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Weaning off Middle East Oil Means Less Than you Think

By Jen Alic | Sun, 01 July 2012 00:00 | 4

One expects the crazy talk to come out during an election season, but reports that the US is close to being weaned off Middle Eastern oil and set to become “independent” purposefully fail to consider the fact that as long as America is dependent on oil it will be dependent on Middle Eastern supplies because crude prices are determined globally.

Let’s put America’s foreign oil dependency into perspective. In order to achieve independence from foreign oil imports, the US would have to find a replacement for the approximately 8 million barrels of oil it imports every day. There are plenty of factors that can contribute to reducing these imports, including increased domestic oil and gas production, improved fuel economy standards, and renewable energy.

According to the Wall Street Journal, the US could become completely independent from Middle Eastern oil by 2035 primarily because of increased oil and gas production in the US and Canada (plus imports from Brazil) thanks to the technological advance found in hydraulic fracking. As a side note, renewable energy is mentioned as a potential contributor to energy independence.

This opinion nicely complements that of ExxonMobil CEO Rex Tillerson, who admits that while oil production is causing climate change, renewable energy is a bunch of malarkey and oil independence boils to down drilling as much oil as possible at home. This is also primarily the Republican platform at present. 

The US Energy Information Administration anticipates that by 2020, the US will fill half of its crude oil demand through domestic sources. OPEC opines that by 2035, shipments of oil from the Middle East to North America "could almost be nonexistent." Fair enough. We are talking here only of production and access to crude oil supplies—not pricing.

The most blatantly misleading remark, however, comes from Carlos Pascual, the US State Department’s key energy official. According to Pascual, "Whereas at one point there were real and serious concerns about the ability to maintain sustainable access of supplies to the United States if there were disruptions in the Middle East, that has changed."

We beg to differ.

Here’s one point everyone must agree on (and Tillerson will be the first to agree): Crude prices are determined globally and prices are affected by factors that ignore origin. As such, to say that the US is no longer concerned about disruptions to oil supplies from the Middle East is not only premature, it is wrong. Disruptions to supply in the Middle East, for instance, reverberate globally, regardless of whether you are drilling at home or importing.

If Saudi Arabia were to undergo a latent Arab Spring scenario, or if, for instance, the Houthi rebellion in Yemen were to effectively spill over into Saudi Arabia’s eastern oil-producing province, which is incidentally dominated by a restive Shi’ite minority with sympathies for the Houthi cause, this would affect supply, which would in turn affect the price of oil globally. The significant increase in oil production in the US and Canada would shield the US from diminished access to supplies, but the end result would be the same: a massive increase in prices for domestically produced oil.

This is simple supply and demand. ExxonMobil, for instance, is not going to sell its domestically produced oil at a lower price in order to stave off a crisis at home. It will sell it for whatever price it can get, or it will export it for a better deal.

This is not to say that weaning the US off of Middle Eastern imports is not a significant development. Certainly, it is. But it must be put into perspective—a perspective that is global and which reflects what is undoubtedly the most important aspect of the equation: pricing. Ask just about any American. They don’t care where the oil comes from as long as it translates into cheaper prices at the pump and cheaper utility bills. 

Overall, Americans are being misled about the nature of their dependency. Too much focus on removing the “foreign” element in the foreign oil dependence equation is skewing the larger picture: Independence can only be achieved by tackling dependency on oil itself, not on the origins of oil. 

Any major revolution of any kind, be it a political revolution or an energy revolution, is generally a process of two steps forward, one step backward.

Renewable energy brings us two steps forward; increasing domestic oil drilling brings us one step backward, in terms of environmental aims (fracking has been linked to earthquakes and groundwater contamination). It is important to note that fracking does not bring us two steps backward so that we are progressing nowhere in terms of energy independence. While there are dubious implications for the environment, fracking has allowed the US to become the world’s largest producer of natural gas, and this also helps keep prices down. This balance is a necessary part of any transition process.

By. Jen Alic of Oilprice.com

Jen Alic is a geopolitical analyst, co-founder of ISA Intel in Sarajevo and Tel Aviv, and the former editor-in-chief of ISN Security Watch in Zurich.

