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Op-eds & Essays by , , • September 18, 2019
The United States is on the cusp of becoming a net oil exporter—a stunning turnaround from the country’s obsession with foreign-oil dependence, dating back to the Arab oil embargo of 1973. In response to the massive attack on Saudi Arabia’s oil infrastructure this weekend, U.S. President Donald Trump has trumpeted that America’s new oil abundance cushions the disruption and boosts strategic stocks, arguing that building more oil pipelines will help protect Americans from oil price shocks.
In reality, the attack on Abqaiq, the world’s most critical oil facility, is a stark reminder that the United States is not energy independent, nor can it go it alone when it comes to diplomacy in the world’s most critical oil-producing region. Energy security comes from being more, not less, connected with the rest of the world.
In 2006, the United States imported 60 percent of its oil. As a result of the shale boom, it will be a net exporter of oil annually by next year. Trump administration officials have repeatedly trumpeted that freedom from oil imports means what happens in oil-producing countries in the Persian Gulf no longer matters to the United States, whether it is a supply outage such as this weekend’s or an OPEC production cut.
This weekend’s attack—allegedly conducted by Iran, although claimed by the Yemeni Houthis—belies these claims. In response to the sophisticated attacks on the Abqaiq processing facility, Saudi Arabia shut down nearly 6 million barrels per day of production—the largest oil supply disruption on record. Oil prices soared.
Oil is priced in a global market, so prices in the United States move with the world price whether we import or not. U.S. gasoline prices reflect world oil prices, albeit with a lag. Wholesale gasoline prices spiked when markets opened after the attack. Drivers will soon see the effects when they fill up at the pump.
The fact is, while the United States may not import oil on a net basis, it still imports a vast amount of oil even as it exports oil and petroleum products. U.S. imports of oil from Saudi Arabia have fallen over the past decade, but only modestly, to just below 1 million barrels per day last year.
Congress saw fit over the past several years to sell off roughly half of America’s strategic oil reserves to fund other priorities, based on the misperception that the United States has become energy independent. The resulting price spike at the pump will reveal that decision was short-sighted. A massive, temporary oil supply disruption of this kind is exactly what the Strategic Petroleum Reserve (SPR) was created to mitigate.
The vulnerability of U.S. consumers to global oil price spikes depends not on how much oil the United States imports, but on how much it consumes. The best way to insulate drivers from inevitable oil price shocks is to reduce how much oil we use in the first place. In this light, the Trump administration’s decision to roll back fuel-economy standards is also misguided.
American energy dominance likewise does not mean the United States can retreat from global cooperation. The use of strategic oil reserves, for example, is more effective when done collectively with other nations. The United States created the SPR as part of an agreement among nations in the International Energy Agency to hold strategic oil reserves that could be released in coordination. When Trump tweeted that he had authorized the use of the SPR “if needed,” he thus undermined the potential impact of a stock release by acting unilaterally.
More importantly, the growing instability in the Persian Gulf reflects the Trump administration’s unilateral approach to confronting Iran. Despite Iranian compliance with the nuclear deal it struck with the U.S., China, Russia, and European nations, the Trump administration withdrew from the agreement. It reimposed sanctions on Iran in an effort to negotiate a better agreement that would both make the deal permanent and address other troublesome Iranian behavior beyond its nuclear program. To apply “maximum pressure,” Trump refused to extend waivers that allowed Iran to export any oil at all.
Yet the Trump administration failed to constructively engage with its European partners and others to provide a pathway to negotiation for Iran. With little prospect of a negotiated settlement and facing maximum pressure on its economy at home, it would be not surprising if Iran felt it had no choice but to escalate militarily. The president has proven sensitive to oil prices and their domestic effects. Setting in motion a price increase may therefore be seen by Iranian leaders as the best way of matching the U.S. pressure campaign. As with the attacks on tankers transiting the Persian Gulf earlier this summer, the Iranians have demonstrated that they understand very well the global nature of the oil market.
The United States is once again a world energy superpower. But it is not independent. The oil attacks in Saudi Arabia resulted from a failure of multilateralism and diplomacy. The resulting price spikes at the pump reveal that the United States remains deeply connected to global energy markets, despite its newfound “energy dominance.” The United States is stronger and its energy more secure when it engages with the world.
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Op-eds & Essays by , , • September 18, 2019