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DAVID KRUSE

By Staff | Nov 23, 2012

For some time now I have been making the argument that the USA was making a huge economic mistake by unilaterally assuming the liability of protecting the world’s Mideast oil flow free of charge to the rest of the world.

Half of the world’s oil transits through the Strait of Hormuz in the Persian Gulf protected by two multi-billion dollar U.S. Navy carrier battle groups and an array of other military infrastructure, material and personal in the region that has the purpose of protecting U.S. energy access.

The world rides our coattails getting their oil compliments of our security expense. China, Japan, Korea, India and a host of other economic competitors bear little or no cost of global oil security. This is a huge competitive advantage to them economically.

During the campaign, Mitt Romney wanted to label China a currency manipulator. They are certainly an energy security mooch. They all come to expect that because the U.S. Navy has aircraft carriers that will do the job.

Most Americans and our leaders in Washington seem not to give it a second thought that they are subsidizing our trade partners through our Pentagon spending. I think that everyone getting oil from the Mideast ought to pay the U.S. a surcharge to reimburse U.S. taxpayers for the cost of the security they are providing.

It is not just money, but the lives of Americans at risk. This to me is the primary reason why the U.S. needs to become energy independent.

I have been stating that within just a few years that the Western hemisphere could be independent of Mideast oil; in fact totally self-sufficient in oil and gas supply inside North and South America.

Shale oil, fracking for oil and natural gas, Canadian tar sands development, North Dakota’s Balkan fields, Brazilian under-water salt flats, the displacement of oil use with natural gas and biofuel development can make us totally independent of Mideast oil in just a few years.

In fact, the International Energy Agency saids that the U.S. could overtake Saudi Arabia in oil production by 2020. New discoveries and new technology is unlocking heretofore unexpected domestic and hemispheric energy reserves that were not anticipated just a few years ago.

Very shortly the U.S. would have no reason for its own domestic oil security to have its Navy protecting oil transiting on the other side of the globe as none of it would be coming here.

In fact, some see the U.S. becoming an energy exporter. If China or Japan and others are concerned over Mideast oil they should be the ones paying their navies to protect it at their expense or replacing the U.S. Navy in that task as our strategic interest ends there.

While I have been making this argument for some time I have not heard that theme expressed elsewhere in the economic or political discussion or other media sources until this week in an op-ed in the WSJ.

Currently China gets 50 percent of its oil from the Persian Gulf, the U.S. gets 20 percent.

Within a decade the IEA said U.S. oil imports will fall 50 percent and we would need nothing from the Persian Gulf. The WSJ put the cost to U.S. taxpayers of providing the U.S.5th Fleet to protect the Mideast sea lanes at between $60 to $80 billion each year. The U.S. imports 10 million barrels of oil daily, 3.65 billion barrels annually, from all sources.

So there is a $16.50 to $21.92 barrel cost if the military cost is attributed to all U.S. oil imports.

In other words, Mideast oil is cost prohibitive. We cannot afford that oil. The small subsidy, now taken away, for biofuel was a pittance compared to what foreign Mideast oil is really costing us.

I have always noted that no F-16 fighter wing is required to fly an air-cap above Midwest U.S.ethanol plants. Whatever problems that the Keystone pipeline was going to cause are minimal compared to the cost of importing Mideast oil.

We can be oil independent and save tens of billions of dollars in military budget outlays.

A 2010 DTN/Progressive Farmer study comparing oil and ethanol subsidies found oil subsidies ranging from 96 cents to $2.01 gallon compared to $1.24 gallon in ethanol subsidies.

The ethanol industry has since lost the blenders credit, while oil subsidies continue intact. The oil subsidies did not include the cost of the U.S. Navy securing the sea lanes in the mideast. The U.S. cannot afford not to achieve oil independence.

The great news is that we can now see our path to achieve that independence. The economic and political consequence of not needing Mideast oil in the country’s favor is enormous.

The trade advantage held by China and others of letting the U.S. protect their oil at no charge has to end. U.S. oil independence is the fastest and best way to end it. Biofuel plays a substantive role in achieving that.

Now it is more than just me saying so.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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