Arnold Kling wrote Oil Econ 101 a few years ago, but his point still stands that “oil is oil”:
I teach economics in high school. Here is a good question for an introductory course:
If the United States currently satisfies 10 percent of its demand for oil with imports from Saudi Arabia, by what percentage must the U.S. reduce its consumption in order to be 100 percent independent of Saudi oil?If you answer “10 percent,” you get an F. If we reduce oil consumption by 10 percent, then we will not cut 100 percent of our imports from Saudi Arabia. We cannot arrange to consume only American oil and no Saudi oil. Oil is oil. If we reduce demand by 10 percent, we probably will reduce our demand for Saudi oil by 10 percent, not by 100 percent.
(Actually, oil is not exactly the same everywhere. Saudi oil is somewhat cheaper to extract and refine than other oil. What this means is that if we reduce our demand for oil, the impact is likely to be felt somewhat more on other oil, and somewhat less on Saudi oil. Lowering our demand by 10 percent might not lower Saudi oil exports much at all. But we can leave that aside for now. Just keep in mind that oil is oil.)
But what if we passed a law against importing Saudi oil? In that case, the Saudis would export their oil to us via Venezuela. They might not physically use this channel, but if the Venezuelans sell more oil to the U.S. and the Saudis sell more to other customers no longer served by Venezuelans, it has the same effect.
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The correct answer to the question of how much the United States would have to reduced oil consumption in order to drive our demand for Saudi oil to zero is 100 percent. Only if we stop using oil altogether can we be sure that we are not contributing to the demand for Saudi oil. Oil is oil, so that any demand for oil creates demand for Saudi oil.