Breaking News

U.S. — and rest of world — still dependent on Mideast oil

Updated: 2013-09-17T16:16:22Z

By STEVE EVERLY

The Kansas City Star

The Arab oil embargo in 1973 slammed the economy, and officials vowed to slash imports — especially the 5 percent of the U.S. oil supply that came from Persian Gulf countries.

Forty years later, after a recent run of growing domestic oil production and dropping petroleum consumption, the share of the U.S. oil supply coming from the Persian Gulf is 12 percent.

After the embargo crisis in the ’70s, the U.S. did cut its Persian Gulf imports — for a few years. But after 1985 the U.S. didn’t resist the lure of cheap oil from Saudi Arabia and other producers in that region. And much of our recent rise in oil production has gone to offset reduced imports from countries outside of the Middle East, such as Mexico.

Meanwhile, other countries including China are even more dependent on Persian Gulf oil than the United States is. So any substantial disruption of Mideast oil supplies would send oil prices soaring, and even the threat of disruption can cause temporary spikes.

“The Middle East still matters, not only for us but the rest of the world,” said James Williams, an analyst for WTRG Economics, which tracks the energy markets.

The recent threat of a military strike against Syria provided the latest example. Oil prices rose when the U.S. was considering a strike, and then retreated as a proposal emerged to negotiate removal of Syria’s chemical weapons instead.

And prices moved even though Syria in recent years hasn’t been much of an oil exporter, especially since its civil war has caused production to be slashed. That’s because, as this map shows, it isn’t hard to imagine a conflict in one country spreading to neighboring nations.

Iraq and Turkey are Syria’s neighbors, for example, and a vulnerable oil pipeline runs through both of those countries. Iraq is also a significant oil producer.

And the stakes rise the deeper you get into the Middle East and closer to the Persian Gulf. That region accounts for about a quarter of the world’s production and most of that comes from countries bordering the Persian Gulf. Saudi Arabia, Kuwait and the United Arab Emirates are among the world’s top five oil producers.

Besides being the world’s largest oil producer and exporter, Saudi Arabia is home to practically all the world’s surplus oil-production capacity.

A serious disruption of oil from Saudi Arabia would have dire consequences.

“If that happens then we get $200 (a barrel) oil,” said Williams, and that would mean $6 a gallon gasoline.

How could it happen?

In a region known for unrest, the worst-case scenario sees armed conflict challenging multiple governments. Already, the upheaval in Egypt has caused some concerns about transport through the Suez Canal and that country’s main pipeline. And rebel activity in Libya has cut that country’s production — 1.4 million barrels a day in 2012 — to less than half of that this year.

But the biggest choke point in region is the Strait of Hormuz, which controls the movement of most Persian Gulf oil, including Saudi Arabia’s. That runs right by Iran, which during other tense times has threatened to close the strait. A few pipelines could transport some oil from the region, but closing the strait still would cause a major disruption.

And even if the U.S. could get all the oil it needed from other sources, a disruption in Middle East supplies still would be felt here in much higher prices.

Of course, there are benefits to greater energy independence, including less vulnerability to supply disruptions and an economy that would be less damaged by soaring oil prices. Indeed, the U.S. has reduced its reliance on imported petroleum from just over 60 percent of its consumption in 2005 to 40 percent last year. And much of what’s imported comes from the Western Hemisphere, mainly Canada, Mexico and Venezuela.

But despite all that, the U.S. still relies on the Persian Gulf for 28 percent of its imports … and 12 percent of all the oil it uses.

To reach Steve Everly, call 816-234-4455 or send email to severly@kcstar.com.

Deal Saver Subscribe today!

Comments

The Kansas City Star is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Kansas City Star uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here