America’s dependence on foreign oil is frequently mentioned in political and economic discussion, as well as in daily news and everyday talk, and record highs in prices have become a common occurrence in the past few months. However, the actual scope of the issue is rarely seen. The chart below yields two striking facts:

• U.S. petroleum production in 2006 was lower than that of 1950, and was about half its peak in 1970. This number includes both crude oil and natural gas production.
• Imports made up about 60 percent of total U.S. petroleum consumption in 2006. This figure is up from 51 percent in 1998 and 38 percent in 1988.

Dependence on imported oil represents a major foreign policy concern for many politicians and citizens alike. Political instability in the Middle East and Africa worries many that the resulting petroleum market disruptions will adversely affect U.S. economic performance and national security. The chart below might allay some of these concerns.

The two largest oil suppliers to the U.S. are political and economic allies: Canada and Mexico. Other non-OPEC member countries sold the U.S. as much oil in 2007 than Saudi Arabia and Venezuela combined. Further, significant portions of oil production in many foreign countries, even in OPEC nations such as Venezuela, are operated by U.S. firms.

More important, however, is that oil is a commodity. The nature of global trade renders insignificant the country of origin of a given commodity. There is virtually no way for a nation to insulate itself from commodity supply shocks in the short-run. Even if the United States produced all of its own oil, supply shortages in foreign countries would still affect domestic prices as U.S. firms diverted supplies to countries that were importing from the affected regions.

Despite this, political rhetoric continues to blame foreign oil exporters for oil price increases. While much of the upward trend in prices since the mid-1990s is largely due to increased demand resulting from strong global economic growth (particularly stimulated by Chinese and Indian demand), the recent price spikes cannot easily be explained by recent surges in demand for petroleum usage. Rather, a weakening U.S. dollar, loose U.S. monetary policy, and an increasing ability of institutional investors to access petroleum (and its related financial instruments) as an investment medium, are likely culprits in the current round of oil (and other commodity) price appreciation.