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Review of RAND study, Imported Oil and US National Security (May, 2009)

RAND Corporation has brought its considerable expertise to bear on the national security implications of US oil import dependence. The study, "Imported Oil and US National Security" (127 pgs), was conducted by a team of analysts within RAND’s Infrastructure, Safety & Environment (ISE) department, led by Keith Crane. While this study examines this issue solely from an American perspective, many of its observations are applicable to other import-dependent nations. Although there is much of value in this report, I wish to challenge its central recommendation on how government should deal with price spikes and physical shortages.

a. Purpose of the study

The stated purpose of their study was to:
a. critically evaluate commonly suggested links between imported oil & US national security;

b. assess the costs and benefits of potential policies for reducing US consumption and imports of oil;

c. help policy-makes and the public evaluate the potential risks associated with importing oil and the extent to which policies might effectively reduce those risks.

The authors were largely successful in achieving their purpose. Their analysis is concise, clearly written and thoroughly footnoted.

b. Policy recommendations

The final chapter considers various policy options to expand domestic sources of oil supply, including biofuels. The introductory summary contains this blunt comment on corn ethanol: “Using corn for ethanol is economically inefficient and has harmed US national security” (p. xvii).

The authors also suggest policy options to reduce domestic consumption. The most significant of these is their recommendation to impose an excise tax on oil. The authors are less supportive of stricter CAFÉ standards.

However, this study seems particularly lacking when it comes to policies to mitigate disruptions in oil supply. The authors clearly do not favour any interference with market forces. In this respect they concur with the “full price pass-through” recommendation of other plans for dealing with fuel emergencies, including the IEA response plan which is mirrored by its member nations.

The authors state, “Energy prices which are free to adjust…offer the most effective means for allocating petroleum in a time of scarcity” (p. 78).

However, this position must be challenged since it offers no provision for the maintenance of essential services, nor does it acknowledge the effects of ‘fuel poverty’ which must somehow be contended with.

c. Agri-food concerns

The UK-2000 truckers’ blockade indicated how quickly a fuel supply shortage can cause a food supply crisis. The vulnerability of the agri-food sector is particularly noteworthy. When oil prices spike, there is a direct and fairly immediate effect on the price of food (and eventually on the viability of the import-export model itself). Any threat to food imports must be offset by domestic food production. However, most family farmers cannot readily absorb high fuel prices, so they may be forced to curtail on-farm activities at the very moment when their nation needs them to produce more, not less. Given the seasonal nature of most agricultural production, a price spike during the critical months could affect an entire year’s production.

d. No rationing

The authors’ recommendation that government “refrain from… rationing during times of severe disruptions in supply” (p. 89) is contrary to IEA recommendations and the fuel emergency planning literature. The authors should have explained their departure from the prevailing international recommendation. The primary purpose of rationing is to ensure that certain essential services can continue. If rationing is to be rejected, then surely the authors should explain how these essential functions may be ensured.

e. Civil disorder

The authors appear to have complete faith in ‘the unseen hand’ to efficiently sort out all resulting difficulties during a major fuel emergency. There is barely a hint in this study of the potential for civil disorder despite their nation’s extreme dependence on oil products, its suburban configuration and its reliance on just-in-time delivery for many essential goods. Nor is there any consideration of how low-income Americans may react to suddenly being immobilized by fuel poverty.

RAND is well-positioned to explore these aspects which have been touched on by the more thorough of the fuel emergency analysts (see below) and it is hoped that RAND will undertake a subsequent analysis which will examine potential domestic flash-points and how they might be mitigated.

f. Diversifying sources of supply

Like last year’s Assessment of Australia’s Liquid Fuel Vulnerability, this US report recommends that their nation “diversify sources of supply” (p. 89). However, neither report indicates any awareness of the recent analyses of Brown, Hirsch or Rubin on export decline.

As the various oil producing countries reach peak production and begin to decline, both the number of exporting countries and their export capacity will likewise decline. Clearly, we cannot all be importers, yet neither study acknowledges that we appear to be entering an era when affordable exports may be permanently constrained. Diversifying sources of supply may prove “much easier said than done” a decade from now.

g. Further references

I would recommend three very through analyses of various aspects fuel emergencies. Each has its own area of focus, so the three studies complement each other nicely.

1. ACIL Tasman’s analysis for the Government of Australia (2004)

Alan Smart and his team did a very thorough review of Australia’s Liquid Fuel Emergency Act, with the entire set of documents totaling almost 400 pages.

Here is the link to their final report (Dec. 04, 88 pgs):
http://www.aciltasman.com.au/images/pdf/Final_report_16_December_2004.pd...

I also referred to the more recent Australian vulnerability assessment (Nov. 2008, 205 pgs).In addition to its overlooking of the recent literature on export decline, the timing of its release precluded the warnings from the IEA’s World Energy Outlook (which was released on Nov. 12, 2008). This was unfortunate as it is otherwise very thorough and up-to-date.

Here is the link:
http://www.ret.gov.au/energy/Documents/Energy%20Security/Liquid%20Fuels%...

2. Helen Peck’s analysis of food supply chain vulnerabilities (UK, 2006) This link introduces Dr. Peck’s study and provides a link to the complete document:
http://www.foodproductiondaily.com/Processing/Food-sector-vulnerable-to-...

Dr. Peck’s analysis is very thorough (about 200 pages). The information which is most relevant to fuel emergencies may be found fairly readily by scanning the List of Contents, which is very detailed.

3. Kathy Leotta’s analysis of Transportation Demand Management (USA, 2007)

The complete title of Kathy Leotta’s study is “Implementing the Most Effective Transportation Demand Management (TDM) Strategies to Quickly Reduce Oil Consumption” (Jan. 2007, 118 pgs). Ms. Leotta’s focus is primarily on transportation issues, though she does point out the vulnerability of the food supply chain as well.

This link introduces Ms. Leotta’s insightful study and provides a link to the complete report:
http://postcarboncities.net/node/97

Finally, a posting on Energy Security was started at Armed Forces Journal’s internet Forum last October with the hope of involving military and security analysts in a much-needed discussion of some of these aspects. Despite over 5000 views, there has been little direct response.

Meanwhile, the entire North American continent seems particularly ill-prepared for a major price spike (or other fuel supply problems), and there are some obvious security issues which warrant objective analysis.

Here is the link to AFJ Forum (please click on General and then locate Energy Security/RickM):
http://www.afji.com/forums/

This link introduces RAND’s new study, Imported Oil and US National Security, and provides a link to the complete report:
http://www.rand.org/pubs/monographs/MG838/

Rick Munroe
National Farmers Union (Canada)

Rick adds: The lead author of the RAND report, Kevin Crane, has been made aware of these concerns and has been invited to respond to them. This review has also been posted at Armed Forces Journal's internet Forum (in an effort to invite analysis from the military/security community).
Here is the link (go to "General" and then "Energy Security"):
http://www.afji.com/forums/

Editorial Notes: Rick has published before on EB around energy security issues.

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