Poorer by the Gallon
By Senator Richard G. Lugar
As submitted to the International Herald Tribune
June 9, 2006

Ethiopia, one of the world’s poorest countries, battles drought, starvation, poverty and AIDS. Today, the landlocked country of 74 million people is being struck by a new scourge—high energy prices.

Increased transportation costs are affecting the competitiveness of the country’s major export, coffee. Efforts to stabilize the precarious agriculture sector are at risk from sharply rising costs for fertilizer, which are linked to energy prices, and drought relief in the south is being hurt by shortages of truck fuel. Even basic infrastructure needs are suffering—the cost of sorely-needed paved roads is soaring because of the skyrocketing price for oil-based asphalt.

As we in the West contend with spiraling world crude prices, we must remember that they can also prove devastating to developing countries, in the process blunting the effectiveness of foreign aid and the push for democracy. But this is more than a humanitarian issue—it is also a global security concern that demands our urgent attention.

By stunting development and increasing poverty, high world oil prices contribute to instability that can lead to internal civil strife and regional conflict. More ominously, they help build the resentments and frustrations that breed terrorism.

That’s why the United States’ quest for energy security must encompass global energy security too. Lessening America’s petroleum use will not have its maximum potential geopolitical impact if others simply consume the oil we save, keeping markets tight and prices high, with the producers in control and the poor-country importers impoverished.

While much of the world’s oil is concentrated in a few countries, most nations around the globe, accounting for 85 percent of the world’s population, are net oil importers. That includes not only fast-growing countries like India and China, but also large portions of sub-Saharan Africa, South and Southeast Asia, Latin America and the former Soviet states.

Poorer nations are often far more dependent on oil imports than the rich ones—typically their industries are more energy intensive, while their cars and their homes are less energy efficient. As a result, low-income countries spend twice as much of their national income on imported oil as the developed countries.

The recent doubling of oil prices has far more impact on the world’s poor. While a $10 jump in the world price of crude shaves half a percentage point from economic growth in the West, it hits the poorest countries—where people make less than a dollar a day—nearly three times harder, according to the World Bank.

Money that poor-country consumers could spend putting their children in school, taking them to a clinic or investing in a business is instead lost to higher prices for cooking, heating, electricity and transportation. In nations that subsidize fuel prices, government spending gets diverted from social needs, while in all countries soaring energy costs stoke inflation and worsen trade imbalances.

In Afghanistan, high fuel oil prices have led to cutbacks in electricity. In Bangladesh, increased spending on oil imports is one factor that has forced the government to alter its development spending plans. In Nicaragua, the country’s oil bill last year soared to $541 million, up from $328 million in 2003, according to the central bank, an increase that surpasses the funding in a major new five-year, $175 million U.S. aid initiative.

As low-income countries pay more and more for imported oil, the money that America and other international donors spend to fight AIDS and malaria, provide clean water, build schools and clinics, improve crops, and achieve other development goals is, in effect, negated.

We must work with less-developed countries to help them save energy through dramatically increased efficiency and leapfrogging ahead of traditional hydrocarbon technologies. That calls for a pro-growth, pro-environment strategy that emphasizes domestically produced alternative fuels to replace imported petroleum.

As the U.S. develops ethanol, for instance, as a major component of our transportation fuel mix, we should work with Brazil, Thailand, the Philippines, Colombia and other countries that are also advancing biofuels, which promise more jobs and less imported oil. Promoting these technologies widely would help stabilize many developing countries and improve the effectiveness of our development assistance.

Realizing this win-win outcome will require a significant push to bring ethanol and other biofuels to market, and new energy partnerships to spread these innovations globally. Skeptics say we cannot afford to make such a major energy transformation. I say, for the sake of global stability, we can’t afford not to.