April 28, 2007
As long as the U.S. remains part of a global market in fuels, the impact of events abroad will not stop at the border. For example, in a crisis that cut off supplies from Saudi Arabia, the price of oil needed in Europe and Asia might double or triple overnight. Prices would rise in response in the U.S. even if we weren’t importing oil, as markets directed the fuel that was available to the highest bidders.
That’s true — and it also means, of course, that a shutdown of oil at its source wouldn’t just hurt the U.S., but all of Saudi Arabia’s customers. And it certainly suggests that building up domestic sources — especially things like oil shale — will help buffer shocks from elsewhere.