Petroleum Insecurity: America's
by John Howley, energy policy
and Ned Stowe, FCNL Senior Legislative Secretary
Friends Committee on National
Legislation, June 2004
Our nation's economic well-being today
depends on maintaining secure access to petroleum supplies at
stable prices. If domestic oil production continues to decline
and demand continues to grow, the U.S. increasingly will have
to look for foreign oil to meet its needs.
Two-thirds of the world's remaining oil
reserves are in the politically volatile Middle East where wars
have already been fought over the control of oil, where the U.S.
is currently occupying by force the country with the second largest
proven reserves, and where U.S. foreign and military policies
increasingly are condemned. The vast majority of proven oil reserves
around the world are controlled by authoritarian, undemocratic
governments with poor records of advancing human rights or human
development for their citizens.
Within these trends are the seeds for
further violence and suffering. Today, we in the U.S. face a choice:
continue to increase our dependence on imported oil using any
means necessary to secure access to it, including war and threats
of war, or, undertake a sustained, national mobilization to free
us from oil dependence by reducing consumption and investing in
energy efficiency, renewable fuels, and public and alternative
By reducing our reliance on petroleum,
and helping other countries (both the oil-rich and the oilpoor)
do the same, we can make our country safer, our economy stronger,
and our world less vulnerable to economic crises and war.
Petroleum and Economic Security
Petroleum is not just another form of
energy. The economic prosperity which the U.S. has enjoyed for
the past half century was created in large part thanks to cheap
oil. Naturally occurring and abundant (for now), relatively easy
to store and transport, oil packs a lot of energy per pound. This
makes it especially valuable for transportation. Without it, food
would not be delivered to stores, most people could not get to
work, and most of the transportation system would shut down. Petroleum
products also heat many homes and businesses, provide the raw
material for many manufactured products, and fuel the generation
U.S. reliance on imported oil has grown
as fast as politicians' promises of "energy independence."
The U.S. is the world's largest economy and biggest consumer of
petroleum-25 percent of world consumption. Oil is the dominant
fuel in the U.S. energy market, meeting almost 40 percent of total
U.S. energy needs. Currently, the U.S. consumes more than 20 million
barrels per day (mb/d). By 2025, if nothing changes, the U.S.
will be consuming more than 28 mb/d.
Transportation (personal cars and trucks,
freight hauling, airlines, shipping, and railroads) is responsible
for the largest portion of U.S. oil consumption by far, and it
is the fastest growing sector in terms of oil consumption.
In 1998, for the first time, the U.S.
imported more than half of its oil needs, and, by 2003, the U.S.
imported more than 56 percent. U.S. domestic oil production has
been declining since its peak in 1970 while total U.S. oil consumption
has been increasing steadily since the mid-1980s. By 2025, if
these trends continue, the U.S. will need to import more than
70 percent of its needs.
Oil imports are not cheap. World crude
oil prices are at their highest level in more than twenty years,
up more than 50 percent since 2003 when the Iraq war began. In
March 2004, the U.S. spent $13.8 billion on oil imports, amounting
to 30 percent of the trade deficit for that month. If U.S. oil
imports continue at this rate and price for a full year, the U.S.
could spend more than $165 billion on oil imports.
Dependence on imported oil is very risky.
The flow of oil from oil-producing countries to oil-consuming
countries can be disrupted by weather, accidents, transportation
breakdowns or shortages, manipulation by cartels, unanticipated
increases in demand, labor strikes, social unrest, sabotage, and
war. When shortages occur, the price goes up. If we were talking
about pistachios or broccoli, consumers would simply buy something
else to eat and the national economy would be unaffected by shortages
and price spikes. However, because we cannot easily stop using
petroleum in the short-term, our economy remains vulnerable to
the inflation, unemployment, and economic insecurity that a volatile,
uncertain global oil market can cause.
Oil and the U.S. Military
From Britain's successful gamble to convert
its navy from coal to oil on the eve of World War I to Hitler's
failed invasion of the Caucasus and Japan's invasion of the South
Pacific in World War 11, petroleum has been both the object of
and the key to successful military conquests. Similarly today,
securing global oil supplies is a key objective of U * S * foreign
and military policies, and maintaining ample oil supplies gives
the U.S. government the capacity to assert its interests around
the world through military force when it so chooses.
