"No Blood for Oil" - or "No Oil for Blood"?
Stephen Smith makes an argument that seems popular across a wide swath of the political spectrum:
Yeah, and how many billion dollars per year does the United States need to spend even on just the military to make this oil available? How much does it cost just to perpetuate the House of Saud?
The left-wing take on this argument is that it’s bad to spend blood for oil; the right-wing take is that it’s good (or at least necessary) to spend blood for oil, and we should just face facts. In a recent piece in Public Choice, however, I argue that – whatever else you think about U.S. foreign policy in the Middle East – it’s an economically illiterate way to get oil.
[Bin Laden’s] second demand is widely seen as expensive due to U.S. reliance on Saudi oil. Presumably bin Laden’s hope is that the “oppressive, corrupt and tyrannical” Saudi monarchy would be replaced by rule of people like himself. That might mean an oil embargo against the U.S. However, basic facts and basic economics reveal this fear to be vastly overblown. Fuller and Lesser (1997, p.42) estimated that “The Pentagon pays up to $60 billion a year to protect the import of $30 billion worth of oil that would flow anyway.” By 2003, total U.S. expenditure on oil imports was only $99 billion, and Saudi Arabia supplied 15.8% of that. (U.S. Census Bureau 2005; Department of Energy 2004) Since the U.S. imported 56.1% of its oil, the Saudis provided only 8.9% of U.S. consumption. The U.S. gets more oil from Canada, and got more from Venezuela until socialist Hugo Chavez’s assumption of power in 1999. (Department of Energy 2004)
Assuming that a Saudi embargo would reduce U.S. oil consumption proportionally, the effect is tiny as a percentage of GDP. And this assumption is extremely economically naive. Domestic production can increase. There are numerous other suppliers. Above all, oil is a fungible commodity. As long as it sells on world markets, it eventually reaches its highest-value destination. In sum, as Fuller and Lesser suggest, ending support for the Saudi regime is not just cheap action; the cost is probably negative.
The popular anti-war slogan “no blood for oil” assumes that blood actually buys oil and appeals to our conscience not to pay the price. I’ve got a better slogan: “No oil for blood.” You could spill an ocean of blood without making it cheaper to fill up your gas tank.