Expert View: Cheney has chance to pour oil on troubled waters

The key point to remember is that we are not running out of oil

The move? An oil import tax. If the US government were to move now and lock in current crude prices as a minimum, then while the US consumer would forgo a windfall from lower oil prices going forward, the US producer would gain sufficient confidence to invest in the more expensive developments such as tar sands and oil shale. With no prospect of gasoline going below $2 (£1.25) a gallon, the US consumer would increasingly adopt more fuel-efficient cars (appealing to the environmentalists), as well as more alternative sources of energy.

It is important to remember that one of the key reasons Opec existed was to keep oil prices down; not because the Opec countries wanted to be nice to their customers (as if), but to prevent the development of alternative sources of energy. The trade-off was that the West gets cheap(ish) oil and the Middle East maintains the annuity value of its - almost only - resource.

Opec appeared to break up in the late 1990s as cheating and the Asian crisis made oil cheaper, though of course this acted as a severe disincentive to any investment, notably in areas such as refining, before the now normal, higher level of global demand and restricted supply drove oil up to its present highs. However, fear of a sharp plunge means that the current high prices are not bringing forth the increased investment we might otherwise expect.

In 2004, the US averaged 11.8 million barrels per day of net imports (crude and products), which is around half of its consumption. Of this, about half was from neighbouring Mexico and Canada and half from the Persian Gulf, Nigeria and Venezuela.

The latest trade figures show that this amounts to about $17bn a month, just under a third of the total trade deficit. The idea of the import tax then is a reverse kind of Opec - guaranteeing a minimum, rather than a maximum, to producers. This is unlike European-style petroleum duties, which guarantee a minimum to consumers. By preserving a price to producers, it would validate capital expenditure in areas such as North American tar sands and oil shale, and would break the cycle of low investment and increasing external dependency. A method of recapturing the windfall profits for those oil producers not investing would be relatively simple to effect, and could cross- subsidise alternative energy investment.

The key point is that we are not running out of oil. Available reserves are simply a function of price. And at current prices the tar sands of Alberta or the oil shale in Wyoming, Utah and Colorado become economically viable. Both are many times the size of the Saudi Arabian fields. Even more interesting is the fact that Shell Oil has recently applied for licences in the American west, and suggested that it could extract oil from shale economically and environmentally if the price remained over $30.

So, with one policy the US could raise revenue from domestic and foreign oil, encourage consumers to become more fuel-efficient and encourage the development of alternative energy. From a strategic angle, it could cut the trade deficit significantly and completely reduce US dependency on unstable oil-exporting regimes. What's more, it could significantly reduce tensions with China going forward out of competition for energy. Over to you, Mr Cheney.

Mark Tinker is a director of Execution Stockbrokers. Mark.Tinker@Executionlimited.com