\" some observers have argued that importing oil makes the united states hostage

Question

" some observers have argued that importing oil makes the united states hostage to the policies of saudia arabia and other countries in the middle east. This complicates us foreign policy. b. propose a pigouvian tax to deal with the externality. c. some economists want to curb domestic gasoline consumption but are wary of giving the government substantially more revenues than it already has. as an alternative, feldstein suggested a system of tradable gasoline rights (TGR): "in a system of TGR, the government would give each adult a TGR debit card. The gasoline pumps at service stations that now read credit cards would be modified to read these new TGR debit cards as well. Buying a gallon of gasoline would require using up one tradable gasoline right as well as paying money. The government would decide how many gallons of gasoline should be consumed per year and would give out that total number of TGRs. In 2006, americans will buy about 110 billion gallons of gasoline... To reduce total consumption by 5% government would cut the number of Tgrs to 104.5 billion" Draw a diagram to illustrate how the price of tradable gasoline rights would be determined. suppose that the market price per voucher were 75 cents. How would this change the opportunity cost of buying a gallon of gasoline?

Explanation / Answer

In November 1964, Faisal became the new king after the conflicts he had with his brother Saud, the erstwhile king. The US, on the other hand was not sure about the outcome of such unplanned change in the Saudi monarchy. King Faisal was cooperating neatly with the US until October 20, 1973; it was the relationship’s largest obstacle before 9/11. King Faisal had decided to contribute in an oil embargo against the United States and Europe in favor of the Arab position in the Yom Kippur War causing an energy crisis in the US. “America’s complete Israel support against the Arabs makes it extremely difficult for us to continue to supply the United States with oil, or even remain friends with the United States” King Faisal in an interview with international media. By 1974, after a lot of changes that happened at that era, Saudi Arabia started pumping oil to the US again. Although the embargo was not running for a long time, it truly had a great impact on the world’s foreign policies and the US-Saudi relations (Kaiser & Ottaway 2002). Since the oil embargo, the US-Saudi relations had been in the process of rebuilding another healthy relationship. The Saudis increase of oil production to stabilize the oil price and the support of anti-communism have all contributed to closer relations with the US (Hart, 1998). In January 1979, the US sent F-15 fighters to Saudi Arabia for further protection from communism (Hart, 1998). Furthermore, the US and Saudi Arabia were both supporting anti-communist groups in Afghanistan and struggling countries, the groups later became known as Al-Qaida terrorist organization (Steven Coll, 2004). As we see the US-Saudi relations during the Cold War had highs and lows with little time in between but it eventually enhanced again after the cooperation against communism. [edit]Government Purchases After the Cold War the US-Saudi relations were improving. The US and US companies were actively engaged and paid handsomely for preparing and administrating the rebuilding of Saudi Arabia. Saudi Arabia transferred $100 billion (US) to the United States for administration, construction, weapons, and in the 1970s and 1980s higher education scholarships to the US (Kaiser & Ottaway 2002). During that era the US built and administrated numerous military academies, navy ports, and Air Force airfields. Many of these military facilities were influenced by the US, with the needs of cold war aircraft and deployment strategies in mind. Also the Saudis purchased a great deal of weapons that varied from F-16 war planes to main battle tanks that later proved useful during the Gulf War (Kaiser & Ottaway 2002). The US pursued a policy of building up and training the Saudi military as a counterweight to Shiite extremism and revolution following the revolution in Iran. The US provided top of the line equipment and training, and consulted the Saudi government frequently, acknowledging them as the most important Islamic leader in that part of the world, and key player in the US security strategy.

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