Limiting Oil Imports: An Economic History and Analysis

Abstract

The Mandatory Oil Import Program reduced oil imports during 1959--1973, lessened the impact of the 1973 embargo, imposed higher energy costs on the American public, encouraged depletion of domestic energy resources, altered the location and type of refinery capacity, and distorted oil exploration and development decisions. The authors trace the history of the Mandatory Oil Import Program and detail the forces that led to its adoption and followed in its wake. The rationales advanced for the program are examined and the degree to which its presumed goals were in fact achieved are evaluated. The protective effect of the quota is quantified in changing oil consumption, domestic production and imports, and its economic cost to consumers is calculated. Finally, a conceptual framework is suggested within which the indirect effects of the quota can be considered. In a section of continuing policy interest, the cost of the Mandatory Oil Import Program is compared with the cost of other means - including tariffs - of achieving the same national security goals. It was concluded that noneconomic factors are critical to the comparisons and identify the important characteristics that would affect the choice among alternatives.