Estimating the Energy Security Benefits of Reduced U.S. Oil Imports 1

This update and reassessment of the oil import premium was motivated by renewed concern about energy security, and interest in policies to promote the reduction of gasoline use in the United States. To the extent that conservation or fuel-diversification reduces dependence on any one source, the financial and strategic risk of potential disruption in supply or spike in cost of that source is reduced. This reduction in risks improves energy security. Reduced oil imports would also provide sustained benefits over the long run even in undisrupted markets, by reducing global demand pressure and oil prices during what is expected to be an extended period of strong global demand growth, substantial OPEC market power and higher world oil prices. We consider projected oil market conditions over the next ten years, relying on official U.S. Energy Information Administration (EIA) projections. A current estimate of the oil import premium is $12.00 per barrel (in 2005 dollars), with a wide confidence interval ($6.67 $17.95) to reflect many of the unresolved uncertainties. While this central value is above some estimates from the mid-1990s and early 2000s, it is well within the range of prior estimates up to 1993, many of which were made at times when oil market conditions were more similar to what is now anticipated. The essential message is that we may have passed through a brief period of comparatively greater energy security and lower dependence costs, but strong market and geopolitical forces have returned the societal costs of oil imports to greater prominence. An important note is that this premium estimate omits any costs for military programs, and the difficult-to-quantify foreign policy impact of oil import reliance.