Today, troops, tanks, combat aircraft,
transport ships and most battle ships cannot move without oil.
In peace time, the U.S. military, the largest oilconsuming organization
in the world, consumes about 110 million barrels of petroleum
products each year (more than one percent of total U.S. consumption).
In war, the U.S. military consumes far more fuel. The Abrams MIA
tank consumes on average one gallon of fuel for every six-tenths
of a mile it travels. The fuel-efficiency of combat aircraft is
much worse. No military commander wants to limit the intensity,
scale, or duration of military operations because of a lack of
fuel, and the U.S. military has gone to great lengths to make
sure this never happens.
For decades now, the U.S. government has
charged its military planners with developing and implementing
strategies to ensure access to foreign oil supplies. For the military
today, this is no small challenge, as most of the remaining proven
oil reserves are to be found in the strife-torn Middle East.
The strategic challenge is compounded
further by the physical vulnerability of the petroleum production,
transport, and storage systems. Highways, seagoing tankers, storage
tanks, long pipelines across international frontiers, and remote
production facilities are highly vulnerable to attack by determined
adversaries. For example, Middle
East expert Robert Baer observes, "The
most vulnerable point and the most spectacular target in the Saudi
oil system is the Abqaiq complex... For the first two months after
a moderate to severe attack on Abqaiq, production there would
slow from an average of 6.8 million barrels a day to I million
barrels, a loss equivalent to one third of America's daily consumption
of crude oil.
For decades, U.S. taxpayers have been
paying a high price to protect the flow of oil from the Persian
Gulf and other oil-rich regions. Although the Pentagon does not
provide specific information about the military cost of protecting
Persian Gulf oil, estimates range from 25 cents to $1 per gallon
of oil exported from that region.
Now, with the war in Iraq, which sits
atop the second largest proven oil reserves in the world, the
military cost and challenge of securing oil in the region-measured
in both blood and treasure-has skyrocketed. Anthony Cordesman,
a leading Middle East security expert, believes continuing the
present U.S. military strategy in the Middle East will require
doubling the U.S. military budget from $400 billion to $800 billion
Global Oil Demand Is Growing. Will Supplies
All totaled, today, the world is consuming
a little more than 80 mb/d (29 billion barrels per year). By 2025,
global demand is expected to grow by more than 50 percent to 121
mb/d (44 billion barrels per year). Increasing demand in the U.S.
and in China and other developing countries in Asia are expected
to account for 60 percent of the growth in demand through 2025.
Where will the additional 40 mb/d come from?
It is uncertain that enough new oil will
be discovered to meet this demand. Although the U.S. Geological
Survey, the U.S. Department of Energy, and the oil industry express
confidence that about 3 trillion barrels of oil remain to be exploited
around the world, of which about one-third are counted as "proven"
reserves at today's prices, skeptics point out that production
at most major oil fields has already peaked or soon will. Many
new huge discoveries-each on the order of several billions of
barrels-will be needed just. to. replace declining production
from aging fields, let alone to meet increased demand. Skeptics
observe that there have been few discoveries of this magnitude
in recent decades. Many predict a peak in world oil production
sometime between 2010 and 2020.9 Oil: A Future Source of Conflict
With the accelerating infusion of foreign
capital and technology, growing foreign reserves, and a large
surplus of labor, China is fast becoming a major industrial power.
Its economy grew by more than nine percent in 2003, and is expected
to become the third largest in the world by 2015. Auto sales and
highway construction are growing at an astounding rate; 2 million
new cars were sold last year, up 75 percent over 2002.10 Demand
for electricity has exceeded supply in many new industrial areas,
leading to blackouts and a subsequent rapid rise in purchases
of diesel-fueled generators. As a consequence, China's demand
for oil grew by 11.4 percent to 5.5 mb/d in 2003, and it surpassed
Japan to become the world's second largest oil consumer after
the U.S. China is on track to exceed 6.0 mb/d in 2004.
