Analysis: U.S. must push oil market rules

By KRISTYN ECOCHARD, UPI Correspondent   |   Oct. 30, 2006 at 9:47 AM
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WASHINGTON, Oct. 30 (UPI) -- Encouraging fair play in the international oil market, not isolation, is the route U.S. policymakers should take, energy economists say.

Since the Sept. 11, 2001, attacks, an isolationist attitude has been taken up by many organizations and members of Congress and the Bush administration have expressed similar sentiments, said Pierre Noel, research associate with the Electricity Policy Group at the University of Cambridge.

Their claims that the United States would be better off importing less oil had little impact on policy until it became the central message after fall of 2001, he said during discussion last week at the New America Foundation in Washington.

While the world has seen energy crises in the past, in the form of monopolies and rising prices and nationalization of suppliers, this time it's different, he said.

"This energy crisis isn't about the market," he said. "It's about the United States losing trust in international energy markets as reliable providers of energy."

The Set America Free Coalition and its supporters disagree; they say the crisis is about finding alternative energy sources, specifically for transportation, which accounts for the largest percentage of energy demand.

"We're paying for both sides of the war on terror," said Anne Korin, chair of the Set America Free Coalition and co-director of the Institute for the Analysis of Global Security. "We pay for it in taxes that pay for military and homeland security and at the gas station where some of that money goes to funding terrorist groups."

She said that the coalition was not suggesting the United States end all imports or get rid of oil completely but shift oil from a strategic commodity to just another commodity.

The other major difference between the current situation and past disruptions in the oil market is the rapidly rising demand for oil and energy in China, with India close behind.

The potential impacts of either forging or avoiding cooperation with China are recognized in a report produced by the Electricity Policy Group and the New America Foundation, and co-authored by Noël and Flynt Leverett, senior fellow and director of the Geopolitics of Energy Initiative.

One of the reasons for the increase in oil prices is the rise of demand in the developing world, especially China and India. In the last decade, China surpassed Japan as second-biggest energy consumer.

"We don't want to see it escalate to a resource conflict," Korin said.

China's energy demand, while still not as high as the United States', is on pace to becoming competitive.

According to the Energy Information Administration, the U.S. Department of Energy's data arm, China's oil consumption will increase by almost half a million barrels per day in 2006, or 38 percent of the total growth in world oil demand. The country's demand for oil is expected to increase from 1 billion tons of oil equivalent in 2002 to more than 3 billion by 2030, according to the Paris-based International Energy Agency.

By following through on policy to promote partnership in energy security with China, Beijing may be more inclined to build its supply stock fairly instead of mass buying and overbidding, Noel suggested.

If the United States ignores China, Leverett said, Russia-China relations would be reinforced. Another possibility is China seek energy from countries such as Iran and Sudan where the United States is trying, through the United Nations, to place international sanctions. China is likely to veto any sanctions at the United Nations if it continues to trade heavily with these nations, Korin said.

"That is definitely not in the best interest of the United States," Leverett said.

The Set America Free Coalition says the best solution is to help China help itself, Korin said. In her view, the best way is to cooperate with and help China as it grows in the market, allowing Beijing to be steered away from its oil dependence.

"In the same way (developing countries) skipped wires by going right to wireless, they could leapfrog oil and go right to alternative energy sources like hybrids and plug-in hybrids," she said.

The Set America Free Coalition suggests the United States has also to invest in those alternative energy sources in order to maintain a secure future for its energy supply.

Noel, however, says the United States needs to promote investment in diversity of oil suppliers and transporters. The more places oil comes from, the less risk of disruption.

Oil is not going away, he said, and the free market needs to be supported along with efficient plans to deal with possible disruptions.

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