Question about Energy "Subsidies"

Kevin Drum and Alex Knapp write that there appears to be $20-$50 billion in federal energy subsidies each year going to the oil industry, and that this should be a target for elimination before any windfall profits tax.  I wrote in the comments:

I agree 100%.  Let's cut all the subsidies.

However, before you get too excited, my guess is that most of the
money marked as "oil company subsidies" really in fact goes to non-oil
projects like alternative energy. In the same way that a huge portion
of federal "highway" funds don't go to highways but to silly
politically correct failing transit projects, my guess is that,
similarly, "oil industry" subsidies go for a lot of silly alternative
energy projects.

I personally don't care where it goes. I am all for eliminating all
of this subsidy mess, equally, whether it's for oil exploration or
energy-from-donkey-poop or for CEO salary enhancement. But recognize
before you make this the liberal rallying cry, much of this subsidy
money may well be going to liberal pet projects.

Anyone have any better idea where this money goes that they are referring to?

  • Adam

    I read your blog about once a week and am usually very impressed with your reasoning (even if I don't always agree). That's why I'm surprised you'd post something that is essentially built around a presumption; a 'guess'. You're usually the most well researched blogger I come across on any given day, but I suppose you can't look too deeply into every single issue. However, I would love to know if you were right. If these subsidies are indeed going to fund alternative energy research, a lot of people would be forced to change their tune.

  • CRC

    How about we eliminate ALL subsidies to ALL individuals and groups (corporate or otherwise)?

  • The EIA publishes a definitive report of all federal energy subsidies. You'll find that solar and wind both receive sizable subsidies. Renewables and conservation together amount to about half of the total.

    http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html

  • morganovich

    great link greg.

    the executive summary has some fascinating info in it:

    http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf

    of about $8bn in increased subsidies from 1999 to 2007, roughly $6bn are associated with alternative energy.

    much more telling is table ES5 showing the $/kwh of subsidy by energy type:

    coal: $0.44/kwh
    natural gas and petroleum liquids: $0.25/kwh
    refined coal (processing to liquids etc): $29.81/kwh
    solar: $24.34/kwh
    wind: $23.37/kwh
    nuclear: $1.59/kwh

    alt energy is getting roughly 55 times the subsidy of coal and 100 times that of oil/gas.

    table ES6 does the same for non electrical generation subsidies per million btu:

    coal - $0.04
    oil and gas - $0.03
    ethanol - $5.72

    so ethanol gets 143 times the subsidy of fossil fuels on a unit basis.

    no wonder so many folks are anxious to get into the ethanol business...

  • Kum Dollison

    Yep, it comes out to a swangin $3.2 Billion vs Oil, and Gas's $1.9 Billion;

    but, then I guess we have to add $150 Billion for Iraq in there somewhere, Don't We?

    Don't We?

  • Errr. those numbers are per MWh, not kWh!

    Interesting stuff.

    I suspect, however, that one reason alternative sources are getting such sky high subsidies is that the money is for R&D, and the total actual production from those sources is low, hence the high ratio.

    Note the refined coal subsidy - $29.81/MWh. If petroleum stays high, coal refining is one of the best alternatives (unless you are a global warmist). It wouldn't need any subsidy to be profitable.

  • mahtso

    "but, then I guess we have to add $150 Billion for Iraq in there somewhere, Don't We?"

    I'd say "yes," for at least part of that cost, but it is not only the cost of this war, but also the cost of trying to maintain stability in that region, which has been a cost for most, if not all, of my lifetime. As a student I was required to read an essay called something like "The Real Price of Oil" in which it was argued that the cost of keeping the 7th Fleet in the middle east should be factored in to the price of oil.

  • diz

    Yes, great link.

    The two "subsidies" that seem to account for most of the money that counts for oil would be the "Excess of Percentage over Cost Depletion" and "Expensing of Exploration and Development Costs".

    My understanding is that at least one of these (Percentage depltetion) was eliminated for large oil companies in the 1970's. It may still exist for small independents.

    I think the same may be true of the expensing of Exploration costs. There are two methods. One requires you to amortize you expenses over all of your efforts (the "Full cost method", the other allows you to write off your dry holes immediately "successful efforts method".) I seem to recall that companies over a certain size are required to use full cost.

