Tuesday, October 15, 2013

Time for a US Oil Change?

Underway replenishment

On the heals of last week's post on China surpassing the US to become the biggest importer, two recent articles ponder oil's place in our world, particularly in light of how it was used as a weapon against the US during the Arab-Israeli War.

The first, Does OPEC Still have the US over a Barrel? brings the events of those days back vividly.  If you're old enough, this will conjure up a scary memory. If you're young enough, this may sound like a Tom Clancy (RIP) novel, but it was far too real for those managing the crisis in 1973:
“I’m sitting at my desk at the Pentagon,” recalls James Schlesinger, then secretary of defense, “and a cable comes in, and it reads: ‘In accordance with the orders of His Majesty, we are obliged to cut off all oil supplies to your 6th Fleet and to your forces in western Europe. Signed [Saudi oil minister] Zaki Yamani.’ ”

And too real for the man on the street. In the US gas rationing went into immediate effect, around the country lines at stations were huge and you could only get gas every other day depending on whether you had an odd or even license plate. Fast forward 30 years and though we've made huge advanced in energy efficiency, according to the article, we now import 2.6 times as much oil as we did in 1973. The article continues:
We pay dearly for it, which was one of OPEC’s objectives. The inflation-adjusted price of crude oil now is more than twice as high as it was after the five-month embargo, and money continues to flood the coffers of oil-exporting countries. With consumption surging in China, India and the Middle East itself, oil markets are tight, with little spare capacity.
Let's hear from Daniel Yergin, without doubt the most authoritative energy expert in the world, on how the polarity has shifted in the Middle east since the pre embargo days. From a recent op-ed on the topic at hand:
There will be future energy disruptions because there is still much political risk around oil. In 2013, the Middle East is still in turmoil, but the alignments are different. In 1973, Iran was one of America's strongest allies in the Middle East. Tehran didn't participate in the embargo and pushed oil into the market. But since the 1979 Islamic revolution, Washington and Tehran have been adversaries. Meanwhile, Saudi Arabia, which was at the center of the 1973 embargo, is now America's strongest Arab ally.
The second piece, Why the Energy Boom won't make the US a New OPEC pursues the idea that if we're now loaded with our own indigenous oil and gas, can we use them to enhance our  geopolitical muscle in an OPEC-like fashion. The article describes how, as offense, we are already using these assets to improve our hand in international negotiations of all kinds.

But from a defensive position, it claims our new strength doesn't provide as much protection as some would hope:
There's one thing the new oil and gas supplies can't do: insulate Americans against a price spike in the case of a major disruption. Were the Arab oil embargo to happen today, the U.S. would have access to its own oil supply, but the price shocks would nonetheless reverberate around the globe, hurting all economies—including this one. That's because, the country still can't go it alone despite the boom in domestic production: In 2005, the U.S. imported 60 percent of its oil; today, that's down to 40 percent. Nevertheless, America is still nowhere close to producing as much energy as it uses.
Now the IMHO part to close.  For now, for the DOD, unless and until something changes: full steam ahead on maximizing energy efficiency for installations, at Forward Operating Bases (FOBs) and everywhere in between, particular in the air and on the seas. And for the country, keep building our domestic supply, and keep those those MPG ratings going ever higher. ab

Photo credit: Wikimedia


John said...

Yesterday's Wall Street Journal, (14 OCT 13) wrote "Despite enormous growth in the U.S. economy since 1973, oil consumption today is up less than 7%." and American imports "now down to 35%—the same level as in 1973." Clearly the WSJ and Washington Post are in conflict. Can you clarify if we are importing 260% more oil (2.6 times) then in 1973 or a mere 7%.

Andy Bochman said...

Hi John. I put your question to a true expert, former IEA analyst Dr. Karbuz, and offered the following response:

It depends what is meant with oil. In industry jargon oil imports we understand to mean net imports of Crude Oil and Oil Products. In order words, imports minus exports. If one looks at net crude oil imports only, then yes, US net crude oil imports increased 2.6 times. Source: Energy Information Administration.

DHH said...

Only partially relevant: I remember that embargo. That's when I obtained my first gas credit card (Diamond Shamrock) because I was tired of not having enough cash to buy gas and eat lunch, too. Yes, yes. I know the reasoning was faulty, but I was only twenty-one.

Jack Renner said...

The blog and the two accompanying articles make useful points that should rightly dampen some Americans' aspirations of completely disengaging from unstable areas of the world, such as the Middle East. Some may think that if we have our own domestic (plus Canada) supply, we do not have to worry about certain other parts of the world. And while we would have oil, the global shocks sent throughout the world market by a Middle East disruption would still harm our economy. This is why the U.S. needs to remain a force for peace and stability in the Middle East; our influence in the region needs to be maintained or increased. How to do this in the wake of Iraq and Syria is the difficult part. The U.S. has considerable hard and soft power at its disposal; it must use discretion to reassure allies and deter potential enemies in order to maintain peace.