TURNING BOOM INTO BUST
By Alan Caruba
There is also something called “the curse of oil” because, if the price per barrel drops, the fate of some nations goes with it. This is the case, for example, of the former Soviet Russia, whose government collapsed when it could no longer secure hard currency when oil and gas prices fell. Venezuela is an economic basket case these days, having nationalized oil and most of its financial and business sectors.
The history of nationalized oil and gas-rich nations is that they tend not to invest in their energy industries. They do not engage in sufficient exploration. They do not expand their capacity to extract their natural resources or to refine them. We have seen otherwise oil-rich nations like Mexico encounter financial tremors, as in the 1990s, when the Clinton administration had to loan Mexico billions to keep it functioning.
America has adopted anti-energy policies because of incessant environmentalist propaganda about “dirty” coal, the danger of nuclear power, and global warming caused by greenhouse gas emissions from use of oil and other fossil fuels -- propaganda driving the refusal of the U.S. government to permit exploration of 85% of the continental shelf and, of course, Alaska’s ANWR area, a tiny fraction of that state’s landmass.
If Congress imposes a windfall profits tax on the American oil industry, it will quite simply wreck the economy. As my friend, Seldon B. Graham, Jr., a longtime oil industry attorney as well as a petroleum engineer, points out, “President Jimmy Carter started the ethanol subsidy on November 9, 1978 and signed the oil windfall profits tax on April 2, 1980.” 
In effect, Carter put in motion an anti-oil policy that has existed for over three decades. Why is that a bad thing? The ethanol policy has severely disrupted the price of food worldwide, as corn was and is diverted into fuel. The justification for this is “energy independence” from the purchase of foreign oil, but U.S.-produced oil has always been cheaper than imported oil.
If, however, the government creates conditions under which it is too risky or too expensive or oil companies to explore for more oil reserves or the companies are prohibited from doing so, obviously oil production declines. There has been a 59% decline in U.S. oil production since 1980, the year the windfall profits tax was imposed. It was later repealed, but U.S. oil companies have a responsibility to their investors to act prudently and that has driven them to explore for oil outside of the U.S.A. or, to put it another way, to find foreign oil.
When you add in the idiotic ethanol mandates, you compound the problem. Graham points out that, “After thirty years, U.S. ethanol production was only able to produce less than 3% of our oil demand last year.” Moreover, “ethanol cost taxpayers $3.3 billion in subsidies in 2007.” Environmentalists' claims that ethanol is cleaner than oil are false. Not only do you get less energy and poor mileage when ethanol is blended with gasoline, it actually emits more carbon dioxide per mile. “It is absolutely impossible for ethanol to replace foreign oil,” says Graham.
The justification for a windfall profits tax on oil companies ignores, for example, that ExxonMobil, just one of the few remaining oil companies operating in the U.S.A., pays more than $100 billion in taxes on the average.
Less than 11% of ExxonMobil’s profits come from marketing and refining in the United States and the company recently announced it was spinning off its retail outlets. Yes, it made great profits in recent years, but it also had enormous, risk-filled expenses.
Imposing a windfall profits tax on oil companies will give them cause to consider moving their corporate headquarters to other more congenial nations. The City of Dubai in the United Arab Emirates has been engaged in a vast office building effort, perhaps anticipating the movement of corporate headquarters.
Americans greeted the expiration of the ban on offshore exploration and drilling with the expectation that American oil would begin to flow and thus lower their costs for this vital national asset. That will not happen if an Obama Presidency and a Democratic Party-controlled Congress reinstate the ban and/or impose a windfall profits tax.
The City of Houston, Texas, has been enjoying a boom, due to the increase in the cost of a barrel of oil. Even at $80 dollars a barrel, it is enough to have created “its strongest resurgence in more than 20 years,” according to a 2007 New York Times article about Houston. “Some energy companies are expanding and putting up new buildings.” Others, like Schlumberger, among the hundreds of service providers to the energy industry have established their headquarters in Houston.
Houston is home to the headquarters of ExxonMobil and ConocoPhillips. And foreign-owned companies like Citgo, BP, and Royal Dutch Shell also maintain corporate offices there.
About half of Houston’s jobs, an estimated 1.1 million positions, are tied to the energy industry. The impact of a windfall profits tax would prove devastating to Houston.
Destroying the oil industry in America, a process that has been in place since the Carter administration, has left the nation vulnerable to foreign sources. The U.S. already imports some 70% of its oil. There has been a significant decline in the exploration and development of national reserves.
Unleashing the energy industries in America could dramatically improve our present financial troubles. Congress, having turned boom into bust, has a historical opportunity to reverse that trend.
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Alan Caruba is a veteran business and science writer, a Public Relations Counselor, and Founder of the National Anxiety Center, a clearinghouse for information about media-driven scare campaigns. Caruba writes a weekly commentary, "Warning Signs," posted on the Internet website of the National Anxiety Center, which is located at www.anxietycenter.com.
Caruba has a daily blog at http://factsnotfantasy.blogspot.com.
Caruba’s most recent book, Right Answers: Separating Fact from Fantasy, has been published by Merril Press. Books previously authored by Caruba include A Pocket Guide to Militant Islam, The United Nations Versus the United States: The UN's Plan to Control Planet Earth, and America: A Nation Without Borders -- A Pocket Guide to Immigration Issues.
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