Australasian Political Studies Association Conference 2003
Hosted by the School of Government
University of Tasmania

Political Economy Stream

International Oil and the American Power to Consume

Richard Leaver
School of Political and International Studies,
Flinders University

Abstract:

Since 1973, most prognoses of the short- and long-run trajectories of the world oil market have rested upon studies of the efficiencies and inefficiencies of ‘the OPEC control mechanism’. By contrast with the ‘producer-centric’ supply-side thrust of such accounts, this paper argues that the dominant force shaping the international oil market is (and, for the post-war period, has always been) exercised by the country with the largest consumer ‘footprint’, the United States.

The paper falls roughly into two parts. The first is largely historical, and investigates the manner in which America’s power as an oil consumer was bedded down in the early post-war decades. Particular attention is given to Eisenhower’s 1959 Mandatory Oil Import Program, which dramatically limited American consumption of imported oil throughout the last one and a half decades of ‘the Long Boom’. This exercise in commercial protection ensured that the largest and wealthiest national market of oil consumers was kept at considerable remove from the largest body of efficient, low-cost producers. The political, economic and strategic implications that flowed from this divorce between US consumers and Middle Eastern producers are briefly alluded to.

The second part of the paper investigates more recent changes in the size and impact of the US consumer footprint and their future implications. The argument is that earlier US success at insulating their national market from excessive dependence on Middle Eastern supplies has ultimately produced something of a ‘bungee effect’. One of the legs that sustains this bounce-back consists of the rapid run-down of domestic oil reserves in the US, a process that has gathered pace in spite of the successive supply-side jolts that largely make up US energy policies. The other leg is provided by the absolutely low level of domestic energy prices, which ensure that the absolute volume of oil consumption rises quickly in the US by comparison with other mature OECD economies. Taken in conjunction, these mean that the US presence as a purchaser from the international oil market will grow in relative terms through coming decades. The implications of the convergence of the US upon a more normal pattern of OECD import dependency are briefly explored.