China is not only an emerging economic
competitor to the U.S. With the collapse of the Soviet Union,
only China has the potential to become a military rival of the
U.S. With its growing technological capacity, large population,
and rapid industrial growth, China eventually will have the potential
to assert its power militarily in East Asia and to challenge U.S.
military dominance there, if it chooses to do so.
However, China has an "Achilles'
heel": it does not have the large petroleum reserves it needs
to fuel its rising economic power. In 2003, China imported 35
percent of its petroleum needs; by 2025, China's overall demand
for oil is expected to almost double, and it will need to import
more than three-fourths of its needs (8.6 mb/d)
Like the U.S., China is looking to the
Middle East for its future supply while also scouring the world
from Africa to the Caspian Basin to Russia. However, China's dependence
on imported oil will leave it strategically vulnerable in a military
confrontation with the U.S.-a fact that is likely of key interest
for military planners in both countries. The U.S. military currently
dominates the sea lanes and skies.
For Oil-Dependent Countries, All Roads
Lead Back to the Persian Gulf
The Financial Times reports that "Oil
executives accept that few big finds remain to be made and that
the future will be increasingly dictated by the leaders in the
Middle East, who maintain a tight grip on most of the world's
yet-to-be-exploited fields. Meanwhile the trusted old reserves
of the U.S. Gulf, Alaska and the North Sea are showing signs of
age." About 60 percent of the world's remaining proven oil
reserves are controlled by Persian Gulf governments, and, of these,
Saudi Arabia controls the most by far. Not only is most of the
world's remaining known oil found here, but the oil is also the
cheapest in the world to produce.
Based on projections of growing oil demand
in the U.S. and around the world, the Energy Information Agency
(EIA) projects that oil production in Persian
Gulf countries will need to more than
double by 2025, as will U.S. oil imports from the region. OPEC's
share of total world oil exports will need to increase from 44
percent in 2001 to more than 60 percent in 2025.
This large increase in output will not
be possible without significant new investment in the oil production
capacities in the region. Since the 1970s, when oil production
was nationalized throughout the region, many of the governments
there decided not to invest significantly in expanding their production
capacity, spending the oil revenues instead on military hardware,
public works, social programs, or the personal enrichment of the
ruling families. As a consequence, the region's output can be
doubled only if there is a significant infusion of foreign capital
and expertise--mainly from U.S., European, Russian, or Chinese
Will the Persian Gulf and OPEC regimes
cooperate? They have their own interests to pursue, which may
not coincide with the interests of oil-importing countries. They
are interested in keeping supplies tight and prices high-though
not so high that people stop consuming their oil. They are not
interested in expanding their capacity too quickly.
What will they do with their oil revenues?
Most are relatively closed and highly controlled societies. Many
of the regimes are undemocratic and oppressive. Often they have
used their oil revenues to buy weapons to threaten or intimidate
their neighbors, and, in the past, Libya, Iran, and Iraq have
pursued the development of weapons of mass destruction. They disagree
strongly with U.S. policies in the Israeli-Palestinian conflict
and in Iraq.
What do the people on the "Arab street"
think? Popular sentiment in the region is becoming increasingly
bitter against both the ruling regimes and U.S. foreign policies
in the region. Human rights and prodemocracy activists decry the
oppressive, undemocratic regimes which have been empowered by
oil money from the U.S. and the West. Meanwhile, violent extremist
groups such as al Qaeda have found fertile ground for recruitment
and have tapped into widespread social discontent. They are angered
by what they see as a morally corrupt, historic collusion between
the ruling regimes and Western powers, fueled by oil money.
As a consequence, the interests of the
oilconsuming countries and Middle East oil-producers could diverge
sharply, and, as the U.S. and the rest of the world learned in
the 1970s and the 1980s, the oil spigot can be constricted or
even turned off with devastating economic effects by either the
coordinated action of hostile governments or by regional war.
This could happen again for any of a variety of reasons.
