14 February 2005

Cut Oil Prices and Set the People Free?: Tom Friedman`s rose-colored glasses

TOKYO--"The president's priorities are totally nuts," writes Thomas L. Friedman in today's International Herald Tribune ("No Mullah Left Behind"). While that may be an arguable point, Friedman doesn't make it. Instead, he continues his push for a "geo-green" strategy, which on the face of it is praiseworthy: reduce energy consumption and ramp-up investments in renewable sources to make "energy independence our generation's moon shot."

Okay, I'm with you there, Tom -- readers of my GreenBiz columns know that I agree with Friedman on issues of globalization and a market-based greening of the economy -- but then you lose me. Bush may be nuts, but you're being naive.

"You give me $18-a-barrel oil and I will give you political and economic reform from Algeria to Iran," Friedman wrote in the Tribune on 31 January ("Cut oil prices and bring down the tyrants"). "It's that simple." Well, actually, it's not that simple and Friedman must know it.

First of all, it's naive to think that the U.S. will ever embrace energy conservation to an extent that will make a difference, at least not in the short-term. Just look at the size of our houses and all those Hummers still on the road. Reducing the price of oil to those levels will further reduce prices at the pump, encouraging more gas-guzzlers on American roads; and neither the Bush administration nor the American people will ever go for a gas tax.

Secondly, we've been talking about the promise of renewables replacing our dependence on foreign oil for decades and they have barely made a dent, even with recent technological breakthroughs and utility companies embracing wind investments. I'm a believer in such investments and consider it the next new thing for the U.S. economy -- as long as we don't let Asia or Europe beat us to the punch. But to think we can ramp that up as quickly as is needed to make a difference today is facetious at best.

Third, I've been talking to some industry experts during the past month, much of which I've spent in Mexico and Indonesia, and $18 per barrel seems neither achievable nor desirable. If oil prices get rolled back that far, developing nations and oil powerhouses will indeed see their economies shrink. The danger is they shrink too much to move forward with necessary reforms. Do we really want to hurt now friendly countries that are struggling to find ways to encourage foreign investments?

Finally, if you completely cut off the source of welfare for the jobless without increasing other investments, you'll simply breed further unrest and resentment. That won't make the U.S. popular among already disenfranchised youth in developing nations, who are already susceptible to the temptations of the terrorists whispering in their ears.

A reasonable price for oil, according to one of my sources, appears to be $25-30 per barrel. That would allow the industry and oil producing nations to sustain, would help the airline industry cut costs, and trim the fat currently subsidizing populations in places like Algeria and Iran while leaving some meat on the bone. No, it won't liberate women and rip open economies, but that is a wildly idealistic goal.

Friedman is right about the danger of an Iran invasion to the U.S. economy -- we should avoid that at all costs. But will cutting oil prices set the people free? I'm not sure you can back that up, Tom.

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