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Blog

    Oil Supply

    04/22/2008

    Whether or not the U.S. should seek the long-term goal of becoming "energy independent" is an open question. But what's germane to our current political situation is whether or not we can.  And right now, the answer is: We can't. At World Politics Review, Peter Kiernan explains. You should read the whole thing, but here are a couple of sharp passages.

    The U.S. is actually less dependent on Middle East producers for imported oil than the major oil-consuming economies of Europe and Japan. Among the major suppliers of imported oil to the U.S. are the Western Hemisphere producers of Canada, Mexico, and Venezuela. Nigeria and Angola are also major suppliers. In 2007, the Persian Gulf supplied about 21 percent of total U.S. oil imports, of which about three-quarters came from Saudi Arabia, while some came from Iraq and a small amount from Kuwait. By contrast, the Persian Gulf supplies about 83 percent of Japan's oil imports, about half of China's, and 27 percent of OECD Europe's. The United States is therefore not as dependent on Middle East producers for its oil as is sometimes implied.

    ...The U.S. is the world's largest oil market. It consumes 20.7 million barrels per day (b/d), or nearly one in four barrels of oil consumed in the world every day. Politicians and pundits have been calling for American energy independence for more than 30 years, but in that time imports have increased their share of the U.S. oil market from 28 percent in the early 1970s to about 60 percent today. A dramatic short- to medium-term reversal in the steadily rising oil import share of U.S. oil consumption would require some pretty drastic measures (such as steeper increases in fuel economy standards and higher fuel taxes) that few politicians have the political will to advocate.

    ...The global oil market is not problem-free, but it should be recognized that even if the U.S. did not import a single barrel of crude oil from a foreign supplier, the fungible nature of the global oil market means that the United States cannot insulate itself from global oil market fundamentals or from geopolitical developments in oil-producing regions. An attack on an oil export terminal in Saudi Arabia would drive up the price of oil in the United States, and eventually gasoline prices, even if the U.S. didn't import any oil from that country.

    That's not to say we shouldn't make every effort to expand domestic supply -- more access to less expensive oil is a good thing; it eases the burden of energy costs on consumers and  businesses, increases overall energy output capacity, and, in general, helps the economy stay afloat.  But the notion that we can simply pass a few laws and never have to be concerned with foreign oil supply again is fanciful at best, and ought to be put to rest.