbling more than 30 percent. This just started the current Dow Jones Industrial Average slide which has seen several record nosedives recently.
American Oil Companies Blindsided
Despite being the world’s biggest oil producer, the U.S. energy industry has been powerless to contain the fallout from the Saudi-Russia disagreement. American oil companies, already drowning in debt and struggling with the impacts of coronavirus, have been blindsided by Saudi Arabia’s extreme action. Talks of an industry bailout have already begun.
This shows that remaining reliant on an oil economy that is controlled by dictators and sheikhs only serves to leave power and control in their hands.
America’s domestic oil industry has been an engine of growth for the nation’s economy, creating jobs and six-figure salaries in previously economically depressed parts of the country.
Saudi Arabia’s decision to crash oil prices will undoubtedly hurt our domestic industry and risks a repeat of 2014: Faced with growing competition from shale production, Saudi Arabia, Russia, and other OPEC members maintained high levels of production, which sent oil prices tumbling to just $26 by February 2016. In the process, 150 U.S. oil companies entered bankruptcy and approximately 200,000 workers lost their jobs.
Strategy Should Rest on Core Principles
Taken as a whole, this should all be deeply concerning to policymakers. America needs a strategy for real energy dominance that rests on a set of core fundamental principles.
First, considering the enduring threat of anti-competitive dynamics in oil markets, policymakers should prioritize policies that offer a measure of protection to the domestic oil industry and its workers. This would include trying to fix the persistently unfree market by passing the No Oil Producing and Exporting Cartels (NOPEC) Act, which allows the U.S. to sue the OPEC cartel for breaking U.S. anti-trust laws.
Second, the overriding goal of policy must be to increase fuel diversity in transportation, including accelerating the deployment of electric vehicles. Creating and sustaining competition to oil is the most direct and effective way to guarantee the nation’s energy security in the decades to come.
The U.S. must also develop its own supply chain that supports this technological transition, from minerals to markets. With the specific intent of gaining greater global authority over new transportation technologies, China has taken a commanding lead in developing the supply chains needed to create the batteries that will power our future transportation system.
Finally, and perhaps most importantly, policymakers should ensure that the country is well-prepared to support the development and deployment of new technologies that could radically transform our economy and society.
For the first time in more than 100 years, the automotive industry is on the verge of introducing technological advancements that have the potential to improve both social and personal utility. Connected, autonomous, and shared vehicles could radically transform everything from the ways in which we power our vehicles and design our cities to the costs of moving people, goods, and services throughout the economy.
Too often, America’s energy policy has been defined by long periods of inaction and inattention after each crisis, which simply leaves the country dangerously exposed for the inevitable next crisis. But the future is in our hands. It is time to implement a real energy dominance plan that harnesses American ingenuity and industry, and creates an energy portfolio that finally works in our national interest.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
James Conwayis the 34th commandant of the U.S. Marine Corps and a member of the Energy Security Leadership Council, a project of Securing America’s Future Energy, a nonpartisan nonprofit dedicated to reducing U.S. oil dependence as an economic and national security priority.
John Lehman is the Former U.S. Secretary of the Navy and also a member of the Energy Security Leadership Council of Securing America’s Future Energy.