What $700 Billion?

In accepting the nomination as the Republican candidate for U.S. president, Sen. John McCain proclaimed that if elected, “We are going to stop sending $700 billion a year to countries that don’t like us very much.” One can’t help but wonder what $700 billion the good senator is talking about. (He certainly couldn’t have been talking about U.S. foreign aid. According to U.S. Agency for International Development [USAID] report U.S. Overseas Loans and Grants, Obligations, and Loan Authorizations [commonly known as “The Greenbook”], in 2006 the United States provided almost $27 billion in economic aid to foreign countries and another $12 billion in military assistance for a grand total of $39 billion, the bulk of which was spent in the Middle East and North Africa [$15 billion].)

Apparently, the $700 billion is money we’re spending for energy, presumably foreign oil. According to McCain, “We will produce more energy at home. We will drill new wells offshore, and we’ll drill them now. We will build more nuclear power plants. We will develop clean coal technology. We will increase the use of wind, tide, solar, and natural gas. We will encourage the development and use of flex fuel, hybrid, and electric automobiles.”

According to the Energy Information Administration (EIA), the United States imports about 58 percent of the petroleum products (which includes crude oil and other refined petroleum products such as gasoline, diesel fuel, heating oil, jet fuel, chemical feedstocks, and asphalt) it consumes. In 2007, the United States imported 4.9 billion barrels of oil at an average price of $72 per barrel, or roughly $352 billion – about half of the $700 billion claimed by McCain. Using 2007 consumption levels (although oil consumption is currently declining as Americans adjust to the increased price of gas at the pump) and the current price of oil ($105 per barrel as this is written), the cost of foreign oil would be $515 billion. Even at the EIA’s 2009 projected price of $123 per barrel, foreign oil would cost $603 billion – still less than McCain’s $700 billion.

So where did McCain come up with $700 billion? Apparently he’s been talking to Texas billionaire oilman turned wind farmer T. Boone Pickens.

In July Pickens rolled out a $50 million media campaign to tout his energy plan. According to Pickens, America is addicted to foreign oil, and “As imports grow and world prices rise, the amount of money we send to foreign nations every year is soaring. At current oil prices, we will send $700 billion dollars out of the country this year alone.” In the first half of this year, the United States imported 2.4 billion barrels of oil. If we assume that 4.8 billion barrels is a good estimate for the entire year, the price of oil would have to average $145 per barrel for the cost foreign oil to equal $700 billion in 2008 – but the record high for a barrel of oil was $147 per barrel for only one day in July, and according to EIA the projected average price for this year is $119 per barrel, which would equal a total of $571 billion. (Pickens also claims we import 70 percent of our oil, which is significantly more than the 58 percent figure from the EIA.)

Pickens is also apparently the source of McCain’s claim of sending $700 billion “to countries that don’t like us very much.” In a September 2006 interview, Pickens stated that “others [countries we buy oil from] are not friendly.” And in July of this year he told the Senate Homeland Security and Governmental Affairs Committee that many of the countries supplying oil to the United States are “not friendly.”

Clearly, “not friendly” is a euphemism for the Middle East. But in 2007, only 16 percent of imported oil (a little less than 800 million barrels) came from the Persian Gulf (Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates). The reality is that nearly half of imported oil comes from Western Hemisphere sources, which account for three of the top five suppliers of foreign oil:

  • Canada: 18.2 percent (which accounts for more barrels of oil – not quite 900 million – than all of the Persian Gulf countries)
  • Mexico: 11.4 percent
  • Saudi Arabia: 11.0 percent
  • Venezuela: 10.1 percent
  • Nigeria: 8.4 percent

The last time I checked, both Canada and Mexico were considered friendly neighbors.

Ultimately, John McCain’s pledge “to stop sending $700 billion a year to countries that don’t like us very much” amounts to the same kind of exaggeration and fear-mongering the Bush administration engaged in to demonize Saddam Hussein as a dire threat to America – which he clearly wasn’t. Similarly, imported oil is not a threat to the United States, simply an economic reality. (One thing McCain is right about is that “[t]he issue of economics is not something I’ve understood as well as I should.”) More importantly, the foreign countries that sell oil are not enemies. The last thing we need to do is chase another phantom menace.

Read more by Charles V. Peña

Author: Charles V. Peña

Charles V. Peña is a senior fellow at the Independent Institute, a senior fellow with the Coalition for a Realistic Foreign Policy, a former senior fellow with the George Washington University Homeland Security
Policy Institute
, an adviser to the Straus Military Reform Project, and an analyst for MSNBC television. Peña is the co-author of Exiting Iraq: Why the U.S. Must End the Military Occupation and Renew the War Against al-Qaeda and author of Winning the Un-War: A New Strategy for the War on Terrorism.