    In any case, not being allowed to expense the actual cost of a dry hole is hardly what I'd call a "subsidy". At most, it's a timing issue -- when, not if, you are allowed to claim a legitimate deduction for money you actually spent.

    I would add that in this country mosyt drilling is aimed at natural gas. If you tried to pull out the amount of these subsidies to oil production, the number would be very smnall.

    Also, you would not be soaking Exxon by eliniating these deductions, you would be soaking smaller independent producers, generally. Who actually have a pretty strong lobby, and get themselves special loopholes.

  • diz

    Oh yeah, and allocating military cost to oil is a crock.

    We don't need to have a fleet in the middle east to buy oil. Qaddafi, Saddam, Ahmadinjead, Chavez, etc, are all quite willing to sell us oil. More than willing, even, since the existence of their governments depends on it.

    I find it a lot easier to argue that our presence in the middle east artificially increases the cost of oil than vice versa.

  • foxmarks

    In the same way that some argue military expenses are an energy subsidy, aren't all government expenses a subsidy to something? The state keeps a police force and judicial system operating to enforce my voluntary contracts. That's just a subsidy to my productivity. My point, I think, is that arguing military as subsidy is either meaningless, or has a meaning far from what those who employ the rhetoric intend.

    It seems the popular concept of “the oil industry” is decades--or maybe a century--out of date. The majors really are energy companies. When there is no more oil (never?), there will still be an ExxonMobil or a descendant. The newspaper industry is/was not about the commodity they moved around (paper), but what that paper enabled for the customer. Paper-based news is being out-competed due to changing resources prices, but the news business continues. Here my point, I think, is that oil industry subsidies are ultimately subsidies to the consumer of energy, not the producer.

  • John Dewey

    Kum Dollison and mahtso,

    Is a military presence in the Middle East is necessary for ensuring a stable supply of energy for the U.S.? Why?

    Only 14% of crude oil used in the U.S. originates in the Middle East. Almost all the crude we use comes from North and South America.

    Is the U.S. military protecting the interests of U.S. consumers? or is it protecting the the interests of global corporations that have invested so much in the Middle East?

    If the U.S. military were not in the Middle East, would the Middle East oil continue to be sold to Europe and Asia? I think so. Regardless of who owns the oil, what are they going to do with it other than sell it?

  • Adam

    "We don't need to have a fleet in the middle east to buy oil."

    There is a long history of US foreign policy in the region that disagrees with you. The flow of Middle East oil has been deemed a national security issue ever since the Carter administration; our increase in military presence there over the past 25 years are no mistake. Any implication that the United States doesn't have a serious economic and military investment in the Gulf region, and in Saudi Arabia in particular, doesn't stand up to much scrutiny. Witness our rushing to the aid of Saudi Arabia in the first Gulf War, the slew of arms sales to them over the past 20 years and the recent pleading of our Vice President to increase oil production.

    I certainly wouldn't call these military investments a 'subsidy' for the oil industry, but it's virtually impossible to understate the region's importance to our nation's energy situation/crisis.

  • John Dewey

    Adam,

    The national security issue of oil might have been justified 25 years ago when we were in the middle of a cold war. Political leaders were convinced the Soviet Union's influence in the region needed to be countered.

    Our "rushing to the aid of Saudi Arabia" was part of a United Nations effort to enforce political boundaries. IMO, the U.S. in the post-Soviet era has spent too many resources - especially human lives - doing the dirty work for Europe, for Israel, and for our Middle East economic partners.

    Just because our political leaders believe the U.S. economic interests are threatened by instability in the Middle East doesn't necessarily make it true.

    Please explain how our military presence in the Middle East protects our flow of imported oil, which comes chiefly from Canada, Venezuela, Mexico, and Nigeria.

  • morganovich

    john-

    oil has a world price. it it stops flowing in the middle east, it goes up everywhere. if the suez and the gulf became non navigable, costs for our oil would spike too...

    whether that is a likely scenario is and can be a matter of real debate, but if saudi oil shipments were disrupted, we would pay through the nose even if we weren't buying that particular oil.

  • John Dewey

    morganovich: "if saudi oil shipments were disrupted, we would pay through the nose even if we weren't buying that particular oil."

    That's a good point, and one that I understand very well. But a higher price for crude oil does not constitute a "national security issue" - certainly not, IMO, a justification for putting soldiers at risk in the Middle East. Even if oil prices doubled - which they have anyway since the Iraq War started - the U.S. would still get enough oil from everywhere else to keep its economic engine running. I think Americans would adjust their petroleum consumption fairly quickly.

