It’s an accident of geology that most of the world’s proven reserves of low-cost oil are in unfriendly or politically unstable countries. This reality prompts calls to “reduce our dependence on foreign oil.”

A recent article in Slate magazine describes an alliance of Iraq war hawks seeking to reduce American dollars flowing to oil-rich Islamic theocracies, e.g., Saudi Arabia. James Woolsey, the former director of the CIA, and Frank Gaffney, the president of the Center for Security Policy, believe reducing our demand for imported oil is “a national security imperative.” Their preferred method is through conservation (e.g., Woolsey drives a 58-miles-per-gallon Toyota Prius).

In his piece “The Geo-Green Alternative,” New York Times columnist Thomas Friedman posits that lower oil revenues will spur reform of corrupt Arab regimes. “You give me $18-a-barrel oil and I will give you political and economic reform from Algeria to Iran.... Shrink the oil revenue and they will ... open up their economies and their schools and liberate their women.... It is that simple.”

Well, is it?

Freidman might recall that as recently as 1999 oil was at $9 a barrel. I cringe when smart people say silly things. Friedman needs Econ 101. When demand for oil drops, so do prices. This has two important consequences. First, it will close down a majority of America’s domestic producers. Then, lower prices will increase, not decrease, our dependence on imported oil.

The problem is not that the Saudis use oil revenues to sponsor terrorism. The problem is that sponsoring terrorism is barbaric. If the Saudis sold oranges rather than oil, they could still finance terror operations. For half the price of a 2000 Honda Civic, about $7500, terrorists bought Zodiacs and C4, nearly sinking the USS Cole. They killed 17 sailors, wounding many more.

Why is the developed world so dependent on Persian Gulf oil? The reason is simple and clear. This oil is easy to find and cheap to extract. If we are to reduce our oil consumption, oil prices must rise and remain high. Here’s the logic.

The production cost of a barrel of oil is a function of its finding and lifting costs. In the Middle East, finding costs currently run $3 per barrel, with lifting costs at about $1 to $2.50. North Sea finding costs are near $7 and lifting costs are under $15 per barrel.

We’ve found a trillion-barrel field in the Athabasca oil sands of Alberta. Like western coal, oil sands are strip mined. It then costs between $10 and $15 to get the oil from the sand.

What are the implications? As long as Arab states remain the low-cost producers, their cheap oil will drive higher-cost producers in politically stable countries (e.g., Canada) from the market.

In their new book, The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy, Peter Huber and Mark Mills explain the logic.

“Investing billions in [Canadian projects] is risky not because getting oil out of Alberta is especially difficult or expensive, but because getting oil out of Arabia is so easy and cheap. Oil prices gyrate ... not because oil is scarce, but because it’s so abundant in places where good government is scarce. Investing $5 billion dollars ... to build a new tar-sand refinery in Alberta is indeed risky when a second cousin of Osama bin Laden can knock $20 off the price of oil with an idle wave of his hand on any given day....”

The global market for oil is like one big pool, where oil from each nation is mixed before consumers buy it. Hence, we can not selectively reduce demand from any one source. If we are going to reduce demand, it has to be for oil in general. This means higher, not lower, prices. The least worst policy solution is to implement a stiff gasoline tax (phased in over time).

Even if we successfully reduced demand by, say, 10 percent, the effect on the number of barrels of Saudi oil consumed would likely be minimal. Why? Again, because the Saudis are the world’s low-cost producer. If demand for oil drops, they will be the last ones pumping.