coal furnaces. Certainly, a strong effort should be made in this direction, but the mandatory oil import program is not the proper vehicle for such an effort. Experience in limited foreign wars suggests that the availability of oil is not likely to be a problem. According to the Department of Defense, 90 percent of our military and naval requirements for the Vietnamese conflict has been met from foreign sources-65 percent from the Persian Gulf and 25 percent from Caribbean and Southeast Asian suppliers.3 DOD reports in the same source that some 440,000 barrels per day of the total U.S. defense requirement of 1.1 million barrels per day is secured from foreign sources; this amount is less than 4 percent of domestic output and well within the production capacity of the United States. So far as military requirements are concerned, the Department concludes that, "In the foreseeable future, partial or complete denial of foreign oil to this Nation would not, in any important degree, limit our capability for military action and/or negotiations." The Department points out, it is true, that supply interruptions could pose a much more serious threat to our allies in Western Europe and Japan, who are almost completely dependent upon imported oil. We are not convinced, however, that the mandatory oil import control program provides an acceptable or a satisfactory solution to this problem, consistent with the cost to American consumers. NATIONAL SECURITY AND FOREIGN OIL SOURCES National security is the comprehensive argument advanced by the domestic oil industry and its supporters in Government to justify the oil import control program. It is presumed that the necessity to be as self-sufficient as possible in hydrocarbon energy sources requires the United States to maintain crude oil prices which are at least double the world price level. Evaluation of the import control program as a security measure calls for some definition of the problem. There appear to be three contingencies in which security need be considered: general war, limited foreign war, and political interruptions to crude oil supplies. Little need be said with respect to general war. It would be unrealistic in the extreme to suppose that such a war, involving the United States and other developed nations, would be a protracted "conventional" replay of World Wars I or II; rather, it would be nuclear conflagration of short duration leaving unimaginable destruction of lives and property in its wake. No military authority believes that crude oil supplies would be a problem in nuclear war. The principal question would be whether the Nation would survive with sufficient refining and transportation capacity to use the crude it possesses. The third contingency, political interruptions to supply, appears on its surface to offer the most serious threat to security. Proponents of import controls advance the following argument: Should the United States become dependent upon foreign oil to any significant degree, we would be at the mercy of politically inspired boycotts of such oil-not 3 "Department of Defense Submission to the Cabinet Task Force on Oil Import Control," submission No. 94, p. 2. • Ibid., p. 4. in the military sense, but in terms of energy supplies vital to the functioning of our economy. We agree that the political risks with any particular foreign source are greater than the risks associated with domestic production. This means that there may be occasional temporary dislocations of established supply lines (such as the one we see in the summer of 1970), dislocations which are inconvenient but which can hardly be classed as emergencies. We believe, however, that fears of widespread, general shortages of foreign supply have been grossly exaggerated by those who profit from existing import controls. Such fears ignore the simple fact that oil provides the principal source of income to most oil-exporting countries. Their need to market oil is far greater than the needs of the United States or any other oilimporting country to buy oil from a single source. For this reason attempts to pressure consuming nations by withholding oil have a history of failure. In the most serious example of this, the 3-year total shutdown of Iranian fields in 1951-54 (actually a boycott by the international oil companies against the Iranian Government), the elimination of Iranian supply was rapidly offset by an expansion of Saudi Arabian production. More recently, the attempt by certain Arab nations to boycott the United States and several of its allies, following the 1967 ArabIsraeli crisis, failed because its effect on consuming countries was negligible compared to its cost to the producing nations. Excluding the United States and the U.S.S.R., foreign production of crude oil rose by 150 percent between 1959 and 1968, from 3.4 billion to 8.5 billion barrels a year. Among the countries which produced this oil, only three had production in excess of a million barrels a day in 1959; by 1968 there were 7 million-barrel-a-day suppliers. Each year new foreign sources of supply appear as factors in the world market. This in itself minimizes the degree of risk from political interruptions to the world oil supply. We suggest that participation by U.S. oil companies and by the United States as an oil customer in developing these alternative sources is a viable alternative to the import control program to protect our national security. THE POLITICAL FUTURE OF THE MIDEAST The majority view expresses great concern over the possibility that the oil-producing nations of the Mideast will come under Soviet domination. Indeed, there is no question but that Soviet influence in the area today is far greater than it was in 1959. That this is so can be traced directly to this country's oil import control program. The exceptions which have grown up to riddle the existing program are designed to favor Western Hemisphere oil; the tariff proposals of the task force would go even farther in discriminating against Eastern Hemisphere crude. We are in the anomalous position of telling the mideastern nations, "We won't take your oil, but we don't want you to sell it to the Iron Curtain countries either." Considering the importance of oil to their economies, it is not surprising that the mideastern countries view our posture as a deliberate affront. In their part of the world, U.S. oil policy is U.S. foreign policy. Oil import policy as it exists today, and as the majority would have it continue in the future, could not be better designed to force the Mideast into the Soviet sphere. Our only hope of retaining any influence in the Mideast lies in an immediate relaxation of import controls on a nondiscriminatory basis which will allow Eastern Hemisphere oil to compete in the U.S. import market with that from the Western Hemisphere as freely as the economics of production and transportation permit. HAWAII The case of Hawaii affords an especially striking example of the inequities which have developed under the import control program. For purposes of the program, Hawaii is considered part of district V, despite the fact that 2,500 miles of open ocean separates the State from the west coast. This treatment contributes absolutely nothing to national security. In the event of international conflict involving submarine warfare, Hawaii would be isolated from the west coast as effectively as from the Persian Gulf. Nor do the controls applied to Hawaii provide a market for domestic production, since the one refinery in the State has always operated almost exclusively with Persian Gulf and Indonesian oil. The effect of import controls in Hawaii has been to preserve a monopoly over the supply of petroleum products by the single refinery in the State, operated by a major oil company and supplying four other major oil marketers and two small distributors. Although the refinery runs on inexpensive foreign oil (laid down in Hawaii at $2 to $2.25 a barrel), the output is priced as if it came from west coast crude transported to Hawaii at U.S.