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Understanding Oil

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The True Cost of a Gallon of Gas?

July 14th 2008

Military - USAF Desert Storm
US Air Force at Desert Storm

We pay in some places $5.00 for a gallon of gasoline at the service station. But the real price of gas is much higher and camouflaged by myriad direct and indirect costs associated with maintaining our oil economy. How much are you actually paying for gas? Take a closer look at the hidden bills footed by your taxes:

The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers.

Our dependency on oil from countries that are either politically unstable or at odds with the U.S. subjects the American economy to occasional supply disruptions, price hikes, and loss of wealth, which, according to a study commissioned by the U.S. Department of Energy, have cost us more than $7 trillion present value dollars over the last 30 years. That is more than the cumulative cost of all of the wars fought by the U.S. since the Revolutionary War.

The transfer of wealth to oil-producing countries - $1.16 trillion over the past thirty years - significantly increased our trade deficit. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.

The cost of securing our access to Middle East oil - deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries - is estimated at $50 billion per year, which adds additional dimes to each gallon of gasoline we purchase.

Political instability in the region breeds wars and embroils the U.S. in costly military actions. The 1990-91 Gulf War broke out as a result of an oil dispute between Iraq and Kuwait. The cost to the international community reached almost $80 billion. The cost of the 2003 Iraq war and the following occupation of the country is estimated at $200 billion.

To ensure access to the oil that fuels our economy, the U.S. is forced to maintain continuous presence in the Middle East. This presence has been a rallying cry for anti-Americanism and Islamic fundamentalism.

Fatwas (religious rulings) issued by Al-Qaeda in 1996 ("Declaration of War against the Americans Occupying the Land of the Two Holy Places" and in 1998 ("Declaration of the World Islamic Front for Jihad against the Jews and the Crusaders") emphasized the presence of U.S. soldiers in Saudi Arabia, the home of Islam's two holiest places. It was claimed that this was the greatest transgression against Muslims and that U.S. support of local regimes was unacceptable. Hence, the September 11 attacks were motivated by Al-Qaeda's desire to drive the "infidel armies" out of the oil-rich Persian Gulf.

The total dollar value of the attacks is rather difficult to quantify but it is certainly very high, surely in the range of hundreds of billions of dollars.

World competition for dwindling oil reserves will force the U.S. to increase its footprint in the region while oil generated wealth would continue to provide extremists the capital to market and implement their ideas worldwide. The unavoidable result is even more terrorism and instability. So when it comes down to the question of whether we can actually afford to shift away from petroleum-based energy system one should remember that the combined impact of wars, terrorism and environmental degradation is likely to send the price of oil right through the ceiling over the next two decades. Alternatively, the cost of emerging technologies is likely to decrease over time, as mass production and commercialization takes place.

Furthermore, if history is our guide, we can see that every industrial and technological revolution in history inspired an economic boom. Building an infrastructure for next-generation energies would generate millions of jobs around the world, and revolutionize the automobile industry as well as other industries.

Researching, developing, and introducing new transportation technologies that are cleaner, safer, and less economically destructive should, therefore, be our top national security and economic priority.

Gal Luft is executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition.

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