Environmentalists, politicians and journalists warn of the dire consequences of US dependence on foreign oil. The United States is accused of running a foreign policy based entirely on petro-centric interests and of fighting wars solely for the purpose of ensuring the free flow of oil at market prices. The US is criticized for its dependence on foreign oil, especially Mideast oil and for tolerating tyrants and despots in the quest for cheap affordable oil. So what is the truth about the US and its nasty little oil habit?

Understanding national security policy

1. Oil is the most critical natural resource of the global capitalist system and the stability of oil exporting regions is a critical US national security interest. This is why France and other industrial nations normally critical of the US are silent with regard to  global oil politics.

2.  US national security policy is based on the concept of stability , not the free      flow of oil at market prices. However –

         a.  Oil prices are very sensitive to instability.

         b.  Capitalism thrives on stability. Stability encourages investment, creates                markets and enhances trade.

         c. Stability normalizes the availability of essential raw materials so               companies and investors will risk capital to build, create, sell, profit and eventually  pay taxes.

Understanding the world oil market

1.  Oil is a commodity of varying qualities ; therefore the source that supplies the       highest quality (a characteristic that makes it easier to crack and turn into high quality       distillates) will command the highest prices (we capitalists love that). Oil supplies of       equal quality are priced based on several simple concepts - first, supply and       demand (over production lowers prices); second, OPEC; and third risk (i.e.       stability).

2.   Oil is in huge supply , however; high quality crude oil that is easy to extract and       deliver is not. Middle East oil is very high quality (sweet), they have lots of it and it is       easy to extract and deliver. In fact many wells in Iraq, Saudi Arabia and Kuwait do not       require pumps – the oil shoots out at high pressure. Wells in Texas and the North Sea       require expensive methods (water injection) or infrastructure (oil well platforms floating       in rough seas) to get at the “sweet” crude. Oil fields in the former Soviet Republics lie on       the wrong side of major mountain ranges, complicating delivery.

3.   The US produces huge amounts of oil and could produce more except for one       interesting fact - it is cheaper to buy oil outside the US than to exploit all of our more       difficult to extract domestic sources.

4.   OPEC (The Organization of Oil Producing and Exporting Countries) is a       consortium of nine nations , only five of which are located in the Middle East. Those       five are: Iraq, Kuwait, Qatar, Saudi Arabia and United Arab Emirates. The remaining four       OPEC nations are: Algeria, Indonesia, Nigeria and Venezuela.

5.   OPEC was founded by Venezuela (I didn't know that!) as a way to calm the volatile       market price fluctuations of oil while simultaneously ensuring a profit for its members.       The market sets oil prices; prices are moved by fluctuations in supply, demand and       perceptions of risk.

6.  OPEC tries to leverage supply to control the market price of oil by setting       production quotas for its members. Many times OPEC members do not follow the       quotas that are set.

7.  US national security policy works to increase regional stability, this       mitigates oil supply risk.

Understanding US foreign oil dependence

Popular Mythology - the United States imports the lion's share of its oil from the Arab Middle East or Persian Gulf.

• In 2002 the US imported a grand total of 3.32 billion barrels of crude oil, roughly half of what we use .
  
      • 1.5 billion barrels (45%) came from OPEC nations and 1.9 billion barrels (55%)        came from non-OPEC nations like Canada, Mexico, UK,  Norway, Angola,        Colombia, Gabon and Ecuador.
  
      • Only 803 million barrels or 24% of our foreign oil came from the  Persia  Gulf
  
      •  US exposure to Mideast and/or Persian Gulf oil supply risk is actually only 12% of         US oil consumption.
  
• Which nations are the top suppliers of oil to the US?
  
     • In calendar year 2001 the top four foreign sources of crude oil were:
  
      1.  Saudi Arabia – OPEC
            (694 million barrels)
  
      2.  Canada – Non OPEC
            (548 million barrels) Tie
  
      3.  Mexico – Non OPEC
           (548 million barrels) Tie
  
      4.  Venezuela – OPEC
            (475 million barrels)

• In 2002 the top four foreign sources of crude oil were:
  
  1.  Saudi Arabia – OPEC
        (548 million barrels) Tie
  
  2.  Mexico - Non OPEC
        (548 million barrels) Tie
  
  3.  Canada - Non OPEC
        (527 million barrels)
  
  4.  Venezuela – OPEC
        (438 million barrels)
  
  
  

Analysis:

1. The United States effectively hedges its oil supply risk.

• More than 75% of US oil imports come from geographic areas outside the Persian Gulf.

• More than 55% of US imported oil comes from non-OPEC sources.

        2.  The US is more dependent on Western Hemisphere oil sources than               Middle East sources.

        3.  Instability in the Middle East creates fear of oil supply interruptions.

• Fear causes increases in spot oil prices.

         4.  US national security policy focuses on creating and preserving regional                stability.

                       •  Stability fuels trade and capital markets and mitigates oil supply risk.

         5. Oil markets have adapted to the new global security environment so               quickly  that oil prices were stable or slightly lower during the Iraq war.

          6. US oil risk hedging continues to focus on oil sources less at risk for                 political disruption and supply interdiction.

• The first oil imports from Russia and the former Russian republics arrived in Houston in March 2003.

• US is expanding oil importing from Brazil, Canada, Colombia, Ecuador, Mexico, and Venezuela.

Note: All data derived from US Department of Energy, Energy Information Administration, Petroleum Supply Annual 2001, 2002.