The great Andy Kessler says it’s “crazy” that California imports oil extracted in Iraq. Or maybe not.
As Kessler knows better than anyone reading this, rare does a week go by that some California-based startup isn’t valued in the billions. So, while Texas likely doesn’t take in oil imports from Iraq, it’s similarly not importing nearly as much global capital as California is.
It raises a question: why is the Wall Street Journal’s editorial page dismissing David Ricardo? Oil isn’t unique. Kessler knows, and the editorialists at the Journal surely know (they popularized supply side economics, after all), that to produce is to import, either from across the street or from the other side of the world. The U.S. could be 100% bereft of oil while at war with or embargoed by every oil producer in the world, but our world-leading productivity ensures that we would consume all the oil we want, and as though it had bubbled up in West Texas. Oil isn’t some other.
A recent Journal editorial asserted that “Iran has threatened Gulf oil production for decades.” If so, it wasn’t effective. Seriously, was Iran feeling generous in the Reagan ‘80s and Clinton ‘90s when oil fell as low as $7 and $10 barrel? As for the 1970s, the wholly symbolic OPEC oil embargo that kept not even a barrel of “Arab oil” out of the U.S. wasn’t joined by Iran since it’s not an Arab nation.
That oil was pricy in the 1970s when Iran was mostly a U.S. ally, but cheap in the ‘80s and ‘90s when it wasn’t calls for a different explanation of oil prices and supply. Oil has surely spiked in the 21st century, but that’s not surprising considering substantial dollar weakness under Presidents with last names like Bush, Obama, and Trump. The dollar similarly tanked and oil spiked in the 1970s. Then-Journal editorial page editor Robert Bartley explained the spike not as an effect of OPEC, but the falling dollar in which oil was and is priced.
Iran’s impact on the price of oil is much less detectable than the U.S. Treasury’s, but the dollar no longer informs much of the oil-price commentary at the Journal. Instead, there are columns like Kimberly Strassel's latest that gloss over David Ricardo in favor of energy autarky: in Strassel’s words, President Trump’s oil “policies turbocharged a shale revolution that made the U.S. a net exporter of petroleum products.” Even if true, to what end?
Strassel seemingly cheers Trump’s upturned nose to Ricardo, but ignores that amid the 21st century U.S. extraction boom that coincided with a 120% increase in domestic production from 2000-2023, the price of oil quadrupled. Which isn’t surprising. It’s only economic to extract oil stateside insofar as a barrel of oil is nominally expensive, which means the dollar must remain weak (quite unlike the ‘80s and ‘90s) for the U.S. extraction boom to continue.
It raises a basic question: were we nuts during the Reagan and Clinton years to import so much oil while leaving so much in the ground, or was this basic economics? Asked another way, is so-called “energy independence” worth the weak dollar that all Americans must endure to “achieve” it?
The answer is no. Energy independence doesn't make economic sense, and arguably makes even less sense from a foreign policy perspective. It's not foolproof, but it's much more expensive to bomb your best customer. Here's hoping Republicans are willing to eventually substitute comparative advantage for bombing.
