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Rethinking the Axis of Oil

Can America ever kick the oil habit? Not if Congress and George Bush have their way, but the ground is shifting

FOR six decades, one of the few fixed stars in American foreign policy has been the special relationship with Saudi Arabia. Bluntly put, America has offered military protection to the Saudi royal family in return for the free flow of relatively cheap oil from the desert kingdom. Every president since Franklin Roosevelt has stuck by this deal, and the Saudis have mostly done so as well. Within the OPEC oil cartel, the Saudis are usually the voice of moderation.

Alas, things seem to have gone wrong on George Bush's watch. Despite his family's famous closeness to the Saudi rulers, oil prices have shot past $50 a barrel, up from barely $10 in 1998. The price of gasoline, which Americans still expect to cost just a buck a gallon, now touches $3 in some places.

President Bush’s meeting with Saudi Crown Prince Abdullah resulted in a joint statement. The Rocky Mountain Institute and the National Commission on Energy Policy provide analysis on energy security. The Energy Future Coalition organised a letter to Mr Bush arguing against America’s dependence on imported oil. The House of Representatives just passed the energy bill, which is opposed by Taxpayers for Common Sense. Jerry Taylor is an energy expert at the Cato Institute.

That explains why the mood was not so cheerful when Mr Bush met Crown Prince Abdullah, who in effect rules Saudi Arabia, in Texas this week. As petrol prices have gone up, Mr Bush's popularity ratings have declined. Uncharacteristically, before he met the prince, Mr Bush publicly pointed a finger of blame at the Saudis for the high prices. Much less publicly, the Saudis are still smarting from the “demonisation” of their country since the attacks of September 11th.

The two leaders tried to patch things up in Crawford. The Saudis promised to raise oil output sharply, pledging to spend $50 billion over the next five years to that end. Mr Bush cooed about the special relationship, and the two issued a communiqué pledging “to continue their co-operation, so that the oil supply from Saudi Arabia will be available and secure.”

So all's well with the Axis of Oil? Not quite. This is because the symbiotic relationship between the world's largest oil consumer and its largest producer is under attack from a surprising corner. Complaints from greens about cheap oil, Bushphobic wailings from the Michael Moore brigade and neo-conservative worries about Saudi terrorism are all well established. But the axis is now being challenged by an increasing number of pragmatists from the centre-right of American politics.

Several independent groups have strongly urged America to move away from oil. The Rocky Mountain Institute, a think-tank concerned with energy efficiency, argues in a newish study partly funded by the Pentagon that America can end its oil imports with aggressive adoption of biofuels, radically more efficient cars and other related policies. The National Commission on Energy Policy (NCEP), a bipartisan panel of energy heavyweights, recently made the case for boosting domestic energy sources, and also advocates a clever “cap and trade” approach to tackling greenhouse gases.

The most stinging attack came in a recent letter to Mr Bush signed by two dozen politically influential figures organised by the Energy Future Coalition, a lobbying group. These folk, an odd mix of national-security hawks and die-hard greens, argue that “dependence on imported petroleum poses a risk to our homeland security and economic well-being.” These worthies want to see “clean, domestic petroleum substitutes and increased efficiency in our transport system.”

One of the “geo-greens” (to use the moniker given them by Thomas Friedman of the New York Times) is Boyden Gray, an influential conservative who served as the White House counsel for Mr Bush's father. “I don't even like the word green!” he bristles. It is not greenery but post-September 11th fears that led men like him to join hands with the tree-huggers. In a thinly veiled reference to Saudi Arabia, he explains that he worries about “the corrupting influence of oil receipts that end up in terrorist hands”.

Robert McFarlane, who was Ronald Reagan's national security adviser, also signed the letter. He worries about the possibly devastating impact of terrorist attacks on oil infrastructure inside Saudi Arabia. He joined the greens because “we share a common interest in weaning ourselves off foreign oil.”

So is Congress rushing to embrace innovative ideas to kick the oil habit? Certainly not. In fact, the House of Representatives has just done the opposite by passing an energy bill stuffed full of subsidies for the oil-and-gas business. It includes giveaways for ethanol (a pretty ungreen petrol additive popular with corn farmers) and cheap catastrophic insurance for the nuclear industry. Meanwhile, it does nothing to close a loophole that allows sports-utility vehicles and Hummers to escape fuel-economy standards.

This bill is similar to last year's failed energy bill, which itself was based on the recommendations of the Cheney energy task force of 2001. But the House managed to add so much more pork—including a $2 billion giveaway to oil companies for deep-water research—to the bill that even the White House now criticises it as excessively costly. Taxpayers for Common Sense, a watchdog group, estimates that the full cost could be more than $90 billion (see chart). The bill now goes to the Senate.

Mr Bush's idea of reform may be a little more sophisticated than Congress's, but not much. His main priority is simply to get a bill through. He has asked Republican leaders for a final bill by August. On April 27th, he even offered the Senate some new sops to the oil-and-gas lobby in the name of “energy independence”. He wants to help buyers of cars with cleaner-burning diesel engines, utilities building nuclear plants and energy companies building refineries or “liquefied natural gas” facilities (all half-measures or worse).

Some geo-greens think the energy bill will fall apart. That would, in theory, allow the politicians to redraft a better bill—perhaps even one that included sensible provisions on auto-fuel efficiency, mandatory carbon curbs and so on. A few years ago, such reforms would have found scant support. Now they may find unexpected allies. For instance, the farm lobby is getting gradually more eager to plant windmills instead of profitless crops. The energy behemoth may still largely be committed to cheap oil; but there are a growing number of small technology companies looking for alternatives who resent the giveaways to Old Oil.

James Woolsey, a former director of the CIA, envisions a geo-green coalition of “tree-huggers, do-gooders, sod busters and cheap hawks” pushing for energy independence. The oddest couple of all—Jerry Taylor of the libertarian Cato Institute and Dan Becker of the deeply verdant Sierra Club—have just issued a joint call for a radically different energy policy: a market-based, “zero subsidy” energy bill. If such coalitions really spring forth, then American energy policy, and the Axis of Oil, would be turned on its ear.

Editorial Notes: The April 30 edition of The Economy has a special report on "Oil: How to avoid the next shock." Some of the articles are "premium content" (you have to pay or buy the print edition). Other articles are free online:
Oil in troubled waters ("Prices are sky-high, with profits to match. But looking further ahead, the industry faces wrenching change, says Vijay Vaitheeswaran") Author interview (audio) Sources of information
The Economist (UK) is one of the best business publications: readable, unorthodox and cheeky. Even those who disagree with its free market philosophy find it useful. More than 150 years ago, Karl Marx read back issues of The Economist as background for his assault on capitalism. Note added May 2, 2005: On Daily Kos, Jerome a Paris wrote a critique of the Economist series: Part I Part II Part III -BA

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