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Does it Matter Where I Buy Gasoline?

A reader forwarded me a letter encouraging people to buy gasoline only from companies that don't import oil from the Middle East or from Venezuela, for the stated purpose of sending a financial/political statement to those regimes, many of which are anti-American. Would following that advice hurt those countries? Is it a good idea?

The short answers are "yes" and "no". The reasoning behind both answers is the same: Following the advice would make all gasoline more expensive.

The data about imports is interesting but not actually relevant to the economics, so let's get that out of the way first. The top five countries we import oil from are Canada, Saudi Arabia, Venezuela, Mexico, and Nigeria. These five sources account for 73% of our crude oil imports; the other suppliers are all much smaller. (There are seasonal changes in these figures; I'm looking at the Dec. 2007 data.) Ignoring the minor suppliers, only Saudi Arabia and Venezuela could be called "unfriendly" and they only supply 30% of our imports… and we only import 66% of our crude oil to begin with. These two "unfriendly" suppliers only account for 20% of our total crude oil supply. We're getting all worked up about that? Really?

Okay, let's say that we are bothered by that 20%. What happens if we switch sources? The price will rise. The clearest example here is Venezuela. It makes sense from a cost perspective to buy from them. The transportation costs are modest because they're nearby, and our refineries can handle the high sulfur content in Venezuelan crude. If we buy from somewhere else, Venezuela has to sell its oil elsewhere. Let's say that it would cost an extra $3 a barrel for them to do that. Congratulations, you've hurt their profits. But if we're buying from somewhere else, we will also face higher costs. The reason we buy from Venezuela today is that it's cheaper than the alternative! If we buy from somewhere else, our costs go up for the same reasons as Venezuela's. We're hurting ourselves at the same time we're hurting Venezuela. And who does this hurt the most? The poor. They spend the greatest proportion of their budget on gasoline. They'll be the most impacted by higher costs.

It would be wasteful, too. (That's nearly synonymous with recognizing that it would raise costs.) Assume that we bought our oil from Norway instead of from Venezuela. Now all that oil has to cross the Atlantic ocean in gigantic ships that frighten the charismatic oceanic megafauna. But what about the countries of Europe that used to buy Norway's oil? They still need oil. They'll buy it from Venezuela. So now we've got crude oil crossing the ocean in both directions. Unnecessarily. Wastefully. Scaring the whales.

If you care about the poor, or about the poor whales, you should be happily indifferent to the national origin of the gasoline you buy. Just buy what's cheapest and sleep soundly in the knowledge that market forces operate to minimize costs. Sure some dictator gets an extra couple bucks of profit per barrel. But more importantly, some poor person saves money on gasoline and is able to put a little more food on the table, or pay off that credit card a little bit sooner, or save a little bit more for the future — and there are millions of such people.

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