One Last Thing: Drill, and ease fear factor's affect on price

Sometimes political parties play to type so perfectly that it's almost charming. Consider the completely predictable responses of Democrats and Republicans to the record prices of oil.

Both parties agree that $4 gasoline is problematic. From there, they part ways. Democrats blame the oil companies and speculators. Republicans point the finger at government interference and increased global demand. Democrats want to tax and regulate their way out of the problem by passing increased carbon-tax measures and fuel-economy standards. Republicans want to drill for more oil. Naturally, each party opposes the views of the other.

Each is half right. Global demand for oil has increased from 77.4 million barrels per day in 2001 to 86.4 million b.p.d. today. That's an increase of 11.6 percent. So Republicans are correct that demand has increased. But during that same time period, the price of oil has increased, in real dollars, by 400 percent.

Which means Democrats are correct in saying that other forces - namely, speculation and risk premiums - are responsible for much of the elevated price. Republicans like to deny such factors, since they imply the inefficiencies of the free market, but their effects are undeniable.

After all, it isn't as though people want more oil than is being produced. The oil market has surplus production capacity - that is, a buffer of additional supply than can be cranked up should demand rise. There is more oil to be sold than people want to buy. In recent years, however, global surplus capacity has shrunk. The risk premiums we're paying are due to fears that the surplus might not be enough to cover demand, should some unforeseen event cause a supply interruption.

Which brings us to the Republican proposal to drill for more oil at home. Currently, there is a ban on drilling for oil within 200 miles of our coast. This means that we can't get our hands on about 85 percent of America's untapped domestic reserves. Which is a little bit crazy. Imagine building your house next to a well, but refusing to tap it in favor of buying expensive bottled water from someone else.

Our untapped resources are not trivial. According to Rep. Roy Blunt, the Missouri Republican leading the drill team in the House, our deep-water ocean resources should yield 3 million barrels per day (as well as 76 trillion cubic feet of natural gas); Arctic resources could account for an additional 1 million b.p.d.; and our oil shale resources could give us an additional 2.5 million b.p.d.

Last week, President Bush rescinded the executive order prohibiting offshore drilling. So the only thing standing in the way of harnessing America's reserves are Democrats in Congress.

Congressional Democrats claim we can't drill our way out of our long-term energy problem. And they're not wrong. Even if everything went right, the Republican plan to drill only yields 6.5 million b.p.d., a small portion of our national 20 million b.p.d. habit. And that oil could take as long as 10 years to come online.

But drilling would be a short-term fix for our troubled economy. Remember, oil prices are soaring because investors are worried about future, not current, supply shortfalls. Moving to create additional future supply would relieve some of the price pressure we're experiencing today. And while we can't drill our way out of long-term oil dependence, we might be able to drill our way out of recessionary trends brought on by the giant oil-price shocks.

The real problem - and here's where both parties are wrong - isn't $4 gas. The problem is a 400 percent oil-price increase in just a few short years. At some point, gas needed to become more expensive to prod consumers toward more fuel-efficient alternatives. It is dangerous to be dependent on foreign oil. But the overnight spike carries its own economic dangers.

The key to balancing increased energy independence and economic health is gradualism. Higher gas prices are here to stay, so American consumers are going to be pushed toward greater efficiency, no matter what. To lessen the pain, and to protect our economic well-being, Democrats in Congress should let the drilling begin.