- In August, Saudi Arabia and two other Gulf producers met a near-record 17.1% of world oil demand.
- For the US the question is whether Gulf producers have enough spare capacity to keep pumping at high levels.
- Should a serious cutoff in oil production occur, the price of gas et al could skyrocket in the US.
- Saudi Arabia is already the single largest supplier to many of the largest importing countries.
- So it's time to pay attention, again, to the importance of having a balanced mix of energy sources.
Turmoil brought on by the Syrian government's chemical weapons attack on civilians has distracted the Obama administration and Congress from something else in the Middle East that cannot be ignored: the world's growing dependence on Persian Gulf oil.
In spite of the boom in U.S. oil-shale production, the world has become more reliant on a handful of Gulf oil producers whose resources are more stretched than at any time since the 1970s. So it's no surprise that the price of crude oil is above $100 a barrel, and that the average price of gasoline in the United States has exceeded $3 a gallon for the past 1,000 consecutive days.
In August, according to the International Energy Agency, Saudi Arabia and two other Gulf producers met a near-record 17.1% of world oil demand.
For the U.S., which is still the world's largest oil importer, the question is whether Gulf producers have enough spare capacity to keep pumping at high levels — or raise production to compensate for losses elsewhere in the event of a sudden disruption like the one that occurred in 2005 as a result of Hurricane Katrina in the Gulf of Mexico.
Sky-High Gas Prices
Should a serious cutoff in oil production occur anywhere in the world, the price of gasoline and other petroleum products could skyrocket in the U.S.
Saudi Arabia is already the single largest supplier to many of the largest importing countries like China and Japan, bringing on new production to replace declining supplies from Libya, Iran and Venezuela.
In fact, Saudi Arabia is now taking in more than $1 billion a day in oil export revenues.
For the United States, the very important task of crafting a sensible and viable energy policy — one that ramps up oil and gas production — cannot be ignored. Without decisive action to open up new areas to drilling for oil and gas, both on land and offshore, there is a real danger that the drive to achieve energy security will be stopped in its tracks and serious harm could be done to our economy.
So it's time to pay attention — again — to the importance of having a balanced mix of energy sources. Time to recognize that clean-coal technologies and nuclear power help to power our economy. Time to remember that the availability of reliable and affordable energy is crucial to U.S. manufacturing and the creation of jobs.
How Fast, How Cheap?
The issue is not a choice between oil and gas and alternatives but, rather, what combination can be ramped up the fastest at the lowest possible cost using available technology.
It's clearly time for the administration to recognize the urgency, to stop the delaying and rationalizing. While the U.S. oil and gas industry has increased domestic production significantly over the past five years, the administration has watched from the sidelines, as if energy independence is just around the corner.
Instead, it should permit hydraulic fracturing for oil and gas on public land, opening up offshore areas in the Atlantic and eastern Gulf of Mexico to exploratory drilling, approve the Keystone XL pipeline and stop calling for additional taxes on the oil and gas industry.
Keep in mind that the U.S. currently consumes 19 million barrels of oil a day, of which about 10 million barrels are imported. And oil demand is projected to grow through 2020 and beyond.
The consequences of a sudden run-up in world oil prices are significant. One can only hope that the tightness in the global oil market will ease. If we want to avoid being held hostage to high world oil prices, we need to shift our focus away from the Persian Gulf and develop more reliable energy sources here at home.
Perry is a resident scholar at the American Enterprise Institute and a professor of economics at the Flint campus of the University of Michigan.