Oil prices, which have doubled in the past two years, have crimped consumer spending, and they risk slowing global growth. So Saudi Arabia's surprise moves to quickly secure some 110 drilling rigs to increase its oil production to as much as 12.5 million barrels a day by 2009 -- a massive jump from the Kingdom's current 9.5 million bbl.-per-day output -- should be good news, right?
Wrong. Although painful, today's high energy prices have provided the biggest inducement in a quarter-century for America to get serious about reducing its appetite for imported energy. The prospect of expanded Saudi capacity could kill that incentive and prolong energy dependence.
Not since the early 1980s, when oil reached its all-time high of $90 in today's dollars and precipitated a doubling in the nation's energy efficiency, have we seen so many encouraging signs that high energy prices are trimming consumption. Sales of full-size sport-utility vehicles plunged 29% in August after gas prices soared. Investments in alternative energy sources such as tar sands (expensive projects that only make financial sense when oil prices are high) are being seriously considered again. And on Sept. 26, President George W. Bush echoed Jimmy Carter when he called on Americans to curtail their energy use by driving less.
Reducing energy consumption makes the economy less vulnerable to energy shocks from wars, hurricanes, or other disasters. And such discipline on the part of the world's largest user nation goes a long way toward containing the pricing power of the oil cartel. High prices encourage companies and nations to spend more on energy research and development -- raising long-term efficiency whatever the price. Saudi production boosts could stall those measures.
To be sure, we're not advocating price shocks that could spark recession. But the global economy has easily withstood rising oil prices since 1998. So we think the long-term benefits of today's higher prices -- more stable supplies, added efficiency, and energy security -- balance the risks.