Defense Department, Iraq War, and the Demand for Oil

In honor of Greg Mankiw, maybe Yochi Dreazen should have called this Cross-Price Elasticity of Demand VI:

With fuel prices soaring, the U.S. military, the country’s largest single consumer of oil, is turning into an alternative-fuels pioneer. In March, Air Force Capt. Rick Fournier flew a B-1 stealth bomber code-named Dark 33 across this sprawling proving ground, to confirm for the first time that a plane could break the sound barrier using synthetic jet fuel. A similar formula — a blend of half-synthetic and half-conventional petroleum — has been used in some South African commercial airliners for years, but never in a jet going so fast … With oil’s multiyear ascent showing no signs of stopping — crude futures set another record Tuesday, closing at $129.07 a barrel in New York trading — energy security has emerged as a major concern for the Pentagon. The U.S. military consumes 340,000 barrels of oil a day, or 1.5% of all of the oil used in the country. The Defense Department’s overall energy bill was $13.6 billion in 2006, the latest figure available — almost 25% higher than the year before. The Air Force’s bill for jet fuel alone has tripled in the past four years. When the White House submitted its latest budget request for the wars in Iraq and Afghanistan, it tacked on a $2 billion surcharge for rising fuel costs. Synthetic fuel, which can be made from coal or natural gas, is expensive now, but could cost far less than the current price of oil if it’s mass-produced. Just as important, the military is increasingly concerned that its dependence on oil represents a strategic threat. U.S. forces in Iraq alone consume 40,000 barrels of oil a day trucked in from neighboring countries, and would be paralyzed without it. Energy-security advocates warn that terrorist attacks on oil refineries or tankers could cripple military operations around the world. “The endgame is to wean the dependence on foreign oil,” says Air Force Assistant Secretary William Anderson.

Michael Perelman has another take on the fact that the Iraq campaign is consuming so much oil:

I suspect that these figures would be what uniformed personnel consumed. Maybe somebody here knows, but I feel fairly confident that contractors in Iraq — even contractors carrying out military missions — consume oil that escapes these estimates. Wasting oil is nothing compared to wasting lives, but even so I can think of better uses for 340,000 barrels of oil a day.

This war not only disrupted Iraqi oil supplies, it has also increased the demand for oil. Isn’t it time to end this idiotic adventure before Grand Ayatollah Ali al-Sistani succumbs to pressures to declare a fatwa on our troops:

Iraq’s most influential Shiite cleric has been quietly issuing religious edicts declaring that armed resistance against U.S.-led foreign troops is permissible — a potentially significant shift by a key supporter of the Washington-backed government in Baghdad.The edicts, or fatwas, by Grand Ayatollah Ali al-Sistani suggest he seeks to sharpen his long-held opposition to American troops and counter the populist appeal of his main rivals, firebrand Shiite cleric Muqtada al-Sadr and his Mahdi Army militia.

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