Work Cited: http://www.catooncampus.org/article/show/63.html
The article was taken from Cato Institute, which is a leading institution discusses current important economic issues.

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Does Interventionism Cause Cheap Oil?

Samuel Amaral, from Heriot-Watt University in Scotland, asks:
"Does US involvement in the middle east account for cheap oil prices?"

Jerry Taylor, senior fellow and energy and evirononmental policy expert at the Cato Institute, answers:
From an economic perspective, the key question is whether an elimination of U.S. military and foreign aid expenditures dedicated to "the oil mission" would result in an increase in the price of oil, and, if so, how much?

To be sure, if the termination of the American "oil mission" implied the termination of all military, police, and court services in the region, petroleum extraction investments would become more risky, oil production would decrease, and prices would increase. But remember that oil companies in the region are creatures of government. So the question is really whether Middle East governments would produce less oil because the United States ended its oil-related military mission and foreign aid. Or would oil producing states provide-or pay others to provide-military services to replace those previously provided by the United States?

I suspect that a cessation of U.S. security assistance would be replaced by security expenditures from other parties. First, oil producers will provide for their own security needs as long as the cost of doing so results in greater profits than equivalent investments could yield. Because Middle Eastern governments typically have nothing of value to trade except oil, they must secure and sell oil to remain viable. Second, given that their economies are so heavily dependent on oil revenues, Middle Eastern governments have even more incentive than we do to worry about the security of production facilities, ports, and sea lanes. Third, even if producing countries were to provide inadequate security in the eyes of consuming countries, consuming countries could pay producers to augment it.

In short, whatever security our presence provides (and many analysts think that our presence actually reduces security) could be provided by other parties were the United States to withdraw.

The fact that the Saudi Arabia and Kuwait paid for 55 percent of the cost of Operation Desert Storm suggests that keeping the Straits of Hormuz free of trouble is certainly within their means. The same argument applies to al Qaeda threats to oil production facilities.

Thus, U.S. Persian Gulf expenditures should not be viewed as a subsidy that lowers oil prices below what they otherwise would be. Instead, the expenditures are a taxpayer financed gift to oil regimes that have little, if any, effect on oil prices.