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Tim Daiss

Tim Daiss

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…

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How Much Does The U.S. Spend On Defending Global Oil Supplies?

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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  • Lee James on September 25 2018 said:
    Good to have some numbers on what it cost per barrel or gallon to keep sea lanes open to tankers. The cost is similar to our gas tax for road maintenance and new construction.

    And it's interesting to hear that our military is concerned about how our forces become, in effect, dumbed down by sea lane duty. It's obvious that our adversaries have developed new armaments and force projection at a startling rate. Are we keeping up? How much longer will be stuck in the sand as chief keeper of the fossils? It's time to seriously move away from fossil fuel dependency.

    The article mentions the complex relationship of Saudi Arabia and Russia. Personally, I have trouble seeing how those two countries can cooperate on too very much. Same thing for Israel and the RF. In the case of Israel, Russia just cleared the air by promising Syria advanced SAMs and electronically closing off areas of the Mediterranean to aircraft.

    Putin aims to gather the dark-side authoritarian countries against the chaotic, liberal world. He's now put together quite an array of seriously angry authoritarian leaders.

    Russia doesn't need Syria for its 30% surviving infrastructure. Control of the Mid-East oil supply is likely the goal.

    All of this means that we need to make doubly sure that we are dependent on the right mix of energy resources. Secondly, our own government leaders need to have a lot more integrity and savvy as they face off against a growing authoritarian cadre. The threat is building.
  • Mamdouh G Salameh on September 25 2018 said:
    The claim by President Trump that the United States protects the oil-producing countries of the Arab Gulf is a brazen and crude attempt of blackmailing these countries and getting US hand on their money. The only threat facing these countries is Israel which is provided with money and the most sophisticated weaponry by the United States to maintain its threat and military ascendancy in the Middle East. America and Israel are one and the same and they pose the most serious threat to countries of the Middle East.

    Another discredited claim is that the US is protecting the global oil supplies and global sea shipping lanes. The US has its Central Command based in Qatar to ensure that it controls global oil supplies because whoever controls these supplies and oil’s shipping lanes and chokepoints controls the global economy.

    I will cite three examples of how the United States has been ogling Middle East oil. One example is the invasion of Iraq in 2003. This invasion was undoubtedly about oil (Mamdouh G Salameh’s “Over a Barrel”, page 191). Even the veteran ex-chairman of the US Federal Bank Alan Greenspan has admitted that the Iraq war was largely about oil (Alan Greenspan’s “The Age of Turbulence, page 463). While the US won the military battles, it lost the war. The real winners were China and Iran.

    Another example is the emergence of the petrodollar. The petrodollar came into existence in 1973 in the wake of the collapse of the international gold standard. Former president Richard Nixon and his then foreign secretary Henry Kissinger understood that the collapse of the gold standard system would cause a decline in the global demand for the US dollar. So the United States under Nixon forced a deal in 1973 on Saudi Arabia under which the Saudis would agree to price all of their oil exports in US dollars exclusively and be open to investing their surplus oil proceeds in US debt securities. In exchange, the United States offered weapons and protection of Saudi oilfields from neighbouring countries.

    The petrodollar system provides at least three immediate benefits to the United States. It increases global demand for US dollars. It also increases global demand for US debt securities and it gives the United States the ability to buy oil with a currency it can print at will. In geopolitical terms, the petrodollar lends vast economic and political power to the United States. Maintaining the petrodollar is America’s primary goal. Everything else is secondary.

    A third example is the control of the world’s major oil chokepoints. In any future conflict between the United States and China, the US will try to starve China of oil. Most of China’s oil imports come from the Middle East. China’s oil imports will have to pass through two major chokepoints: The Straits of Hormuz and Malacca.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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