It's 2012--It's Just Absurd That We're Still Addicted ... - Business Insider

In case you missed it, Iran just vowed to close the Strait of Hormuz if the world imposes tighter sanctions on its authoritarian regime.

Why does that matter?

Because one-sixth of the world's oil supply passes through the Strait of Hormuz.

If Iran actually did close the Strait of Hormuz, it would send the price of oil skyrocketing and clobber the world economy. It would also possibly, lead to war.

Is Iran just blowing hot air? Probably. But the fact that Iran can even threaten to close the Strait of Hormuz is annoying enough.

Iran, by the way, is the one of the world's biggest oil producers. It pumps about 5% of the world's oil, which makes it much bigger than, say, Libya, the last Middle Eastern oil producer that everyone had to freak out about. But, like Libya, and many other countries in the region, Iran is run by people who hate the United States and would like nothing more than to choke off our oil supply.

And Iran, of course, is also trying frantically to build a nuclear bomb, so it can really tell us where to stick it.

Meanwhile, oil is more than $100 a barrel, a level unthinkable only a few years ago. Oil is at $100 not because of some world war or supply shock or other Black Swan, but because the world's emerging economies are demanding more oil while the world's oil producers are producing pretty much the same amount of it.

(It's that supply-demand thing.)

And the United States still consumes about 20%-25% of the world's oil production, 50% more than the entire European Union, more than twice as much as China, and more than twice as much as we produce.

And this situation--a major supply-demand imbalance for oil (if not, in fact, peak oil)--has been predicted for more than 35 years.

So, to reiterate:

• We're highly dependent on a finite fuel source controlled by crazy people who hate us
• We've done next to nothing about this problem for four decades

In some places, this inaction on our part would be referred to as insanity. Or at least gross stupidity.

In other places, it would just be called denial.

But better late than never.

If we focus on trying to wean ourselves from dependence on oil, we can do it.

No, it won't be easy--kicking an addiction never is. Yes, it might lead to some people eventually switching jobs or being slightly less fantastically wealthy (oil industry executives). And, yes, it will require some lifestyle and philosophical changes (ditto). But some of those changes will eventually be positive, not negative.

And, done intelligently, kicking our Middle Eastern oil addiction will also lead to the development of vast, exciting new jobs, companies, and industries--industries that we own and control and that will ultimately employ and enrich millions of Americans.

And it won't kill the oil industry completely, because we'll still be consuming a lot of oil!

So, how can we begin to intelligently cure our addiction to Middle Eastern oil?

Well, what we shouldn't do is suddenly ban Middle Eastern oil imports--that would send the price of oil skyrocketing and destroy the economy.? This, of course, is what might happen anyway if our relationship with some key Middle Eastern countries gets bad enough, but we don't want to voluntarily impose this situation singlehandedly.

(Doesn't it just chap you that Iran has us by the balls like this, though? Seriously--it's outrageous. Iran!).

Instead, we can elect people who will actually lead us, instead of telling us what we want to hear. And we can encourage these leaders to develop a 10-Year-Plan to cure our Middle Eastern oil addiction.

Such a 10-year plan would likely have elements that will initially be unpopular. The alternative to this unpopularity, however, is continued lack of control over our destiny--which most folks who look at this situation objectively will probably agree is worse.

All of the elements in the 10 year plan should be phased in over the 10 years--to give consumers and industries time to plan and react. The goal here, after all, is not to inflict near-term pain--it is to make the whole system healthier over the long haul.

The elements include:

• Incentives to reduce oil consumption. These could take many forms. Tax credits for oil-to-gas conversion. Tax credits for natural-gas-powered transportation fleets. Tax credits for solar and geo-thermal home heating, hybrid and electric cars (or just fuel-efficient cars), and so on.
• Incentives to increase natural gas consumption, at least temporarily. There's lots of gas around, at least for now. And we control a lot of it. So one way to reduce oil consumption is to continue to shift more heat and vehicles to natural gas.
• A significant national gas tax. This should be phased in over the decade. It should fluctuate with the price of oil, with the aim of keeping gas prices rising slowly but steadily over the period (i.e., when oil prices spike, the tax should shrink. When oil prices drop, the tax should increase). Ultimately, the gas tax should at least double the price of gas from today's levels, thus bringing it in line with the price in many other countries. A gas tax will allow those who want to buy and use gas-guzzlers to continue to buy and use them. It will also create revenue to cover the cost of other elements of the 10-year plan. To wit:
• Tax incentives for companies and investors to invest in alternative energy.? Want to encourage the private sector to invent technologies that can ultimately can produce power and transportation more cheaply than with oil? Then provide an extra incentive to do it. Reduce capital gains taxes on alternative energy companies. Allow accelerated depreciation of alternative energy purchases. And so on. (The government does not need to invest directly in these companies to encourage the private sector--we need not have dozens more Solyndras).

That's pretty much it. It's not complicated. We just need to give American consumers and businesses incentives to make this transition slowly and deliberately, so we don't wallop the economy in the process.

The fact that it's 2012 and we're still addicted to Middle Eastern oil is not just a temporary geo-political challenge. It's not something that will go away if we ignore it. It's not something that "the market" will cure, at least not in a way that we want.? It's not something we can "fix" by making sure the folks in charge in the Middle East are people we can stand to do business with.

The fact that we're addicted to Middle Eastern oil is a national embarrassment.

We've had almost a half-century to prepare for this situation, and we haven't done jack. If we remain in denial, fighting to preserve the status quo, a transition of Middle Eastern oil will ultimately be forced on us. And it's hard to see why we would ever want that.

So it's time we focused on this problem. And it's time we did what any individual or company focused on fixing a long-term problem would do: Start by developing an intelligent long-term plan.

SEE ALSO: Analyst Says The Stock Market Is About To Crash

Source: http://www.businessinsider.com/middle-eastern-oil-addiction-2011-12

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