Progress to Reduce Oil Dependence Stalled
Although it still uses much more oil than
others, the U.S. is nonetheless much less oil dependent than it
was three decades ago. As a result of the oil shocks of the 1970s
when producers in the Persian Gulf cut the supply of oil and the
price skyrocketed, the U.S. has made great progress in using oil
more efficiently The economic recession that resulted from the
price shocks reduced oil consumption throughout the economy Homeowners
and landlords switched from oil to gas heat. Manufacturers and
utilities cut back on burning petroleum to run factories and generate
electricity Congress ordered domestic auto manufacturers to dramatically
increase the fuel efficiency of cars they produced via corporate
average fuel efficiency (CAFE) standards. It also lowered highway
speed limits to 55 miles per hour. And, the economy shifted from
energy-intensive manufacturing to less energy-intensive services.
As a result, from 1977 to 1985, the fuel
efficiency of new cars increased 40 percent, U.S. oil consumption
declined by 17 percent, and oil imports were cut in half, while
the economy grew 27 percent. The "petroleum intensity"
of the U.S. economy, or the ratio of the amount of oil consumed
per unit of gross domestic product (GDP), has continued to decline
steadily since then.
However, when oil prices fell in the late
1980s and 1990s, Congress dropped the ball. Federal gasoline taxes
remained relatively low, and CAFE standards stayed frozen at 1985
levels. Further, CAFE standards had a loophole: light trucks,
then a small part of the vehicle market, were allowed much lower
fuel efficiency standards. Soon, relatively cheap gas prices and
massive advertising by automakers encouraged consumers to buy
big, gas-guzzling trucks, vans, and off-road vehicles to drive
to work or pick up groceries. The Sports Utility Vehicle (SUV)
was born-overweight and inefficient but cheap to build and extremely
profitable. Light trucks (SUVs, pickup trucks, and minivans) now
account for more than half of new vehicles sold. Meanwhile, most
other industrial countries moved to lock in their improvements
in petroleum efficiency by increasing automotive fuel taxes. Drivers
in the United Kingdom, for example, now pay more than $3 equivalent
in taxes per gallon compared to an average tax of less than 40
cents per gallon in the U.S. As a result, today, far more people
in Europe and Japan rely on public and alternative transportation
(walking and biking) for their daily transportation needs; public
transportation systems are far superior to those in the U.S.;
and cars and trucks are much more fuel efficient.
Today, the U.S. economy remains much less
energy efficient overall than the economies of Japan and Western
Europe, in large part because of these different policy approaches.
On average it takes about one-third more energy to produce a unit
of GDP in the U.S. today than it does in Europe or Japan. 19
Bush Administration "s Oil Strategy
To insulate our economy against future
oil price shocks, the Bush Administration has pursued a "supply-side"
strategy to increase oil production domestically and strengthen
relations with nonOPEC oil-producing countries abroad. If U.S.
sources of supply were diversified and non-OPEC production were
increased, then OPEC's power to control world oil prices would
be weakened. This approach underlies the National Energy Policy
issued by the Bush Administration in May 2001.20 Domestically,
the plan would encourage more drilling for gas and oil on public
lands and off-shore by providing tax and royalty incentives, subsidies,
and environmental regulatory relief. This would include opening
the Arctic National Wildlife Refuge (ANWR) in Alaska to oil and
gas exploration. The Administration believes new technologies,
which have lowered the cost of both developing new reserves and
getting more oil out of old reserves, will help stimulate domestic
production and temporarily halt the decline of U.S. oil production.
Overseas, it is no coincidence that the
main "theaters" of military operations in the U.S. "war
on terror" and the war in Iraq are in the oil-rich Persian
Gulf region or nearby. The U.S. government first began covertly
funding and training Islamist extremists in the region in the
1980s to resist the Soviet occupation of Afghanistan, which the
U.S. government perceived to be a threat to Persian Gulf oil reserves.
A decade later, many of these same extremists formed al Qaeda
which arose in reaction to U.S. and Western ties to regimes in
oil-rich countries in the region.
Iraq, of course, sits atop 115 billion
barrels of proven reserves, the second largest in the world. Regardless
of the official stated purpose of the U.S. invasion of Iraq, the
U.S. government clearly did not want Saddam Hussein to continue
controlling so much oil wealth.
To support these and future military operations,
the U.S. has strengthened military ties (e.g. provided military
aid and training, deployed troops, established bases, sold weapons,
or negotiated security agreements) in countries throughout the
region and nearby, including Afghanistan, Bahrain, Djibouti, Egypt,
Iraq, Israel, Kuwait, Kyrgystan, Oman, Pakistan, Qatar, Saudi
Arabia, the United Arab Emirates, and Uzbekistan.
