President Trump’s insistence that the U.S. is unfairly shouldering the cost of protecting global sea shipping lanes for major oil producing nations received a new boost last week.
A report by Securing America's Future Energy (SAFE) released on Thursday said that, at minimum, the U.S. Military spends approximately $81 billion a year to defend global oil supplies, which amounts to a staggering 16-20 percent of the Defense Department’s budget for bases. SAFE is a think-tank that focuses on reducing the country’s dependence on oil. This figure, the group claims, shows that oil imports to the U.S. still have a considerable financial and even geopolitical cost.
Spread out over the 19.8 million barrels of oil consumed daily in the U.S. in 2017, SAFE states, the implicit subsidy for all petroleum consumers is approximately $11.25 per barrel of crude oil, or $0.28 per gallon. A more extensive estimate by two highly-regarded economists suggests the costs could be greater than $30 per barrel, or over $0.70 per gallon, the report added.
Politically expedient time release
The disclosure comes at a politically expedient time for President Trump as the president takes to the presidential bully pulpit on Twitter again to complain about the high cost of oil and the cost the U.S. has to pay to defend global oil supplies.
Trump said on Twitter, the same day as the report’s release, “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!”
Trump has long criticized OPEC members, particularly OPEC de-facto leader Saudi Arabia, over higher oil prices and is direct impact on gasoline prices Americans are paying at the pump. Even during his presidential campaign in 2016, then-candidate Trump took Saudi Arabia to task over oil prices and the U.S. military’s role in protecting Saudi oil shipping lanes. He vowed to secure U.S. energy independence from “our foes and the oil cartels,” while also creating “complete American energy independence."
This in turn provoked a harsh response at the time from Saudi Arabia. Related: Canadian Shale Is Hitting The Wall
Saudi oil minister Khalid Al-Falih, also chairman of Aramco, said in an interview at the time that “at his heart President-elect Trump will see the benefits [of Saudi oil imports] and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy.”
“The U.S. is sort of the flag-bearer for capitalism and free markets,” Al-Falih added. “The U.S. continues to be a very important part of a global industry that is interconnected, that is dealing with a fungible commodity which is crude oil. So having equalization through free trade is very healthy for oil,” he said.
Since Trump’s election, however, Saudi-U.S. relations have improved, reaching their highest point in years as both Washington and Riyadh find common ground over their resistance to Iranian meddling in the Middle East and Iran's nuclear development program.
The U.S. and Saudi Arabia are also on the same side in the protracted Syrian civil war and on-going conflict in Yemen against Houthis, an Iran backed military group. However, headwinds for this growing U.S.-Saudi bi-lateral relationship is complicated by Trump’s repeated requests that the Saudis pump even more oil to put downward pressure on oil prices that recently breached $80 per barrel.
However, it remains to be seen just how much oil Saudi Arabia can produce given its now dwindling spare oil capacity. Spare oil production capacity is a closely held Saudi government and Aramco secret and likely will remain that way for the foreseeable future.
Complications from the growing Saudi-Russian energy cooperation, that in effect replaces what the Saudis did for decades, by playing swing producer in global oil markets, also have the potential to cause problems between Washington and Riyadh. Related: Maduro Looks To China For A Bailout
At the end of the day Riyadh might have to choose between its decades’ long alliance with the U.S., still a top procurer of its crude oil and its major military arms supplier and defender - and between Russia, its fledgling but increasingly important energy ally, even if it’s an allegiance based on economic convenience and not mutually shared geopolitical philosophies and ambitions.
The SAFE report also said that reducing oil use in the U.S. transportation sector allows for the possibility of shifting U.S. military priorities toward more critical strategic threats.
“If we reduced our oil consumption by half, [the U.S. military] would act differently,” said ESLC member Admiral Dennis C. Blair, the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command.
General Duncan McNabb, the former commander of the U.S. Transportation Command and also a member of SAFE’s ESLC stated: “If we can reduce our dependence on oil, we could reduce our presence in the Gulf and use the funds for other critical military priorities, like cybersecurity or hypersonic weapons. The same funds could support different security priorities. We would make different choices, that would make us safer and more secure.”
By Tim Daiss for Oilprice.com
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I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets… More