Oil supply and oil politics: Déjà Vu all over again

President Bush has identified US dependence on imported oil as an urgent energy, economic, and national security concern. The Presidentʹs energy plan promotes the development of domestic resources, based on the assumption that economic incentives and the opening of frontier areas for exploration will increase domestic production. If realized, this will reduce dependence on imported oil and reduce OPECʹs ability to affect aggregate oil supply and price. The evidence suggests, however, that this policy will not increase significantly US production of crude oil, will not reduce significantly OPECʹs influence, and it will distort the US macroeconomy. Even if allowed, production from the Arctic National Wildlife Refuge will have a negligible impact on the world oil markets. Further subsidies to the oil industry will divert resources from other more productive investments. Conservation and energy efficiency merit greater emphasis in US energy policy given their ability to reduce the use of cost-effective and environmentally beneficial ways.