Pain at the Pump

Robert J Weiner
April 04, 2011

GW professor Robert Weiner discusses the rising price of oil and the nation’s dependence on foreign fuel.

The recent unrest in the Middle East and Northern Africa has not only increased gas prices but has re-energized the debate surrounding U.S. dependence on foreign oil. Meanwhile, President Barack Obama has said he hopes to put 1 million electric vehicles on the road by 2015 and get 80 percent of the country's electricity from low-carbon sources by 2035.

Last week Robert Weiner, a professor of international business, public policy, public administration and international affairs in GW’s School of Business, spoke with GW Today about oil and its effect on the U.S. and the world.

Dr. Weiner, who specializes in the petroleum industry, will be teaching a new class this fall that will examine oil’s impact on business and society. The course, “Oil: Industry, Economy, Society” will investigate gyrating oil prices, the effects of conflict and corruption on oil and the aftermath of last year’s BP oil spill.

Q: Why do global events like the conflicts in the Middle East and Northern Africa and the natural disaster in Japan affect gas prices around the world? What other factors typically influence the price of oil?
A: Oil is found almost everywhere on earth, but over half the world’s oil reserves are in only five countries – four of them in the Middle East. Problems in these countries, like the 1990 Iraqi invasion of Kuwait, can affect oil supply a lot. The tragedy in Japan and the Deepwater Horizon spill in the U.S. Gulf of Mexico should remind us that no form of energy is without risk and pollution. Setbacks for nuclear power imply that the world will become even more dependent on oil.

Q: How do U.S. gas prices compare with other parts of the world?
A: Most countries tax gasoline heavily, so gas prices are much higher than in the U.S. Low U.S. gas taxes are why over half the oil we burn each day goes into motor vehicles. Some oil-producing countries are even worse, subsidizing gasoline use. Oil consumption in these countries has risen dramatically.

Q: How is the BP oil spill in the Gulf of Mexico affecting the prospects of offshore drilling?
A: The spill has crippled U.S. drilling offshore, which is the source of about a third of American oil. We are already by far the largest importer of oil, and onshore production is in decline. Like everything else, offshore drilling has risks but so does importing ever more oil. Countries such as Russia, Venezuela and Saudi Arabia are the chief beneficiaries.

Q: Is it imperative for the U.S. to reduce its dependence on foreign oil as President Obama has called for?
A: President Obama is saying much the same thing as his predecessors, the most recent of whom called for an end to America’s “oil addiction.” The only way to reduce our dependence on foreign oil is to produce more at home and consume less. Like dieting and exercise to lose weight, allowing more drilling and imposing stiff gas taxes are difficult and unpopular.

Q: President Obama plans to announce new fuel efficiency standards for vehicles and heavy-duty trucks later this year, and he has said he wants to put 1 million electric vehicles on the road by 2015. Are these realistic goals, and what effect might they have on gas prices?
A: Without raising gas taxes, these will be a tough sell. Even if they work, their effect on gasoline demand will be small because the motor-vehicle fleet turns over slowly. Gas prices could easily rise a lot more.

Q: When do you predict oil prices will stabilize again?
A: How about “never”? We should focus on how to live with volatile oil prices, not yearn for the pre-1970 era, when excess production capacity fostered stability. Them days is gone, and the only way to get back the excess capacity is a severe and prolonged worldwide depression. Now that they’ve traded them in for cars, the Chinese don’t want to go back to riding bicycles any more than Americans would.

Q: You're going to be teaching a new course in the fall that will examine oil's effect on business and society. Can you tell us a little more about it? Will the course be open to both undergraduate and graduate students?
A: The course owes its existence to GW’s Center for International Business Education and Research and is open to juniors and seniors with economics backgrounds, as well as masters students. The course is multidisciplinary, part of the school’s vision of business in broader society. We will be looking into a rich variety of topics, ranging from corruption and conflict, which many believe oil fosters, to understating what’s behind high oil prices and whether we’re “running out” of oil. We will also look at the effects of the Deepwater Oil Spill and the role of governments, which have paid close attention to oil and security, starting with Winston Churchill. Washington is a great place to study government and its interaction with companies.

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