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Why the US should buy oil not guns
As more people speculate about the potential timeframe for oil supplies to run out, I wonder when the us govt will start to think more about protecting our oil with money rather than guns.
On a purely economic basis buying oil would be a far better invesment. if we had spent the 500 billion on buying iraqi and other oil supplies at the 35 per barrel range in 2003, we would actually have made rather than burned a fortune.
Even today, as many worry about the falling dollar and long term rise in oil prices it would seem like a shrewd invesmtent to stockpile massive oil quatities or possibly just purchase very long term call options. This would be a perfect hedge against our own currency inflation.
What if the US govt actually borrowed a trillion dollars and purchased 10 billion barrels of oil (or possibly bought out oil companies with huge reserves)? This could be an awesome move as a) we'd owe a fixed amt in dollars which would reduce in real world terms with inflation, b) build a real strategic oil reserve and c) be a potential massive windfall to the US treasury as oil goes to 150 or higher due to long term supply constraints and the dollar value deflates in world terms.
What I really wonder is why china wouldn't pursue this strategy with its massive foreign currency reserves.
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January 13, 2008 | Permalink
Comments
Let's work out the math.
The US consumes approximately 86 billion barrels of oil a year. At say 100 bucks a barrel. That would be 8600 billion to stock pile for just one year. With the US budget at only 2400 billion with approximately %50 percent of that being military. That is a big chunk to swallow.
What would a call option cost for this?
Posted by: Duane | Jan 13, 2008 9:37:04 PM
I've joked about ideas like this with my girlfriend (who seemed to think it would be a good idea).
My idea (more for consumers / end users), but a similar concept to yours:
* allow people to pay a premium on current gas prices, in order to lockin a rate (i.e. if you believe the price will go up dramatically in the next 3-6 months)
* so you might pay $500 for gas now at a $.10 premium, but you've locked in that rate for the next $500 worth of gas you buy
Posted by: SB | Jan 14, 2008 11:29:26 PM
There is an interesting article in Scientific American last month about the development of solar infrastructure (cover story). It would take about $400b in subsidies to offset contstruction costs to produce about 80% of US power needs (and about a decade of time).
http://www.sciam.com/podcast/episode.cfm?id=F304542B-E7F2-70F7-E6CAEF1C8B401080
Posted by: C Dornfeld | Jan 28, 2008 12:42:13 PM
like the concept but dont you think it would serve as a disincentive to the creation of alternative forms of energy that don't come from the middle east?
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