Following his strikes on Iranian nuclear facilities, U.S. President Donald Trump turned to social media to express his deep worries about oil prices, which had spiked by roughly 20 percent from their pre-conflict level. Even before Iran’s retaliatory strikes on a U.S. base in Qatar, he called for an immediate boost in oil production and warned the industry to “keep oil prices down.”
Politicians from both major U.S. parties have long feared the political and economic impact of war on gasoline prices. But Trump’s admonitions were notable because they marked a stark contrast to his assertion after Iran’s last strike on U.S. bases, in January 2020, that “we are independent, and we do not need Middle East oil.” Even as oil prices have retreated following a fragile cease-fire, a key lesson from the two-week conflict should be that the United States’ new status as the world’s largest oil producer does not make it “independent.”
It was only a month ago that oil prices had fallen to such low levels, around $60 per barrel, that oil executives were warning about an end of the U.S. shale oil boom, even as Trump promised to “unleash” domestic production. As missiles flew back and forth across the Middle East in recent weeks, however, prices surged to nearly $80 per barrel. Experts predicted that gasoline prices could rise by 20 cents to 30 cents per gallon—before they subsequently returned close to pre-conflict levels when the fighting subsided.
The reality is that the best way to protect drivers and businesses from inevitable price spikes is to use less oil, not just produce more. Yet Republican plans would scrap the incentives and regulations that would enhance the United States’ energy security by curbing oil demand, which continues to rise each year in the country.
In the past two decades, the United States has gone from importing 60 percent of its oil use to being a net exporter—an unprecedented turnaround. In response, numerous experts and policymakers expressed sentiments, similar to those of Trump, that the United States had achieved the long-sought goal of energy independence and no longer needed to worry about risks to Middle Eastern or other oil supplies.
Indeed, the shale revolution brought many economic and geopolitical benefits to the United States and helped temper oil prices in recent years, including during the current conflict. Yet independence is a myth. Oil and gasoline prices are still set in a global market. Even though the United States is no longer a net importer of oil (in reality, the U.S. both imports and exports significant amounts), prices at the pump still rise for U.S. drivers if oil supplies are disrupted halfway around the world.
Moreover, when such price spikes occur, there is less of a cushion today to cope with that economic pain. Congress unwisely sold off much of the U.S. stockpile of strategic oil reserves in recent years in response to a misperception that reduced imports made the country less exposed to volatile global markets and geopolitical risks. The Biden administration also released historically large volumes of strategic oil stocks after Russia invaded Ukraine, even though the Russian oil supply was largely undisrupted.
Additionally, the ability of U.S. shale oil growth to offset supply losses elsewhere is a shadow of its former self. Production is expected to barely grow this year—or possibly even decline—given low prices and geologic depletion in shale formations. According to a just-released survey by the Dallas Federal Reserve, nearly half of oil executives now plan to drill fewer wells than they did when Trump took office for his second term.
To be sure, being a net exporter means that the negative effects of oil price spikes on the macroeconomy are far more muted because much more of the increased consumer spending flows to producers in the United States rather than overseas. Yet businesses and consumers still feel the shock. This explains why Trump used his first major speech as president this year to call on Saudi Arabia and other members of OPEC to bring down oil prices, notwithstanding the United States’ newfound “independence” from oil imports.
So long as oil and gasoline prices are set globally, true energy security will only come from using less, not just producing more. Unfortunately, Congress and the administration are moving in the opposite direction. The massive tax and spending bills that narrowly passed both the Senate this week and the House in May would end tax credits for the purchase of electric vehicles and federal spending for electric vehicle charging infrastructure. The Trump administration is also moving to repeal stronger fuel economy standards and vehicle emission standards. By contrast, roughly half of new cars sold in China this year will be electric—a result of Beijing’s ongoing effort to cut its dependence on oil for national security reasons.
Tensions in the Middle East seemed to have eased, at least for now. Yet with uncertainty remaining about the status of Iran’s stockpiles of highly enriched uranium, they could easily heat back up. Even if this crisis is over, there will be others. While politicians may be breathing a sigh of relief about pump prices today, both Congress and the Trump administration should redouble their efforts to prepare for the next inevitable crisis. The best way to do this is to cut the United States’ dependence on oil, regardless of its source.
The post Energy Security Means Using Less Oil appeared first on Foreign Policy.