-flag shipping rates, a theoretical cost basis roughly double the actual cost of crude to the refinery. As a result, Hawaiian consumers pay much higher prices, excluding taxes, for gasoline than west coast consumers. Paving asphalt is priced 75 to 90 percent above the west coast price. Bunker C fuel normally costs more in Honolulu than in any other port in the world except Capetown, so that shipping avoids bunkering in Hawaii whenever possible. Again we repeat that there are no offsetting benefits in terms of national security or stimulation of domestic production to these excessive consumer costs. We therefore urge an immediate exemption from import controls for the State of Hawaii. While committee procedures do not permit members of the full committee who are not members of the subcommittee to join in signing these views, several members of the full committee have indicated their agreement with the content of this statement. They are Mr. Ryan, Mr. Meeds and Mrs. Mink, who is particularly interested in the section pertaining to oil import control inequities affecting her State of Hawaii. JAMES G. O'HARA. SUPPLEMENTAL VIEWS TO THE MAJORITY REPORT ON OIL IMPORT-TARIFF HEARINGS The majority report and views in conclusion provide a useful updating of the long studied oil import program. As to the conclusions reached from the study of the President's task force finding and the testimony, the undersigned differ from the views of the majority in several specific areas. The majority report either omits or understates in detail the effect on consumers of a continuing overly restrictive import policy. This policy which restricts imports to 12 percent of domestic production at a time of burgeoning energy and fuel demands works a hardship in the consumer energy demand areas such as the eastern seaboard of the United States. This calls for comment as follows: 1. Consumer costs are continually increasing because domestic inventories and supplies are inadequate to meet demands for distillate fuels to heat and power family dwellings, community facilities, hospitals, et cetera, in suburban and rural areas. This situation is graphically exemplified along the St. Lawrence River where a U.S. resident homeowner paid 16 cents per gallon for No. 2 fuel oil in the year 1969-70, while his Canadian neighbor on the other side was able to purchase the same commodity at 12 cents per gallon. The 25 percent premium paid by the U.S. homeowner on a necessity of life, namely, the fuel for his home heating plant, is clearly the result of unwarranted restrictions on imported distillate fuel oil. Fortunately, this administration has seen fit to recognize such a situation as the above and has provided emergency quota relief by an additional allocation of 40,000 barrels of No. 2 fuel oil daily in the current program year. For situations such as this the oil import program should continue to remain sufficiently flexible to allow the administration to meet specific shortage and emergency demands on a prompt and expeditious basis and, indeed, the administration should be commended for its initiative in this regard. The program should be continued in such a way as to allow such initiatives to be undertaken wherever the need requires. 2. The acute need of urban area authorities to cope with air pollution by heat and energy production plants is so immediate and urgent as to constitute a clear and present danger to the maintenance of life. The majority view suggests that demand for low sulphur fuels in this area may be met by greater utilization of coal and what it calls "acceptable alternatives other than the importation of foreign crude." Lacking such alternatives (and none are specified in the majority views) here or on the horizon we face pollution at such critical levels in our cities that it is imperative that the oil import program should not only permit but actively encourage low sulfur importation in whatever quantities are necessary to meet the demands for clean air now and in the foreseeable future. We strongly urge that in no way would such an effort penalize the domestic production industry which by its own admission cannot now produce to meet the current and prospective demand. Rather, the upgrading of heating and energy production plants through the utilization of fuels to reduce air pollution could result in the development in the private sector of a new domestic energy industry. It should aim to capture a greater share of a growing market in much the same way as the major auto manufacturers are now planning compact cars to cater to the public requirements for less pollution nd more gas mileage in private transportation. In the majority views the assertion that the price of natural gas will escalate to the disadvantage of the consumer of this type of fuel, unless imports are curtailed, is a conclusion which is somewhat questionable. In all probability the fact that natural gas resources are now inadequate, on the industry's own testimony, would tend to indicate that such testimony should be carefully evaluated for the following reason: If, indeed, natural gas resources are inadequate and the prices are due to escalate in keeping with an enlarged demand and an inadequate supply, it would appear that natural gas has been and is being oversold as a substitute for domestic heating oil and/or coal and not solely due to the introduction of imports. Whether import stocks are increased or not, natural gas as a source of energy and fuel would appear to be overextended and that the market as it now exists would be sufficient reason to promote new discovery operations to keep pace with the very demand created by the intense marketing activity of the natural gas producers themselves. As to the supply of petrochemicals the undersigned agree with the subcommittee majority and separate task force in this particular. Both the task force, majority report and the separate report of Secretary Hickel and Secretary Stans agree that the supply of feedstocks to the petrochemical industry should be eased. The separate report specifically recommends that petrochemical producers be provided with a growing volume of imported oil. In this the subcommittee evidently agrees and the undersigned heavily endorse this viewpoint not only to keep the petrochemical industry competitive in world trade but also to allow this vital industry to expand its production facilities. This is in the interest of consumer quality and price benefits and the expansion of employment through its unparalleled supply of opportunities for manpower utilization at attractive rates of compensation. HUGH L. CAREY. |