February 2, 2006

Oil: America's Smack

Another pop quiz, hotshot! Name the number one oil importer to the United States.

Saudi Arabia? Guess again. It's Canada. In fact, Saudi Arabia comes in third, after Mexico. Yes, you may have thought that the Middle East provided the United States with most of its oil, but that's not true either. In 2004, Persian Gulf countries (defined by the US Department of Energy as consisting of Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates) only provided 2,400 thousand barrels of oil per day (tbpd) or 23.80% of the 10,084 tbpd total imported. If you expand the list to include other Middle Eastern countries not located in the Persian Gulf (e.g., Algeria, Libya, Syria, etc.), the total goes up to a mere 2,648 tbpd or 26.26% of the total. Finally, if you expand the list to include all Muslim-majority countries around the world (e.g., Brunei, Indonesia, Malaysia, etc.), the quantity is 3,793 tbpd or 37.61% of the total. In other words, only a little over 1/3 of America's oil imports come from Muslim countries.

“America is addicted to oil, which is often imported from unstable parts of the world,” Mr Bush said in his State of the Union address. “By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past.” (Source: Financial Times)

I agree that America is addicted to oil. There's no question about that. And I have no problem with the Bush administration trying to move beyond a petroleum-based economy through "talent and technology." There's nothing wrong with that either.

But saying that the Bush administration's goal is to cut American consumption of Middle Eastern oil by 75% by 2025 is merely a smokescreen for the ignorant. There's nothing wrong with the goal per se, but the goal won't make any real dent in America's oil addiction. If the Bush administration really wanted to cut out 75% of Middle Eastern oil, they could do so now by stopping the importation of Saudi Arabian and Iraqi oil. Those two countries, in 2004, accounted for 2,150 tbpd out of the Middle East's total of 2,648 tbpd, or 85.08% of the Middle East's total. Boom! You've not only gone past the 75% mark, but cut an additional 10% beyond that.

But like any junkie, America will move from one supplier to another. Instead of Saudi Arabia and Iraq, the US will probably move on to one of the other big producers (if they can): Canada (1,616 tbpd or 16.03%), Mexico (1,598 tbpd or 15.85%) or Nigeria (1,078 tbpd or 10.69%). (Venezuela is the only other large importer, sending 1,297 tbpd or 12.86%, but - obviously - recent relations with that country's government would nix that idea.)

A better suggestion by the President would have been to cut overall oil imports into the country by, say, 25%. Instead of importing 10,084 tbpd, how about dropping the number by 2,521 tbpd to 7,563 tbpd? That would not only be equivalent to stopping all imports from the Middle East, but would also provide real incentives to car and oil companies to find a meaningful solution to America's oil addiction.

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In the meantime, the President's speech ignores reality. As he said, oil is "often imported from unstable parts of the world." And, of course, we're supposed to infer that the "unstable parts" include the Middle East and Venezuela. But even if the US imported oil from "stable parts of the world," that oil in the "unstable parts" will still be sought out by other countries. All of the world is "addicted" to oil, not just the United States. If the US stopped importing Saudi Arabian and Iraqi oil, as I suggested above, other countries (e.g., China, the European Union, Japan, etc.) would gladly pick up the slack. The oil is not going to go away. Moreover, as Frank Verrastro, director and senior fellow in the Center for Strategic and International Studies energy program said, “Even if America doesn’t import a drop of Middle Eastern oil, these countries will still play an increasingly important role in determining how much we pay for oil. You pay the global price and it doesn’t matter where you buy it from.”

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Other reactions to Bush's speech included:

Myron Ebell, director at the Competitive Enterprise Institute, a conservative think-tank: “The president’s hackneyed and dangerous energy rhetoric that we are addicted to oil is an indication that the administration is addicted to confused thinking about energy policies. [His goals] will be hindrances to creating a bright energy future for American consumers.”

Jim Footner of Greenpeace: “We’ll wait and see what concrete action [Mr Bush] takes before getting our hopes up. After all, there is a treaty to reduce America’s dependence on oil – it’s called Kyoto, and Bush walked away from it.”

Bill Prindle, the deputy director of the American Council for an Energy-Efficient Economy: "The administration has made much of its investment in energy efficient technology. However, much of this has been a reallocation of research funds. The budget requests from the White House for funding on energy efficiency has actually fallen 14 per cent in real terms since 2002."


teliung said...

Bush/US Govt will certainly not be labeling Canada an axis-of-evil even with all those oil coz it is a Christian country. The raping and plundering of oil under the masquerade of "democratization/
stablizing" of a target nation is justified by the non-muslim western nations led by self-elected USA only when the countries are muslims or are not pro-US, such is the case with Iraq, Iran and Venezuela.

Steve said...

Very insightful commentary.

I might add that oil exists on a world market, however the price of oil is virtually dictated by the oil cartels of the Middle East (OPEC). So while only a third of America's oil imports come the Middle East, the price of the other 2/3 is determined by fluxuations in the supply visavie output in the Gulf. In other words, oil is a commodity, so you cannot look at its import status without understanding its relationship to global prices and those prices to the American economy.

Moreover, the relationship between oil and the American economy will never totally diminish, especially if one consider's that our oil dependent trading partners would need to factor in transportation and other transaction costs rooted in oil into the price of their goods, which would then be imported into America.

Oil is a complex issue, and the President needs to say these things for political expediency, but in reality, anyone who has studied the oil industry will tell you that there are no short term solutions, and to be honest, not a whole lot of long term ones that everyone has agreed upon.s