    The main point, though, is that if the war and military presence in the Middle East is being justified based on a need for lower oil prices, then everyone who benefits from lower oil prices should be supplying that military presence. That means Europe and China and India and the Africa nations as well as the U.S. I doubt that those nations believe a military presence is necessary to ensure Saudi oil flows. Why do so many in the U.S. buy that line?

  • diz

    There is a long history of US foreign policy in the region that disagrees with you. The flow of Middle East oil has been deemed a national security issue ever since the Carter administration; our increase in military presence there over the past 25 years are no mistake. Any implication that the United States doesn't have a serious economic and military investment in the Gulf region, and in Saudi Arabia in particular, doesn't stand up to much scrutiny. Witness our rushing to the aid of Saudi Arabia in the first Gulf War, the slew of arms sales to them over the past 20 years and the recent pleading of our Vice President to increase oil production.

    I don't place much faith in what politicians say or do.

    Tell exactly why we need to have military in the middle east to get people to sell their oil. (The oil doesn't even need to be sold to us, so long as it is sold on the world market.)

    What exactly do you think would happen if we had no military presence over there that would result in middle eastern oil not being sold to the highest bidder?

  • John Dewey

    If someone told me we need a military presence in the Middle East to reduce the chance of war between Arab states and Israel, I would believe that. But the costs to prevent such a war is not a subsidy to gasoline prices in the U.S.

  • bill-tb

    I believe the issue is stable world oil supply at market prices.

    Subsidies make no sense, none. They simply pervert the market to attempt to achieve some political goal, and generally fail miserably. If there were a cheaper alternative to oil, it would be on the market. The free market is the most efficient method known to mankind.

    Price too high, increase supply. Works every time it's tried.

  • happyjuggler0

    If diz is right and that's what they are talking about, then those aren't subsidies, they are tax breaks.

    If one's point of view is that everything belongs to the government and it is only by their graces that you can keep some scraps, then yes, tax breaks are subsidies.

    But if one thinks, as do most people, that subsidies are what happens when you tax someone's hard earned money and give it to someone else, then it is fibbing to say that accounting tax breaks are a subsidy.

    If we ran a sane government then we wouldn't have a corporate income tax at all, noting that one way or another all corporate taxes are paid by consumers in higher prices or by employees in lower wages due to lesser demand for their labor.

  • bob r

    re: u.s. military in the middle east. A good argument could be made that the Germans lost world war II because the allies controlled most of the oil. In _any_ future large scale war, whoever controls _usable_ energy (oil, right now) will eventually come out the victor. It might look pretty peaceful right now, but then it looked pretty peaceful in 1930 too.

  • John Dewey

    Bob r,

    World War II and today are entirely different eras. Any advantage a hostile nation enjoyed by possession of oil fields could be wiped out in a few days with 21st century weapons.

    Again, the U.S. has more than adequate supplies of oil for any strategic military needs right here in the Western hemisphere, north of the equator.

    Do you really think a trillion dollar military presence in the Persian Gulf can be justified based on some imagined threat of global war some time in the future? If that's the case - which I reject, of course - then why do all the nations of Europe and Asia allow the U.S. to do their police work?

    Why do so many smart Americans buy into this obselete idea of strategic military presence?

  • diz

    If diz is right and that's what they are talking about, then those aren't subsidies, they are tax breaks.

    I believe the old school percentage depletion rules allowed you to deduct more costs than you actually incurred.

    Standard depletion calculations work kinda like this: You drill a well for $1,000,000 and you estimate that well will produce 1,000,000 barrels of oil. With each barrel you produce, you are essentially allowed to depreciate $1.00 - that is you get to expense the cost of the well as the oil is produced, on whatever schedule it is produced. At the end of the life of the well, you will have received deduction = 100% of the cost of the well. This is more-or-less the oil & gas industry's equivalent of depreciating capital costs. If anything, since other industries get to use MACRS, which is allows far faster depreciation than the useful life of the asset, this is the opposite of a subsidy if the general tax code is the baseline.

