U.S. oil dependence has been an important topic at the nexus of energy policy, economic, policy and national security since the early 1970s (Deutch and Schlesinger 2006). Oil dependence typically refers to the percentage of domestic oil consumption that is imported.¹ As shown in Figure 1, the percentage of U.S. petroleum consumption supplied by foreign sources has declined from a historic high of 60 percent to a recent historic low of 25 percent in a decade. Most of the impetus for concerns about oil dependence center on OPEC and its ability to influence world oil markets to the detriment of U.S. interests. However, the percentage of U.S. petroleum consumption supplied by OPEC has fallen to 16 percent while the percentage supplied by non-OPEC countries such as Canada has increased. Crude oil prices have also been stable or falling during this time reflecting a decline in OPEC market share (see Figure 2). These trends suggest that OPEC’s ability to influence world oil prices is waning and, more generally, the costs of oil dependence are currently very low. However, the cost of oil dependence differs from the actual expenditures on crude oil imports due to market failures that plague world oil markets. Market failures suggest world oil markets are inefficient and this inefficiency signals that gains to the U.S. economy could be achieved by intervening in world oil markets to reduce overall U.S. energy intensity, discourage oil imports, or encourage domestic energy production. Large estimates of the U.S. oil dependence costs provide a strong economic justification for a variety of energy policies but smaller estimates suggest an economic justification for these policies may be lacking.
