"1) Fossil fuels are a limited supply. Maybe enough for another 50 years. Maybe 100. But still limited."
Matters on the type of fuel you're talking about. The US has coal reserves for hundreds of years. Even NG and Crude reserves to last a loooooong time, but they will continue to cost more and more to extract and refine.
"2) We purchase large amounts of oil from countries that, in general, do not like us."
We buy most of our oil, from ourselves. The vast majority of the rest is bought from Mexico and Canada. The largest of the insignificant provider nations is Venezuela. The amount of oil we buy from countries that, "Do not like us", is insignificant.
"3) If it were not for oil, our interest in the middle east would decline greatly, which would be a good thing."
Our interest in Middle Eastern oil is due to the lack of oil reserves in western Europe. Even without any US demand on Middle Eastern oil, the US will have a continued interest in the region until Western Europe transitions off of crude.
"More fuel efficiency and alternative fuels just simply make long term sense, even without considering climate change. So, what is the problem?"
This is really the crux of it. So let's say that the Pope/Scientists are wrong. There is no global warming and any investment in improving vehicle efficiency, air quality, and use of renewable is a waste of economic output. Well, we still get more efficient vehicles, better air quality, and a bunch of jobs. So, no big loss.
On the other hand, say the Pope/Scientists are right, but we do nothing. We are at risk of creating a catastrophic level event that would dramatically alter life on the planet, and could result in the death of billions of people.
So option A, we possibly lose a percent or two off of economic growth. Option B, we die, and the economy no longer matters.
As you said, "So, what is the problem?"