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Obama, Gulf Oil and the Myth of America's Addiction

January 21, 2009 |
Every four years presidential contenders take turns bashing Saudi Arabia, while the American public nod their heads in agreement, wondering how it has become “hostage” to Middle East “oil sheikhs”.
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Throughout the campaign that culminated in his inauguration yesterday, President Barack Obama called America’s dependence on oil its greatest threat and outlined ambitious plans for energy independence – the American politician’s favorite buzzwords. His energy plan has called for oil savings equivalent to the amount that the United States imports from the Middle East and Venezuela, and he expects these savings to eliminate entirely imports from the Middle East.

George Bush called on America “to replace more than 75 per cent of our oil imports from the Middle East by 2025”. When he made that call in his 2006 State of the Union speech, Democrats rose with their Republican counterparts to applaud the president vigorously.

President Obama and his erstwhile foe turned Secretary of State Hillary Clinton compete with each other to bash Middle East oil producers. One of the oft-heard phrases emerging from both camps – “We borrow money from China to pay for oil from Saudi Arabia” – managed to encapsulate three whipping boys in one sentence: China, high oil prices, and the Saudis.

Saudi Arabia takes the brunt of the criticism from American politicians and the public, especially when fuel prices rise at the pumps. Every four years presidential contenders take turns bashing Saudi Arabia, while the American public nod their heads in agreement, wondering how it has become “hostage” to Middle East “oil sheikhs”. A powerful strain of the energy independence movement involves “freedom” from that nebulous, amorphous, “dark and dangerous” Middle East land mass that “produces oil and terrorists”.

There’s just one problem with this argument: it’s not true. America is not nearly as “addicted” to Middle East oil as its politicians claim. In fact, there is only one Middle East producer – Saudi Arabia – in the top five source countries that account for two-thirds of US oil imports, and Saudi Arabia is not America’s No 1 source of petroleum imports. Not by a long shot. That distinction goes to Canada.

In 2007, only two Middle East oil producers made the Top 10 of US oil importing countries: Saudi Arabia and Iraq. Saudi Arabia came in at third, just ahead of Venezuela and behind Mexico and Canada. Iraq came in at eighth. Kuwait did not make the Top 10, at 13th. The UAE is not even on the list. It does not export a single drop of oil to the United States. Last year Kuwait slipped into the Top 10, making it three out of ten from the Middle East.

Also last year, Saudi Arabia surpassed Mexico as the second largest source of US crude oil imports. In terms of total petroleum imports, however, it still lags far behind Canada, by nearly a million barrels a day. If America is addicted to anyone’s oil, it is Canada’s.

The United States consumes about 21 million barrels of oil a day. Just over a third is domestically produced, while the rest is imported from a diverse array of sources from Latin America to Canada to Africa and the Middle East. The top five sources are geographically diverse: Canada, Saudi Arabia, Mexico, Venezuela and Nigeria. If Americans want to wring their hands in fear of being held hostage to oil imports, they might worry about a Big Five conspiracy: a secret Riyadh-Ottawa-Mexico City-Caracas-Lagos cartel that turns off the tap one day. If that sounds impossible and ridiculous, it’s because it is.

Long-time Opec watchers know that Saudi Arabia has always been the leading price moderate, reining in other members, including Venezuela, who constantly want to ramp up prices. And given Saudi Arabia’s oil heft – it still owns the world’s largest proven reserves and is the only swing producer able to ramp up production quickly – it usually wins those fights with the price hawks.

In any case, the days are long gone when Opec could set oil prices. It can certainly influence them, but there are too many other factors involved, from Chinese and Indian demand to futures markets volatility to guerrilla warfare and terrorism to worldwide economic conditions.

All told, the United States imports roughly six to seven per cent of its oil from Saudi Arabia. That is hardly an addiction. Add the rest of the Middle East and it becomes just over 10 per cent. In fact, the Middle East is not even the largest regional supplier of oil to the United States after North America. That prize goes to Africa. Nigeria, Angola, Algeria, and Gabon will soon be joined by a new crop of West African producers, eclipsing the Middle East even further. Then there’s Latin America, where Brazil, Colombia and Ecuador fall into the top 15, and of course Europe, where Russia makes the Top 10 and the United Kingdom slips into the top 15.

While these numbers may surprise Americans, who in several polls have revealed deep misunderstanding of oil market dynamics and exaggerated notions of Middle East oil domination, it doesn’t surprise anyone with a remote understanding of the petroleum industry. Most countries ideally seek to diversify their sources of energy. In fact, America has done well in this area. It is not beholden to any one region. If anyone is “addicted” to Middle East oil, it is Japan, which buys nearly 90 per cent of its imports from the region.

How will President Obama deal with these facts? Will he maintain his campaign-trail rhetoric? Only time will tell, but there’s an old adage about the presidency: your view of the world changes dramatically behind the desk at the Oval Office. You learn that countries such as Saudi Arabia, while socially flawed, are strong petroleum allies, and if Washington decides to stop buying their oil, dozens of countries would line up to do so. You learn that today’s oil market dynamics are complex and volatile, and not easy to define with simplistic assertions.

Winning cheap political points by bashing Middle East oil producers won’t get the President far in achieving the goal that most Americans want: affordable fuel and cleaner energy. And so you lower the rhetoric, seek to find pragmatic solutions, and understand Saudi Arabia’s value as a price moderate. Well, at least until the next election.

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