New RAND Report on Imported Oil and National Security

While on a net basis the United States imports nearly 60 percent of the oil it consumes, this reliance on imported oil is not by itself a major national security threat, according to a RAND Corporation study issued today.

The study finds that the economic costs of a major disruption in global oil supplies—including higher prices for American consumers—pose the greatest risk to the United States.

“The fact that the United States imports nearly three-fifths of its oil does not pose a national security threat,” said Keith Crane, the study’s lead author and senior economist at RAND, a nonprofit research organization. “There is an integrated world oil market, and embargoes do not work. But a large, extended drop in the global supply of oil would trigger a sharp rise in oil prices and significantly affect the United States, no matter how much or how little oil the United States imports.”

The RAND study evaluates commonly suggested links between oil imports and U.S. national security, and assesses the economic, political and military costs and benefits of potential policies to address threats to U.S. national security associated with imported oil. The work was sponsored by U.S. Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce. As with all of RAND’s work, the study’s conclusions were reached independently.

The report finds that the two most serious threats to U.S. economic security are a large disruption in global oil supplies and higher consumer costs associated with the disruption.

Links to PDF documents are below:

http://rand.org/pubs/monographs/2009/RAND_MG838.pdf

http://rand.org/pubs/monographs/2009/RAND_MG838.sum.pdf

Hi, Frank
Your review is excellent: concise, clear and captures Crane's central arguments.
My main quarrel with the study is its recommendation that government not attempt to ration fuel.
There are other issues which I wish that Crane had explored (and I encouraged him to consider doing so), but I'm sure that the subsequent issues would have taken him far beyond the scope of what he wanted to address.

These concerns were posted last month at Armed Forces Journal, then at Energy Bulletin:
http://www.energybulletin.net/node/49034

Other than these concerns, I thought that Crane did a very thorough job and his study is a useful addition to the energy security literature.
-- Rick

An excellent paper overall, but with a significant oversight. There is extensive discussion of the impact that a supply disruption and consequent energy price spike could have on the US economy, but none at all of the impact such an event could have on economic and political stability in oil-importing nations in the developing world, and the subsequent implications for US security.

The impact of a serious and sustained energy price surge on vulnerable oil-importing economies in the developing world could be extremely severe, far more so than in the more resilient US economy. Nations that have achieved some degree of economic success could see that success threatened; marginal economies could face complete collapse. The perception that oil prices are systematically controlled or manipulated by Western oil companies is of course inaccurate, but it is widespread, and ripe for manipulation by anti-Western demagogues and insurgent or terrorist groups.

I’m not going to try to quantify that threat or break it down country by country (that would be a big job), but I do think it’s real enough to deserve consideration in a discussion of the interface between energy and security policy, particularly in the "small wars" context.

Hi, Dayuhan

I agree with your observations on developing countries which depend on oil imports, and I also agree that their difficulties may in turn have implications for US security.
But Kevin Crane and his colleagues did not intend to write a book, so we must excuse their reluctance to venture into other domains.

In your case, you wish that they had covered developing countries.
In my case, I wish that they had taken a more thorough look at the literature on fuel emergencies.
But we both agree that Crane did an excellent job of covering what he intended to cover.

I'm not sure that I agree with your point about the resiliency of the US economy to a severe price spike... the same would apply here in Canada.
We have a suburban, highway-based system that is highly vulnerable to spikes in oil prices... we have much to be wary of.
I believe that our globalized agri-food system is particularly vulnerable, but that is a story in itself.
I appreciate your sensible observations on this issue.
--Rick M

You're right about the potential impact on the US and Canada. I didn't mean to suggest that these developed economies were immune, just that they have a somewhat greater margin of resilience than developing economies, especially those in the early stages of industrialization.

Public perceptions of oil economics are largely outside the framework of the Rand study, but they are an important factor in assessing security impacts. At the peak of the recent oil price spike surveys suggested that a quite astonishing number of Americans believed that the price surge was generated not by demand outstripping supply, but by sinister oil companies, the heathen Ay-rab, or some moneygrubbing conspiracy between the two. This sort of perception is ready made for exploitation by extremists of every sort, both domestic and foreign. A bit of education might be in order, though I doubt that many would listen!

Dayuhan, your point about public perceptions of oil economics is right-on.
Public perception is fundamental to the public's (un)willingness to cooperate during a fuel crisis.
I would loosely define a fuel crisis as a situation where a significant number of citizens are unable to obtain affordable fuel, so there is both a price aspect and a physical supply aspect.
Our entire North American society has now become rooted in affordable (preferably cheap) fossil fuel, and it is hard to imagine a more inflammatory situation (domestically) than a widespread inability to obtain affordable fuel.

Apart from a month or so post-Hurricanes, most North Americans have never experienced a significant fuel crisis. Therefore most of us have given little thought to how a fuel crisis could rapidly affect our agri-food system, essential services, employment and the overall economy.
Such a situation would be a severe test of our ability to cooperate, sacrifice and share, to improvise & adapt.

Meanwhile, we have a public which perceives cheap fuel as a birthright.
Should anything deprive North Americans from their entitlement, public order would be subject to unprecedented strain.

Your final point about the need for public education is absolutely correct.
Unfortunately, our media and politicians have little interest in reminding the public that fossil fuels are indeed finite, and that the fuel we squander in drive-throughs will not be available to our grandkids for more vital uses.

At least you Americans have veteran Congressman Roscoe Bartlett:
http://video.energypolicytv.com/disp...93&channel=Oil

Please note his reference to senior military at 3:45 and to Admiral Rickover's warning at 9:15.

Here in Canada, we have no such voice in Parliament.