    With "percentage delpletion" you are allowed to deduct a percentage of your revenue each year. If, for example, you are allowed to deduct 22% of you revenue each year for 10 years, it's possible you may actually end up having deducted an amount far in excess of your actual well cost. Particularly if its a good well. I don't object to this being termed a subsidy, because these losses can be used to offset other income one would have to pay taxes on under the code. Cash is cash, and and act that allows you to keep more of it is a subsidized act.

    The important thing to note about percentage depletion is that big oil companies can't claim it since the 1970's. I think you have to produce less than 5000 barrels per day, not be a refiner, and not be an importer. But it's surprisingly difficult to get actual facts.

  • Adam

    "Why do so many smart Americans buy into this obselete idea of strategic military presence?"

    I suppose you're referring to the Department of Defense. I have a hard time understanding how strategic military presence is 'obselete'. Our ability to strike virtually anywhere in the world at any time, and our expenditure of massive amounts of politcal capital in order to increase that capability (most recently in the Czech Republic and the Caspian Sea area), has been a major focus of our foreign policy over the past 25 years. In short, I guess most smart Americans buy into the idea of strategi military presence because of their observation of the lengths their own country will go to in order to secure it presence; but then again, that's just my guess.

    "Tell exactly why we need to have military in the middle east to get people to sell their oil. (The oil doesn't even need to be sold to us, so long as it is sold on the world market.)"

    We need military in the Middle East in order to secure a stable environment for that exchange to take place. As the primary military and economic power in the world, and not to mention the largest consumer of petroleum, our interest lies in keeping that flow as uninterrupted as possible. We police it because we are the only power fully capable of doing so and to ensure if worst comes to worst, we are the ones in the most secure position.

  • Adam

    "Please explain how our military presence in the Middle East protects our flow of imported oil, which comes chiefly from Canada, Venezuela, Mexico, and Nigeria."

    It's been known for some time now that the Gulf region, which contains a large majority of the remaining proven oil reserves on Earth), will have to play a vital role in supplying the future energy needs of the planet. Without Saudi oil in particular, there is simply no way for the United States to function economically under current capabilities. The US has a long committment to our petroleum-based economic system and given the chance the adapt to dwindling supplies and instability in oil producing nations, we've chosen to do otherwise and make even greater committments to that system. If you want to wade through this: http://www.whitehouse.gov/energy/National-Energy-Policy.pdf, Cheney's Task Force report from 2001, I think you'll get a good idea of how important they consider these efforts to be. The bottom line is, US efforts in this region simply don't make any sense unless you factor in the overwhelming strategic importance of oil.

    Sorry to ramble about this topic, but I consider energy security by far THE most important issue facing the United States in the 1st half of the 21st century.

  • diz

    We need military in the Middle East in order to secure a stable environment for that exchange to take place. As the primary military and economic power in the world, and not to mention the largest consumer of petroleum, our interest lies in keeping that flow as uninterrupted as possible. We police it because we are the only power fully capable of doing so and to ensure if worst comes to worst, we are the ones in the most secure position.

    You are simply reaserting your position, not supporting it.

    Let me ask again. If we pulled all of our military out of the middle east would the middle eastern oil stop flowing?

    If you think it would stop flowing, what evidence do you have to support that belief?

  • John Dewey

    Adam,

    I'm not a fan of Democrats, but can you explain how the Republican-led build up of U.S. military presence in the Middle East in the 21st century has changed the flow of oil from that region? From what I've read, the instability introduced by the U.S. the past 5 years caused much of the speculation in crude markets. That speculation resulted in higher gasoline prices for consumers.

    The military presence in the Middle East in the 1990's was designed not to improve oil flow, but to curtail Saddam Hussein. Hussein was eager to sell his oil. It was the U.S. working through the United Nations that prevented him from doing so. How did restricting the export of Iraqi oil "secure a stable environment for that exchange to take place"?

  • stan

    Oil is expensive because Democrats won't let us drill. Food prices are high because we are burning food in our cars (thank the liberals).

    I think removing nukes from Libya was a good thing. So was removing Saddam's chemical and biological weapons. So was stopping Saddam's plans to gear up his nuke program again. So was stopping Pakistan's mad nuke scientist from further spreading nuke technology. All were the result of the war in Iraq.

    Killing vast numbers of AQ operatives, discovering the sources of their international cash, seizing large quantities of their assets, and discovering their networks of sources in govts around the world are all good things. Isolating Iran and demonstrating to the world that the Iranians are actively undermining the will of the Iraqis in creating their democracy is a great thing. Developing millions of fans of the USA among common folks in Iraq, Lebanon and other mideast countries will pay huge dividends for many years.

