ALTHOUGH hybrid-driving environmentalists have long warned of the dangers of our dependence on fossil fuels for the planet, recent events should make even the staunchest pick-up driving conservative reconsider the significance of the threat foreign oil dependence poses to our economic sovereignty and national security.
Last week sovereign wealth funds representing Middle Eastern and Asian governments purchased a $14.6 billion interest in Citigroup, America's -- and the world's -- largest bank. Some commentators have decried the move, arguing that foreign governments, with potentially nefarious motives, should not be allowed to own large stakes in America's most important private financial institutions.
In truth, governments from oil producing countries such as Saudi Arabia will, and must, continue to purchase important American assets as long as America continues to glut world markets with the hundreds of billions of dollars it spends importing oil each year.
The source of the imbalances that underlie these transactions is the quarter-trillion dollars Americans spend to import petroleum every year. Every day Americans import over 12 million barrels of oil, 60 percent of U.S. oil consumption. Moreover, declining production in American oil fields make the threat of growing oil import tabs all the more ominous.
Oil production in the continental United States has been declining since the 1970s. While finds in Alaska temporarily staved off a massive decline in production, production on the North Slope in 1988 settled at levels 40 percent below its peak as early as 1998, according to the American Petroleum Institute.
Even opening up the contested deposits in the Arctic National Wildlife Refuge would have a minimal impact on America's petroleum imports, offsetting only 876,000 barrels per day, according to a report issued by the Energy Department.
While politicians and analysts have long argued that America's dependence on foreign oil makes the nation vulnerable to threats of embargo from foreign suppliers, too little attention has been paid to the economic imbalances it creates.
One recent article in The Economist magazine countered this paucity of coverage, explaining the connection between high oil prices, America's voracious appetite for oil, and the recent purchases of American assets by Middle Eastern governments. It explains that gaping trade deficits force petroleum exporting countries to billions in dollar reserves.
With such substantial reserves, the governments of petroleum-exporting governments must reinvest their dollar holdings in order to correct the financial imbalances stemming from these petroleum backed trade deficits.
In this manner, the size of American petroleum imports effectively necessitates massive purchases of American assets by petroleum exporting countries.
While the environmental threats of America's insatiable appetite for oil have long been understood, its economic effects should add to the case for reform. While there is nothing inherently wrong with foreign government holding U.S. assets, Americans should be worried that they are effectively mortgaging their economic future by selling off many of the nation's most valuable assets to pay for today's trade imbalances. Moreover, America's complex relationship with sometimes unfriendly Middle Eastern governments will be further complicated if these governments hold billions of dollars of vital U.S. assets.
Fortunately the solution to these problems is far from elusive. Proponents of energy conservation have long argued that the government should impose stricter fuel efficiency standards, or place a cap on carbon emissions that would create stronger incentives for firms to reduce their consumption of fossil fuels.
By creating incentives to reduce fuel consumption America can finally take the steps necessary to wean the country off its dependence on fossil fuels.
The silver lining from the news of the Citibank purchase it is that it shows how America's addiction to fossil fuels is a threat not only to the environment but also to economic sovereignty and national security.
Only by building a broad coalition for change can Americans take decisive action to curb the nation's dependence on fossil fuels.
Adam Keith's column appears Tuesdays in The Cavalier Daily. He can be reached at akeith@cavalierdaily.com.
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