U.S. Energy Independence Doesn't Mean a Thing

Libyan oil production is at its lowest level since the onset of civil war in 2011.  In Iraq, oil production is down below the 3 million barrel mark for the first time in five months. Much of the region was highlighted in a global security alert issued recently by the U.S. State Department. For struggling OPEC members in the region, the International Energy Agency said oil production from North America was providing relief for the global marketplace. Some U.S. lawmakers have been banging the drum of energy independence amid record-setting levels of oil and natural gas production. While reducing foreign imports is a source of domestic appeal, it does little to address the ripple effects of international turmoil.

Labor strikes by oil workers in Libya, and demonstrations by the frustrated throngs of the unemployed, have suppressed oil production in the troubled North African country. Oil production stands at around 600,000 barrels per day, about half of the level posted in July. Libya pumped out around 1.6 million bpd before western forces intervened in civil war. Without Libyan oil at the height of the conflict, the IEA called on its members to release oil from strategic reserves to keep the market moving.

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In its market report Friday, the IEA said oil production from Iraq fell below 3 million barrels for the first time in five months. The Paris-based agency blamed insurgent attacks on Iraqi oil pipelines for much of the decline in oil production in July. That same month, the United Nations said more than 1,000 civilians were killed in acts of terrorism, the highest since "the blind rage" of sectarian war prompted the U.S. military to adopt its so-called surge strategy for Iraq.

The IEA said production from members outside OPEC was helping address supply issues in the Middle East and North Africa. Non-OPEC output should reach 55.4 million bpd by the fourth quarter of 2013 with the help of North American production. The U.S. Energy Department said domestic crude oil production reached 7.5 million bpd, the highest monthly level of production in more than 20 years.

The increase in North American oil production is expected to help buffer against the increase in demand expected as the global economy recovers. For the United States, the production boom means imports of foreign oil should fall to their lowest level since 1985. That means less strain on OPEC. Rep. Fred Upton, R-Mich., chairman of the Energy and Commerce Committee, said North American oil production would "displace our need for imports from hostile nations overseas and help free us from OPEC’s influence." The U.S. Labor Department, meanwhile, said the U.S. oil and natural gas sector accounted for the bulk of the employment gains seen since the onset of the global economic crisis.

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The rhetoric on energy independence does not hold up well when considering the strategic petroleum release that coincided with the 2011 crisis in Libya. The IEA said the release was meant to provide short-term liquidity to international oil markets trying to make do without Libyan oil. U.S. oil production gains, meanwhile, means the United States is using less foreign oil, not adding more to a market plagued by conflict in oil-rich regions. A Congressional measure enacted in response to the Arab oil embargo in 1973 means the United States can't export crude oil except under very specific circumstances. When oil prices escalated in July, it was because of the Egyptian political crisis. No amount of U.S. oil production could change that.

National security and energy security are interconnected because of the economic ties to foreign and domestic policies. Overseas engagement means just as much for security as does domestic economic achievements. To borrow from former President George W. Bush, lawmakers should reject "the false comfort of isolationism" not support the cause.

By. Daniel Graeber of Oilprice.com