    The benefit/cost analysis is overwhelming.

  • John Dewey

    stan: "I think removing nukes from Libya was a good thing. So was removing Saddam's chemical and biological weapons. So was stopping Saddam's plans to gear up his nuke program again. So was stopping Pakistan's mad nuke scientist from further spreading nuke technology. All were the result of the war in Iraq."

    I agree. Those are good arguments for the removal of Saddam Hussein. If one wants to justify military presence in the Middle East for those reasons, and also for preventing further Arab-Israeli conflict, then fine. But I do not agree that such military presence was necessary to ensure the flow of oil from that region. So I do not agree that the cost of that military presence is a "subsidy" to the petroleum industry, as Kum Dollison and mahtso and Adam have argued.

  • Mesa Econoguy

    Stan basically has it right, along with morganovich: you need to take into account the opportunity cost of not doing anything (or at least not what we did).

    Ousting Saddam has all kinds of potential benefits down the road, specifically that he won’t be a troublesome neighbor or lob missiles at Israel or stuff like that. He had a well documented history of doing those things, and in that part of the world, we in the investment biz like to go against the standard disclaimer: past performance is most definitely an indicator of future returns (or behavior in this case).

    What is the net benefit of all this? We’ll never truly know, because we don’t know what happens in the parallel universe where we did nothing, but it’s pretty safe to say that even this “war premium” that has supposedly built into oil prices would have been much larger with several nuke-seeking maniacs in close proximity in the least stable part of the planet.

    Many of the people (mostly on the left) saying we shouldn’t have invaded Iraq/we shouldn’t be in the Middle East would be the ones making the exact opposite argument right now had we done nothing.

  • Adam

    "If we pulled all of our military out of the middle east would the middle eastern oil stop flowing?"

    Again, just judging from statements and actions that come directly from the United States government, and I am in no way in support of all of these activities (more on this later), our country believes this to be the case. The case being made by the DOD, DOE and others has been that without a military presence in the Gulf, there is an increased chance of destabilizing developments such as infrastructure attacks, etc that have the potential to drive up world oil prices and severely disrupt the US economy. US military presence in the Gulf, especially around the Strait of Hormuz, has increased somewhat proportionally to our dependance on foreign oil (which topped 55% or something in that neighborhood in the past several years). According to the Congressional Research Service, from 1995 to 2002 our arms deliveries to Saudi Arabia were six times greater than those to Isreal. Why? Well to make sure that the Saudi royalty are strong enough to prevent the types of uprisings and social unrest that creates problems for worldwide oil production in other places (Nigeria at the moment to name one example).

    Now will oil stop flowing if we take our fleets our of the Gulf? Probably not entirely. But the point is as we go forward there simply is not enough oil for worldwide demand, and only one place on this planet can hope to increase production, Saudi Arabia and the rest of the Gulf. For those who say we don't need the Gulf or Saudi Arabia because of Mexico, Canada, Venezuala, etc you should really look at global proven reserves and the ability of those countries to increase exports (beyond their own increase in consumption). Mexico's fields, for instance, are declining as their consumption is increasing; in terms of proven reserves, Canada doesn't even make the top 14 worldwide. The bottom line is we need every single drop we can get since we simply don't have alternatives.

    "From what I've read, the instability introduced by the U.S. the past 5 years caused much of the speculation in crude markets. That speculation resulted in higher gasoline prices for consumers."
    "The military presence in the Middle East in the 1990's was designed not to improve oil flow, but to curtail Saddam Hussein. "

    These two comments are related. As to the first Gulf War, I think the reason we wanted to curtail Saddam Hussein was because of his major threat to large scale oil production. Remember, he invaded Kuwait to seize their oil fields. There are plenty of small scale invasions like that take place across the world, but we don't send 150,000 to these places mainly because they have little strategic importance. You're correct about the UN in the 1990's, but the main reason for Iraq's lack of production was the extremely destructive war with Iran, mentioned previously, and Saddam's reluctance to allow foreign (i.e. American) investment that would increase production. To separate Saddam and the 1st Gulf War from oil production doesn't seem feasible on any scale.

