Sustaining Energy Independence
Commissioner Tommy Adkisson
The rising price of oil is nothing new to Americans. According to World Watch, "But for the United States, which pays for its oil imports in part with grain exports, this is not good news. Exports of grain and oil are each concentrated in a handful of countries, with grain coming largely from North America and oil mostly from the Middle East. The United States, which dominates grain exports even more than Saudi Arabia does oil, is both the world's leading grain exporter and its biggest oil importer. Ironically, all 11 members of OPEC are grain importers.
Using the price of wheat as a surrogate for grain prices, shifts in the grain/oil exchange rate can be easily monitored. From 1950 through 1972, both wheat and oil prices were remarkably stable. In 1950, when wheat was priced at $1.89 a bushel and oil at $1.71 a barrel, a bushel of wheat could be exchanged for 1.1 barrels of oil. At any time during this 22-year span, a bushel of wheat could be traded for a barrel of oil on the world market. (See attached table.)
With the 1973 oil price hike, this began to change. By 1979, the year of the second oil price increase, OPEC's strength had pushed the exchange rate to roughly 4 to 1. By 1982, when the price of oil had climbed past $33 a barrel, the wheat/oil ratio had climbed to 8 to 1. This steep rise in the purchasing power of oil led to one of the greatest international transfers of wealth ever recorded. (emphasis added)
Today, 27 years after the first oil price hike, the terms of trade are again shifting in favor of OPEC. With grain prices at their lowest level in two decades and oil prices at the highest level in a decade, the wheat/oil ratio has shifted to an estimated 10 to 1 this year. OPEC has the United States over a barrel once again. With its fast-growing fleet of gas-guzzling SUVs (sport utility vehicles) and falling oil production, the United States is now dependent on imports for a record 57 percent of its oil, making it even more vulnerable to oil price hikes and supply disruptions than it was in 1973."