The Logical Fallacy Of “Protecting” Our “Equities” Abroad

I recently watched a Stossel episode where former military intelligence officer Anthony Shaffer squared off against Ron Paul in a foreign policy debate.  Shaffer’s responses are typical of what one would expect from a statist Republican.  He was arguing from the standpoint of “protecting US equities” – which is more commonly referred to as “US interests.”

Shaffer argues that the US needs oil to operate its economy and that we have a responsiblity to protect our corporate oil interests in order to ensure the smooth functioning of our nation.

Unfortunately I think Paul responds with weaker arguments that he could have made, so I will make them for him in this article.

The argument that we need to protect our corporate oil interests only makes sense if one assumes that if an oil production facility is lost to a foreign power, that oil will be prevented from reaching consumer markets.

Consider this hypothetical scenario:

Exon owns an oil rig in Libya that Gadhafi wants to expropriate.  So, Gadhafi sends his cops out to take over the plant.

Now, the question is what is Gadhafi going to do with that oil?  Is he going to hoard it?  Is he going to blow up the plant?  Is he going to flush it down the sewers?

Of course not!

He’s going to sell it on the open market just like the rest of the stinking planet because he wants more stuff!  If he is willing to sell the oil on the open market, then what difference does it make if Exon owns the plant or Gadhafi owns the plant from the perspective of US consumer markets?

None.

As long as the oil keeps flowing, the US consumer markets would not notice one bit of difference in the price of oil.  The only people impacted by the loss of the production facility would be Exon shareholders.

Even if Gadhafi refuses to sell his oil to US consumer markets and only sells his oil to China, the price of US oil STILL WOULD NOT CHANGE because if China is buying oil from Libya, that means they are not buying oil from Saudi Arabia with the money they spent on the Libyan oil.  That means the global price of oil will still remain constant since the global supply and global consumption of oil has not changed in the slightest.

Gadhafi would only cause a problem with world oil prices if he shut down the plant entirely or hoarded the oil.

Now we must also consider the costs of an invasion, which can amount to hundreds of billions of dollars in very short order.  If the cost of an invasion is more than the amount saved by preventing Gadhafi from taking control of the oil, clearly an invasion to protect our oil interests would be a net loss for US consumers.

The lesson you should take away from this kiddies is that trading for foreign resources is always cheaper than war – unless you happen to be an Exon shareholder.  Hmmm, I wonder who really runs our government?