The U.S. has fleets deployed in the Mediterranean
and the Persian Gulf. It is seeking to establish forward operating
bases in Algeria, Morocco, and Tunisia and aircraft refueling
bases in Senegal and Uganda. It continues to operate large bases
in Turkey and Diego Garcia and is planning to move forces from
Germany to new bases in Romania, Hungary, and Bulgaria to the
east, where they will be closer to anticipated zones of conflict
in Central Asia and the Persian Gulf.
To reduce reliance on Persian Gulf oil,
the Bush Administration has sought to strengthen relations with
other non-OPEC, oil-rich countries. In 2004, Defense Secretary
Rumsfeld visited Kazakhstan, promising security assistance for
Kazakhstan's oil pipelines and facilities on the Caspian Sea,
where an estimated 7 billion to 9 billion barrels of oil were
discovered in the 1990s (the largest oil discovery anywhere in
Also in 2004, Azerbaijan, Georgia, and
Turkey signed a U.S.-backed deal to build an oil pipeline to bring
Caspian Basin oil to ports on the Mediterranean. The U.S. government
has military ties with each.
In 2003, the U.S. government increased
its military aid and provided more military trainers to Colombia
to improve protection for an oil pipeline there, and in 2004,
the Administration sought to double the number of U.S. military
advisers and contractors in the country. Colombia exported about
260,000 barrels of oil per day to the U.S. in 2002.
Next door in Venezuela, the Bush Administration
has actively supported efforts to oust the regime of President
Hugo Chavez. Venezuela is a key OPEC member, and the Administration
would prefer a regime that is more friendly to U.S. interests.
In 2003, President Bush traveled to Nigeria,
the largest oil producer in Africa and a major oil exporter to
the U.S. U.S. oil imports from West Africa are expected to increase
to 25 percent of U.S. imports by 2025. Most will come from Nigeria
and Angola, from whom the U.S. already imports almost I mb/d.
Reportedly, the U.S. is considering building a naval port and
air base on the nearby island nation of Sao Tome and Principe,
which has potentially rich oil and gas deposits off shore.
The Bush Administration's intensive, costly,
and provocative efforts to secure access to foreign oil through
military force and building military relationships primarily with
oppressive, undemocratic regimes, and its environmentally harmful
efforts at home to increase domestic oil production, stand in
stark contrast to its insignificant efforts to reduce U.S. oil
dependence. This misguided policy seems certain to lead to future
oil insecurity and violent conflict. The U.S. needs a more sensible
energy policy focused on reducing oil demand.
Policies to Reduce Oil Dependence
The current U.S. "supply-side"
strategy is a very risky one. At best, it means a large increase
in overseas military presence and high oil import bills while
still leaving the U.S. vulnerable to market disruptions. At worst,
it means more violent conflict and more economic instability.
The U.S. can and should choose a different
"demand-side" approach. This approach would seek to
make petroleum less important to the U.S. and the world economy.
Such a strategy might include some combination of the following
policy options: (1) increasing fuel taxes with offsets for the
working poor, (2) expanding and improving public transportation,
(3) increasing the corporate average fuel efficiency (CAFE) of
new cars and trucks, (4) providing incentives for consumers and
firms to purchase high-efficiency vehicles, (5) promoting renewable
fuels, and (6) investing in research and development.
Increase fuel taxes with offsets for the
working poor. The International Energy Agency observes that the
price of oil has been the most influential factor affecting oil
consumption rates. The price shocks of the 1970s and 1980s did
far more to reduce oil consumption and carbon dioxide emissions
than all of the energy efficiency and climate policies enacted
by the industrialized countries in the 1990s. Die Economist concludes:
"The best way to curb the demand for oil and promote innovation
in oil alternatives is to ... impose a gradually rising gasoline
Raising the price of transportation fuels
(including diesel, gasoline, and aircraft fuel) by at least $1
per gallon, through a gradual increase in fuel taxes over several
years, would be one of the most effective and efficient ways to
reduce U.S. oil dependence and begin to shift the economy toward
more secure, safe, energy efficient, and environmentally sustainable
energy and transportation systems.