    As to the first comment....the answer is that the US has done a poor job. That's why we should all be upset. Our 'Republican-led' efforts over the past several years, designed to ultimately provide greater stability in the world's most important energy producing region, have not done much to help skyrocketing oil prices (which are mainly due to increased demand from India and China). Essentially, we pursued an energy strategy that forces us to depend on extremely unstable and frequently hostile countries for our national economic security. I would say this is somewhat of a poor choice.

  • mahtso

    Those asking whether or not the flow of oil from the Middle East would stop if the US were to eliminate its military presence in the region are asking a question with little value in my view. Almost certainly the flow would not stop. But that does not mean that it would continue at the current volume.

    Although each (rational) oil producer might want to keep selling at the maximum price, all these producers are not necessarily in league (i.e., by way of a question: do you think the Iranian government would prefer that Iraq maximize oil production or be shut down?). And there are others that have no production who may wish to limit world oil supplies (would [name your favorite anti-Western terrorist group] prefer that Iraq keep producing oil of be shut down?).

    Since WWII the US has considered the Middle East to be of national interest because of its oil, although the perceived threat(s) to the region may have changed (and more than once). As pointed out above, the Carter Doctrine made this explicit.

    If, as some posters argue, the money spend was not required to protect our interest in oil, then of course that money cannot possibly be considered a subsidy. And even if the money was necessary to maintain a secure supply of oil, it is not a subsidy in the strict sense of the word. But in a discussion about energy policy and government subsidies and tax incentives used in shaping that energy policy, I believe that consideration of the money being spent to police the Middle East, whether foolishly or necessarily, is a valid consideration.

    To the extent that I may be too cynical: I think that the reason the UN supported Kuwait when Iraq invaded was because of the oil at risk and a collective desire to keep it out of Saddam’s hands; it is primarily oil that drives the interest in that region of the world.

  • brotio

    "I personally don't care where it goes. I am all for eliminating all of this subsidy mess, equally, whether it's for oil exploration or energy-from-donkey-poop or for CEO salary enhancement."

    That's the key phrase as far as I'm concerned. GE is the richest corporation in the world. They don't need my money to subsidize photo-voltaic solar cells. Archer Daniels Midland is also a Forbes 500 corporation receiving millions in taxpayer money to produce ethanol. Bulls**t! If there's money to be made in these products, let GE and ADM figure it out themselves. If they can't make money at it, then it's a pretty good bet that it's economically (and environmentally) unsound to waste scarce resources promoting the production anyway.

  • John Dewey

    Mesa Econoguy: "but it’s pretty safe to say that even this “war premium” that has supposedly built into oil prices would have been much larger with several nuke-seeking maniacs in close proximity in the least stable part of the planet."

    You and I generally agree, but not on this point.

    Mesa Economguy: "Many of the people (mostly on the left) saying we shouldn’t have invaded Iraq/we shouldn’t be in the Middle East"

    Just to be clear, I am not arguing that we shouldn't have invaded Iraq, only that:

    1. securing the flow of Arab oil did not require a military presence in the Mideast;

    2. if I am mistaken about 1, then it should be clear that Europe and not the U.S. should have provided the military presence;

    3. a lower price for oil does not justify, IMO, the thousands of U.S. military lives we have sacrificed and will sacrifice.

  • diz

    Yes, here's the only thing I am trying to argue in this thread:

    1. securing the flow of Arab oil did not require a military presence in the Mideast;

    If a military presence in the middle east is not required for the oil to flow, then the military can't be said to be subsidizing the oil market. It's really that simple. Regardless of the rhetoric people use when discussing the middle east.

    I just don't think a compelling case canbe made that a US military presence is required for the oil to flow.

    It's not as if we have troops guarding the oil fields in Saudi Arabia.

    It's not as if people like Ahmadinejad, Saddam Hussein, Qaddafi, the Ayatollah Khomeini and that ilk are pro-American. The problem is they need to sell oil to survive. Not selling oil is an existential threat for these regimes. It's their source of power. The oil gives them all the money they need to protect the oil themselves. Saddam attacking Kuwait "de-stabilized the region" but Saddam wanted Kuwait so he could sell more oil, not less.

    Taking Iran's 3,000,000 barrels per day off the market would represent a loss of 3.5% of world oil supply. Our lives wouldn't have to change that much to use 3.5% less oil. The Iranian regime would lose 80%+ of its revenue.

    They need to sell oil far, far more than we need to buy it.