Trend: The real cost of a gallon of gasoline is $10.86 in the United States when oil is $60 per barrel. In 2003, it was $5.20 per gallon.
Gas in oil-producing Venezuela sells for 14 cents a gallon, due to government subsidies by the Chavez administration. Many Americans think $3 a gallon gasoline is overpriced, but that is only about 30 percent of the real cost, according to the research of Milton Copulos.
Milton Copulos is president of the National Defense Council Foundation. He has researched energy issues extensively. Below are excepts from his presentation to the US Senate Foreign Relations Committee on March 30, 2006.
America is rushing headlong into disaster. What is worse, however, is that it is a disaster of our own design.
More than three decades have passed since the 1973 Arab Oil Embargo first alerted the nation to its growing oil import vulnerability. Yet, despite this warning, we are now importing more than twice as much oil in absolute terms than we did in 1973, and the proportion of our oil supplies accounted for by imports is nearly double what is was then. What makes this dependence even more dangerous than it was three decades ago is the fact that the global market has become a far more competitive place with the emerging economies of China, India and Eastern Europe creating burgeoning demand for increasingly scarce resources.
While it is broadly acknowledged that our undue dependence on imported oil would pose a threat to the nation’s economic and military security in the event of a supply disruption, less well understood is the enormous economic toll that dependence takes on a daily basis.
The principal reason why we are not fully aware of the true economic cost of our import dependence is that it largely takes the form of what economists call "externalities," that is, costs or benefits caused by production or consumption of a specific item, but not reflected in its pricing. It is important to understand that even though external costs or benefits may not be reflected in the price of an item, they nonetheless are real.
Today, crude oil prices are hovering around $60 per barrel and could easily increase significantly. Indeed, whereas in 2003 we spent around $99 billion to purchase foreign crude oil and refined petroleum products, in 2005 we spent more than $251 billion, and this year we will spend at least $320 billion.
But skyrocketing crude oil prices were not the only factor affecting oil-related externalities. Defense expenditures also changed.
In 2003, our armed forces allocated $49.1 billion annually to maintaining the capability to assure the flow of oil from the Persian Gulf.
I should note that expenditures for this purpose are not new. Indeed, last year marked the 60th anniversary of the historic meeting between Saudi monarch King Abdul Aziz and U.S. President Franklin Roosevelt where he first committed our nation to assuring the flow of Persian Gulf oil – a promise that has been reaffirmed by every succeeding President, without regard to party.
Because the price of crude oil is expected to remain the $60 range this year, expenditures for imports are expected to be at least $320 billion this year. That amounts to an increase of $70 billion in spending for foreign oil in just one year. That increase would raise the total import premium or "hidden cost" to $825.1 billion, or almost twice the President’s $419.3 billion defense budget request for fiscal year 2006. If all costs are amortized over the total volume of imports, that would be equivalent to adding $5.04 to the price of a gallon of gasoline. For Persian Gulf imports, the premium would be $8.35. This would bring the "real" price of a gallon of gasoline refined from Persian Gulf oil to $10.86. At these prices the "real" cost of filling up a family sedan is $217.20, and filling up a large SUV $325.80.