Oil Import Quotas

September 21, 1959

The action of the Eisenhower Administration, first in calling for voluntary” restrictions on oil imports, and finally, last March, in imposing mandatory import quotas, has been in need of a thorough, balanced analysis. This analysis is now supplied in a 70-age pamphlet by William H. Peterson, associate professor of economics at New York University, published by the American Enterprise association of Washington.

Dr. Peterson’s study fails to find any adequate cause to justify restriction of oil imports. On the contrary, he believes that the program must hurt our foreign relations, weaken national defense, deplete domestic oil reserves and undermine the vitality of the American oil industry. In addition, it is costly to U.S. consumers and establishes precedents for still further government interventions incompatible with a free economy. He recommends that the entire quota program be disestablished as promptly as possible.

SOME CONCLUSIONS

Here are some of his conclusions:

1—Our national defense does not depend solely on oil wells within our continental borders. Previous administrations encouraged American oil investments overseas precisely to strengthen national security. In both world wars imported oil, American- or foreign- owned, was essential to us. Our air, land, and sea bases, around the globe, depend on foreign oil.

2—American oil investments have raised living standards in many foreign countries. By importing their oil we gave convincing demonstration of the benefits of “trade—not aid.”

3—Our oil import quotas violate the policy of greater international trade and invite retaliation against American exports.

4—Long-range studies show that U.S. reserves of economical oil are wholly inadequate to meet national consumption, The U.S. consumes 54 percent of the free world’s current consumption, but has only 13 percent of the free world’s reserves.

5—From 1954 to 1958, U.S. demand for petroleum products rose by 15.5 percent. Domestic crude-oil reserves, despite unprecedented drilling and exploration, increased only 2.8 percent. “It would therefore hardly be in the national security interest to consume domestic crude reserves at the fastest possible rate and at the highest possible price.”

6—Competition from natural gas in recent years has had far greater adverse impact on the domestic crude-oil industry than have oil imports. Yet since natural-gas production is essentially a part of the domestic petroleum industry, governmental restrictions can hardly be applied.

7—Oil import restrictions force up the prices of fuel oil and gasoline, penalizing every American consumer. An unnecessary bureaucracy must be maintained.

8—Oil import quotas, whether on a historical basis or on a basis of refinery capacity, stifle competition and inevitably create inequities. It is impossible for bureaucrats to determine the “proper” level of imports or a non-”excessive” price for petroleum products. Such decisions will be influenced by political pressures from domestic oil and coal producers.

9—If restrictionism is still believed necessary to achieve national security aims (which Dr. Peterson does not concede) the fairest and least injurious way to restrict would be through tariffs, not through quotas.

NEW POWER SOURCES

I subscribe to all these conclusions, and would add only one. The way to provide for our long-term economic productivity and national defense needs is not to restrict imports of foreign oil, but to develop, through research, new sources of heat and power—solar energy, nuclear power plants, “fuel cells” producing electricity from chemical reaction, etc. Oil companies, in self-protection, might take the lead in such research.

Meanwhile, what seems called for is encouragement of oil imports rather than restriction. A barrel of crude imported means practically a barrel of crude left in the ground, whether proved or as yet undiscovered. After World War II, the Navy bought substantial amounts of Middle Eastern oil explicitly, in the words of Navy Under Secretary W. John Kenney, to “reduce the drain on our essential reserves at home.”