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  • Philip Andrews on July 02 2012 said:
    And the US is still dependant on trading partners (China, Japan, EU) who are themselves dependant on ME oil.

    Plus the apparently oft forgotten fact that until the 1950s and 60s the US was a primary oil producer, competing with the SU, Iran and the Dutch East Indies as they were then. But during the 50s aqnd 60s the US simply guzzled away its own supply in the most recklessly profligate manner, and ended up dependant on imported ME oil from Iran and the then newly discovered Saudi and Gulf oil.

    Will Americans repeat this experience with their newly discovered oil resources? How long will US produced oil and gas last if the American public is led to believe it has an 'infinite' supply by irresonsible politicians, economists and energy people?

    I would suggest that the point about oil/gas suuply isn't merely about pricing, but more fundamentally about who controls supply, demand and consumption. If China were to deveop consumption habits similar to the US in the 1950s, all the oil in the world would be hard put to feed it. 1,3 billion people consuming oil is a little hard to plan for by any measure...

    And when Saudi oil does eventually dry up, who will fill that supply hole? Esp if N.America is 'just about' self-sufficient but no more.

    We are simply not viewing the bigger picture. No long term vision. At present it all seems to be just a mad scramble.
  • michael on July 03 2012 said:
    The author is way off in the daily amount of oil imported. 8 billion barrels would be enough to give every man, woman and child in the U.S. over 26 barrels of oil per day. At $80 a barrel, that would amount to over $233 TRILLION per year for imported oil alone. That would mean were spending $778,000 per person, per year to import oil for every man, woman and child in the U.S.

    Again, the author obviously has their facts mistaken.
  • M.R. Cumming on July 03 2012 said:
    It has been well known for years that the Saudis' have misrepresented the amount of oil they actually have and now are keeping the cost down to help get Obama re-elected. The same fool that won't help us pursue the LNG OR any OTHER type that FUEL SYSTEMS, WESTPORT, CUMMINS, AND OTHERS can start helping the automobile industries to jump start vehicle production. He could even help get the Nat. Gas ACT passed. Maybe even give a little subsidy!! That would be a hell of a TAX break for everyone, so to speak. It would be so much less than gas at the pump, unless they added a immense tax per gallon, when you buy it, as it is always TAX, TAX, TAX!!!! We are already behind the ball, because there are to few staition to get the feul. It is hard for investors to build the infratructures, if they are not going to that the vehicles will come. It is kind of like the Movie " Field Of Dreams", but the cost is of such that investers would like a answer first, just as the small and big businesses of our country that are left out in the cold, not knowing the direction of our country and its' policies that will be coming. Therefore, they will not hire and if they do it is not for a full work week!!!Ojackass would have been fine, if there was Repubublican control in congress to controll him, his czars, lobbiest, friends, etc. and socialist adgenda!!! Wait until they gut the dollar to pay back the Chinese 145 Trillon of current debt and future debt(entitlements) and we and our children will be forever poor, if we don't properly protect our assetts! The whole world has a love printing money backed by China and the day will come when they call the debt! BUT WE COULD STOP SHIPPING 50 BILLON A DAY OVER SEAS SOON, IF WE WAKE UP AND BECOME WISE AND USE THE GREAT RESOURCE OF NATURAL GAS WE HAVE HERE FOR AND STERT EXPORTING IT ALSO TO COUNTRIES THAT NOW PAY FIVE OR MORE TIMES WHAT WE GET FOR IT NOW HERE!!! JUST AN IDEA TO TRY AN TURN THE TIDE A LITTLE BIT!!!
    THANKS---PAPAMIKE
  • MW Rodgers on July 04 2012 said:
    @Cumming - You seem to be one sided in your assessment as you bring politics into the picture.
    OPEC had an emergency meeting last week because they are worried about the rapid fall of crude prices. They can't cash in on the speculation market unless they have refineries. Why do you think other countries are investing in refineries now!? Not for health, but for wealth.
    American politics doesn't drive the market! The market is driven by world demand and the speculation off unrest in oil producing countries and those whom can stop exportation and exploration!

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