Tuesday, July 22, 2008

The Upside of Foreign Oil

Our dependence on foreign oil has been pointed to as a national security concern, and correctly so. Our economy is dangerously vulnerable to policy decisions of other governments.

T. Boone Pickens pointed out that our purchase of foreign oil at these prices represents the biggest transfer of wealth in the planet's history. That's true, but not all bad. It's not something we want to perpetuate, but there are positives. While some are spending oil money on weapons and thugs, many are building resorts, theme parks and diversifying their economies. What they are going to wind up with is quite a bit to lose.

Kuwait, Jordan, Bahrain, UAE, Saudi and others in the region don't want to see their new found gems blown up by a madman on a mission. Tolerance for terrorism is inversely proportional to an area's wealth and the extent to which the average Joe (or Omar) benefits from it.

Fundamentally, a highly regulated market, controlled by state cartels and a group of companies kept exclusive through various barriers to entry is a bad situation and we should seek to inject free market forces into energy. But middle eastern countries acquiring wealth, in and of itself, is not necessarily dangerous. If the wealth is put to productive use it could actually help stabilize the region and save us a bundle in the long term.

AlGore's 10 year proclamation may be naive to say the least, but oil does have a limited shelf life. Not necessarily because we'll run out, but because the masses want something else and eventually the market's going to give it to them. The wiser governments in the middle east recognize that and are working toward reducing their own dependence on oil revenues. Those who do not are fools, and you know what they say about a fool and his money.

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