The Future of Energy
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Put a Tyrant in Your Tank

You thought ExxonMobil was bad? Meet the new kings of crude.

Most years, the triennial World Energy Congress plays out like a celebration of plutocracy. Over several days in some global metropolis, the heads of the world's biggest energy companies gather to talk business and schmooze with politicians. But last fall in Rome, the high rollers were feeling some trepidation. Facing an expectant audience was Rex Tillerson, head of the world's largest multinational oil company. ExxonMobil inspires fear and admiration in the industry for its ruthlessness and success—in 2007, it recorded the most profitable year of any firm in American history, with net income of $40.6 billion. Yet world events had Tillerson worried. "At a time when we should open doors to trade, resource nationalism closes them," he warned. "At a time when we should be building bridges of international partnership, resource nationalism builds walls."

America's political and military leaders are perhaps the most concerned they've been since the 1970s Arab oil embargo that exporters might use oil as a blunt instrument. In an internal study, the Pentagon's Southern Command, responsible for Latin America, cautioned that the rise of state-dominated companies could threaten U.S. access to South American oil; Venezuela, for instance, is America's fourth-biggest oil supplier, and president Hugo Chávez could damage the U.S. economy were he to make good on threats to cut off shipments. He roiled global oil markets in February with just such a threat after ExxonMobil won an injunction freezing up to $12 billion in Venezuelan oil assets in retaliation for the Orinoco takeover. The loss of Venezuelan oil, according to a 2006 study by the Government Accountability Office, would reduce U.S. gross domestic product by more than $20 billion and lead to an increase in gasoline prices. Meanwhile, at a 2006 closed-door Washington meeting sponsored by several government agencies, intelligence analysts fretted that the rapid entry of Chinese companies into Africa, a continent the United States has cultivated as an alternative to the Middle East, may undermine vital energy supplies there as well.

With America's growing oil consumption, the rise of state-run companies, and booming competition for foreign oil, higher prices at the pump are all but inevitable. The U.S. government estimates that Americans will use more than 4 million additional barrels of liquid fuels per day by 2030—at which point gasoline could make organic milk seem like a bargain.

Given the political fallout of sky-high fuel costs, Congress and the White House have paid much lip service to improving the nation's energy independence. (See "The Seven Myths of Energy Independence.") President Bush has even set a goal to slash Middle Eastern oil imports some 75 percent by 2025. "The best way to break this addiction is through technology," he proclaimed in his 2006 State of the Union speech. In reality, his budgets have called for cuts in renewable energy programs, and his administration has fought proposals to mandate energy-efficiency standards for utilities.

The Democratic Congress seems just as shortsighted. Like it or not, ethanol is being pushed as a major oil alternative, but rather than supporting research to produce it sustainably from agricultural waste, Congress has overwhelmingly subsidized corn-based ethanol production, which expends about as much energy as it produces and spews more greenhouse gases than it ultimately prevents.

In the meantime, an Iowa State University study concluded that importing cheap ethanol from democratic Brazil—whose sugarcane­ ethanol could be environmentally superior given land-use restrictions to prevent rainforest clearing—would prompt Americans to use some 300 million extra gallons of ethanol (and presumably less gasoline). But Midwestern legislators have convinced Congress to maintain massive tariffs on ethanol imports, protecting agriculture giants such as Archer Daniels Midland, which stand to gain significantly from the wasteful corn-fed process.

Of course, the ills of nationalized oil extend well beyond U.S. energy policy.

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