INVESTING: Rising rhetoric over oil prices is cause for worry

We all want more energy. Every time we go to the grocery store, we get bombarded with rows of new energy drinks. Health professionals are telling us things we can do to increase our energy. And we don’t just want more of it for our bodies. Our SUVs need more. Our homes need more. And China needs more.

The delicate problem we’ve helped develop has in large part been created by rising demand for energy in places like China and India. We’ve helped the problem grow because of our decades-long refusal to do much of anything about the supply side of the equation. Of course, now that the horse is out of the barn, Americans are going to try to get up on it! We will eventually solve the problem.

As long as oil is trading near $75 a barrel, though, we will continue to see disturbing behavior from political leaders across the globe. And let me tell you something: Our friends in Washington are not exempt.

Chinese government leaders are running all over the world trying to lock up what they think are currently favorable prices. If oil trades for more than $100 a barrel in the next few years, though, they may be surprised when some of these not-so-savory governments they are dealing with decide not to honor their contracts. Look at the natural gas situation in Russia a few months ago as a real-life example.

Life down in South America has been getting a little hotter lately. The newly elected leader of Bolivia just nationalized the natural gas fields, giving the foreign owners the boot. Venezuela has seized control of the oil and gas resources, and is using these assets to cause all kinds of trouble for American interests in the region. Ecuador just imposed windfall taxes on the oil industry and Peru’s leading candidate is vowing to take over the natural resources industry and kick foreign owners out.

Not to be outdone here at home, a Democratic senator last week was quoted saying that if the oil companies are not going to use their profits to do something about high prices, Washington is going to make them. Even Republicans can be heard calling for a windfall tax. President Bush called for another probe into whether the oil companies are gouging us. And for the 1,000th time, the probes discovered no gouging.

These actions by government leaders (and I am ashamed that our government is willing to take these sorts of measures) are going to have the exact opposite effect from what we desperately need right now. Instead of being encouraged to find a million new ways to deliver cheap energy, the industry is going to sharply decrease its efforts. The executives of the oil companies are going to line their pockets with current profits, realizing that future profits are in jeopardy worldwide.

This is the exact time America should be slashing taxes and providing incentives for energy production of all kinds: oil and gas, solar, wind, fuel cell and nuclear.

In the near term, oil and gas stocks could continue to go up. I fear for their long-term sustainability from here on out because of the extremely hostile environment they are going to have to deal with. Take away man’s ability to benefit from his production, and he will stop producing.