As Americans take to the road this Fourth of July they are once again in for sticker shock at the pump. Fuel costs have skyrocketed from $20 per barrel in 2002 to $80 last summer to approximately $140 today.

Respected industry experts have long drawn the connection between global instability, failed Bush Administration foreign policies, and the price of oil – which they call the “security premium.” The instability of oil-producing regions around the world and Al Qaeda threats against oil installations across the Middle East already build a significant security premium into oil prices. The invasion of Iraq, with its destruction of petroleum infrastructure, hundreds of uncontained attacks on production and transit facilities, and slowness to return production to pre-war levels has added a significant additional expense. So too has saber-rattling against Iran, which experts say has affected the price of oil dramatically – by as much as $11 in one day.

Some experts estimate this premium to be as much as $30-40 for every barrel of oil sold. And while American consumers and businesses suffer, who benefits? The very countries our foreign policy is supposed to contain in the first place – Iran, Russia and others. In the short term, overheated rhetoric and penny-wise, barrel-foolish policies will make a painful summer even worse for Americans. In the long term, reducing our dependence on oil is the best way to get out from under the burden of the security premium – and increase our security at the same time.

AMERICANS PAY AT THE PUMP FOR GLOBAL INSTABILITY

Rising oil prices and the world’s insecurity are linked. A majority of the world’s oil is produced in parts of the world wracked with instability. John Kilduff, energy analyst at MF Global, outlined: “The unrest in the Niger Delta [is] knocking off millions of barrels of crude oil every day. We see President Putin threatening at times to use oil as a weapon. So we're seeing speculators and hedgers bid up the price because of the uncertainty of future supplies, in particular.” According to oil expert and Chairman of Cambridge Energy Research Associates, Daniel Yergin, these national security concerns have built “‘an almost-permanent security premium’ into the price of oil.” [NY Times, 5/11/08. NewsHour, 10/26/07]

Rising tensions in the world’s oil producing hotspots contribute to an oil “security premium,” increasing prices by as much as 30 percent. Senator Joseph Biden defined the security premium in concrete terms, warning that the “more tensions rise, the higher the security premium goes, because people betting on the long term price of oil anticipate supply disruptions.” In October 2007, when oil reached $90 a barrel, David Hobbs, vice-president of Cambridge Research Associates (CERA), noted security premium estimates of “$30 or $40” per barrel. [Senator Joseph Biden, 12/06/07. Houston Chronicle, 10/28/07]

BUSH ADMINISTRATION FOREIGN POLICY HAS RAISED TENSIONS ACROSS THE MIDDLE EAST, IMPERILING THE WORLD’S ENERGY SUPPLY

The Bush Administration’s decision to invade Iraq and its failure to manage the security situation has hurt our energy security. Since the invasion, there have been 469 attacks on Iraqi oil pipelines, facilities, and personnel, and production has stagnated at prewar levels. The invasion of Iraq also increased the threat of terrorism by creating a training, recruiting and fundraising magnet for Islamic terrorists in the heart of the world’s most vital energy producing region. A CSIS report suggested that the invasion of Iraq heightened Saudi fears of a terrorist attack, evidenced by the 50 percent increase in security expenditures from 2003 to 2004. In addition, there have been frequent terrorist attacks on oil installations in the Middle East. These often spur mini-spikes in oil prices, increasing fears of vulnerability and driving-up the security premium. [Institute for Global Security, 3/27/08. NY Times, 5/11/08. Senate Joint Economic Committee, 11/11/07. CSIS, 11/30/04. Reuters, 5/31/08. Yemen Observer, 4/05/08. Fox News, 9/15/06. BBC, 2/24/06]

Ceaseless confrontation with Iran has raised costly speculation about a future oil shock. John Kilduff observed: “Well, I think at this point, the problem we have… is statements from the President and the Vice President, almost on a daily basis lately, really raising the rhetoric, raising the temperature on the situation. And, of course, President Ahmadinejad in Iran does not shrink from these verbal battles anyway. And this is the mother of all supply fears, the mother of all supply threats. Not only the Iranian oil, but the Strait of Hormuz, where 25 percent of the world's oil flows, that's 100 percent Western-friendly, could easily be blocked by the Iranians. So, I mean, yes, there could be an overreaction right now, but we in the oil markets have to call them as we see them and take what we get in terms of rhetoric and worry.” [NewsHour, 10/26/07]

Recent rumors of confrontation with Iran caused an $11 spike in oil prices in one day. Israeli Transportation Minister Shaul Mofaz recently asserted that an Israeli strike on Iran was unavoidable causing an $11 spike in oil prices. “‘It's one word that did this,’ said Guy Gleichmann, president of United Strategic Investors Group…‘rumors of war with Iran,’ Mr. Gleichmann said, have often led to a spike of several dollars in the price of oil. The issue had died down for a while, he said, but ‘this is like Jason coming back from the dead.’” The security premium is funneled into Ahmadinejad’s coffers, allowing him to address some of his country’s economic problems and build up his political power. [Jerusalem Post, 6/10/08]

As U.S. forces were diverted to Iraq, Al Qaeda was able to reconstitute in Pakistan and is calling for Islamic terrorist movements to wreak havoc against oil installations. The 2007 National Intelligence Estimate found that Al Qaeda had reconstituted along the Afghan-Pakistan border, and the GAO recently found that the United States lacked a coherent policy to address this threat. Operating with impunity, senior Al Qaeda leader Ayman Al-Zawahiri has publicly declared that oil revenues went to the “enemies of Islam,” and Osama Bin Laden has approved of attacks on what he called, “the provision line and the feeding to the artery of the life of the crusader's nation." [The Guardian, 9/09/07. NIE, 07/07. GAO, 4/17/08. Washington Post, 9/27/04]

REMOVING THE STRANGLEHOLD OF RISING OIL PRICES REQUIRES BETTER ENERGY AND NATIONAL SECURITY POLICIES

In the short-term we must stop the reckless saber rattling towards Iran, reduce our short-sighted focus on Iraq, and implement an effective counterterrorism strategy. The current policy only undermines our diplomatic and security position, while directly benefiting – through increasing oil prices – the very countries our foreign policy is supposed to contain. As John Kilduff explained, “the problem we have…is statements from the president and the vice president, almost on a daily basis lately, really raising the rhetoric, raising the temperature on the situation.” [NewsHour, 10/26/07]

In the long run we must reduce dependence on foreign oil and natural gas in the world’s most volatile regions. A diverse energy policy is a smart national security policy: Oil-rich countries, particularly those ruled by unstable and corrupt regimes, should have less influence over us. A better energy policy starts at home, with a goal of producing at least 25 percent of our nation’s transportation fuels from low-carbon alternative fuels, including electricity, by 2025, and investing in new technology to make this happen. The U.S. must also work with its friends and allies to strengthen and diversify the networks of pipelines, transmission lines, and terminals that transport oil and gas, as well as develop a strong international emergency response system to limit price spikes caused by violence or other disruptions. [Report of the National Security Task Force on Energy, 7/06]