To improve the political feasibility of
increased gasoline taxes, the substantial tax revenues should
be earmarked (a) to expand and improve public and alternative
transportation, (b) to offset some of the cost of rising fuel
prices for low and middle income households through adjustments
to the tax code or the Earned Income Tax Credit, and (c) to advance
other initiatives to reduce oil dependence.
Improve and expand public transportation.
Robert Shapiro, on behalf of the American Public Transportation
Association, observes: "If we are serious about weaning ourselves
from Middle Eastern oil, the data showing that using rail to go
to and from work requires one-tenth the energy of using an automobile
for the same trip should compel everybody's serious attention."
Increasing ridership on public transportation
remains a relatively untapped source for reducing U.S. oil dependence.
The U.S. lags far behind most other industrialized countries in
ridership, yet public transportation is clearly far more energy
efficient than private automobiles. On average, public transportation
consumes half the energy of private vehicles in terms of passenger
miles per unit of energy. Electrically powered rail systems are
even more efficient, using about one-tenth the energy per passenger
mile as private vehicles.
Today, public transit users in the U.S.
save approximately 50 million barrels of oil per year. If the
U.S. increased its ridership to European levels (about 10 percent
of daily travel needs), we could cut oil imports by as much as
40 percent (4-5 mb/d). Public transportation ridership has been
steadily increasing across the U.S., faster than the use of private
vehicles. The key to accelerating this trend is to make public
transportation more convenient, attractive, and affordable and
to make private transportation more expensive.
Raise fuel efficiency standards. According
to the National Academy of Sciences, the present CAFE standards
save 2.8 million barrels per day. Today, the CAFE standard for
cars is 27.5 miles per gallon (mpg), and in 2005, for light trucks,
the standard will be increased to 21 mpg from the current 20.5
mpg. Yet, as The Economist points out "the average fuel efficiency
of American vehicles has been near a 20-year low for the past
Proven new technologies, such as high-efficiency
hybrid-gasoline-electric and advanced diesel engines, now make
it possible to increase fuel economy dramatically without reducing
comfort or safety. The increased cost of these fuel-efficient
technologies is more than paid back by gas savings over the life
of the vehicle. Reaching a combined average of 40 mpg for cars
and light trucks over the next decade would reduce oil consumption
by an amount roughly equal to what we currently import from the
Persian Gulf (about 2 mb/d).
Variations on CAFE, like "feebates,"
are also possible. Feebates are taxes paid by purchasers of cars
that exceed the fuel economy standards. These fees are then rebated
to purchasers of more fuel-efficient vehicles. A similar mechanism,
tradable credits, could be set up for manufacturers who would
purchase the right to sell gas-guzzlers from manufacturers of
Provide incentives to develop and expand
renewable fuels. Ethanol from cellulosic biomass (e.g. from naturally
occurring grasses or agricultural and lumber by-products) could
supply as much as 25 percent of current demand for gasoline, at
a fraction of the cost and energy-intensity of corn-based ethanol.
Taxing renewable ethanol at a much lower rate than petroleum-based
fuels could be a key way to promote this alternative.
Invest in research and development to
reduce oil dependence. Using hydrogen in fuel cells to generate
electricity to run cars may offer an important alternative to
oil dependence in the future. However, there are a number of significant
hurdles that must be overcome before this technology can become
an economically feasible substitute for oil on a large scale.
It may take 20 years or more for further research and development.
In 2003, President Bush announced an important
hydrogen fuel research and development initiative. However, currently,
it is relatively underfunded and it is focused primarily on developing
nuclear energy and fossil fuels to produce the hydrogen. We should
invest more in fuel cell research and development, but it should
be redirected toward developing renewable sources of hydrogen.
Expand tax incentives for fuel efficient
vehicles. While the U.S. develops other ways to power transportation
decades from now, Congress can help accelerate the transformation
of the U.S. vehicle fleet today to a higher level of fuel-efficiency
with incentives for individuals and firms to get rid of gas-guzzlers
and to purchase high-efficiency vehicles that are available today