The Persian Gulf Peril
SHARE OF WORLD OUTPUT. The main issue for national security planners in the early twenty-first century regarding oil is less that the world is running out of it than that there is an increasing concentration of supply from one region: the Persian Gulf. The Persian Gulf producers work through the Organization of Petroleum Exporting Countries (OPEC) to control oil prices. OPEC membership includes Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. The primary mission of OPEC is to coordinate and unify the petroleum policies of its member countries and to determine the best strategy for protecting their individual and shared interests.
World oil reserves (yet-to-be-tapped sources of supply) in 2003 were 1,147.7 billion barrels. The Persian Gulf producers and OPEC, while sitting on top of mammoth untapped supplies, have occasionally held back production, as they did noticeably in 2000. Indeed, they have usually produced at a rate lower than the maximum possible to limit supply and bolster prices. By contrast, the American oil industry's goal is to produce a full 7% of an oil field's underground capacity each year. Industry analysts have said that if this practice were applied worldwide, it would, in theory, yield a capacity of 190 million barrels per day, more than twice the expected worldwide demand in 2010.
As calculated by BP Amoco in its Statistical Review of World Energy, 2004, the eight main Middle East/Persian Gulf oil-producing states—Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Iran, Qatar, Yemen, and Oman—were responsible for almost 30% (22.6 million barrels per day) of the world's daily production in 2003. Proven Middle Eastern reserves (726 billion barrels) accounted for 63.3% of the world's unproduced sources of supply at the end of 2003.
Nearly two-thirds of the world's global petroleum supplies lie in the Persian Gulf. Should the price of oil remain relatively low, U.S. dependence on Persian Gulf oil may increase—historically, Gulf oil has been the cheapest oil to produce. In the future, non–Persian Gulf producers, such as Venezuela, Russia, and Mexico, may supply as much as forty-seven to fifty-seven million barrels per day, or 62%–65% of demand. Still, if world oil demand comes in at its DOE estimate of about ninety-five million barrels per day by 2010, and if non–Persian Gulf production remains at forty-seven million barrels per day, then the Persian Gulf states might be supplying 50% or more of world oil demand by the end of the twenty-first century's first decade. Such a high level of dependence on one region, and especially Saudi Arabia, would leave the world and U.S. economies vulnerable.
As resource-conflict specialist Michael T. Klare noted in Resource Wars (New York: Metropolitan Books, 2001), "A significant share of the additional petroleum will have to come from the Gulf—there is simply no other pool of oil large enough to sustain an increase of this magnitude. All projections of future supply and demand assume that the Persian Gulf will account for an ever-expanding share of the world's oil requirements: from 27% in 1990 to 33% in 2010 to 39% in 2020."
ARMS, WAR, AND SECURITY CONCERNS. Such large reserves of oil in the Persian Gulf actually increase the likelihood of interstate conflict there. They give the nations in the region the means to procure huge quantities of sophisticated modern weapons, and so when warfare breaks out, the scale and intensity of the fighting are elevated. For example, the war between Iran and Iraq of 1980–88 yielded an estimated one million casualties and over $100 billion in property damage.
The arms that Gulf States have acquired from the United States alone have been substantial. According to the Congressional Research Service (Conventional Arms Transfers to Developing Nations, 1995–2002), from 1999 to 2002 the value of U.S. arms-transfer agreements with the Persian Gulf states of Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates came to $16.8 billion.
WORLD OIL TRANSIT CHOKEPOINTS. U.S. national security concerns regarding Persian Gulf oil extend to those areas that do not themselves hold large petroleum supplies. These are sea passages and straits used to ship oil by tanker or pipeline. Because several of these areas adjoin areas of recurring conflict, the DOE has dubbed them "world oil transit chokepoints." Figure 10.1 and Table 10.1 provide details on each of these chokepoints, including the major concerns should closures occur. These six passages carried over thirty-five million barrels of oil per day in 2004—more than 45% of global consumption. This list illustrates the importance of the volatile Middle East and Persian Gulf to petroleum supplies—four of the six chokepoints (the Strait of Hormuz, Bab el-Mandeb, the Suez Canal/Sumed Pipeline, and the Bosporus/Turkish Straits) lie in these regions.
The Former Soviet Union: A Challenge to the Persian Gulf?
Some industry experts suggest that Russia may be in a position to pose a challenge to Saudi Arabia's role as top worldwide oil producer. As Edward L. Morse, executive advisor at Hess Energy Trading Company and former assistant secretary of state for international energy policy, and James Richard, portfolio manager at Firebird Management, point out in "The Battle for Energy Dominance" (Foreign Affairs, March/April 2002), before the breakup of the former Soviet Union, state-owned oil production had reached 12.5 million barrels per day, well beyond the largest amount reached by Saudi Arabia at its production height. Currently, Russia keeps a much larger amount of its oil for internal use than does Saudi Arabia, so Saudi exports are still substantially higher than Russia's.
Significant, and so far unresolved, difficulties associated with Russian oil production include issues of sufficient investment, management, construction and maintenance of pipelines, and ownership/development disputes among the countries bordering the oil-rich Caspian Sea. Morse and Richard predict that the Caspian area could become the source of enough oil to supplant Saudi Arabia as the West's primary source of oil within four years, but the DOE is more cautious. It predicted in International Energy Outlook 2004 that the former Soviet Union's net oil production would increase to 17.2 million barrels per day by 2025. OPEC production is expected to grow by an annual rate of 2.6% through 2025.
Although Russia had agreed in a deal with OPEC to cut its output, in mid-2002 it announced that it would abandon that agreement. Russian president Vladimir Putin also promised to keep Siberian oil flowing during any Middle East crisis.
China, Oil, and U.S. Interests
China has gone from a net petroleum exporter to a net petroleum importer. It has taken vigorous steps to grow its economy and, as part of that goal, has tried to promote private automobile ownership by individuals since 1993 (which could lead to twenty-five million more cars in the country by 2015). Even if it develops the oil fields located
FIGURE 10.1
in its isolated interior regions, it is likely to import at least two million barrels per day by 2015.
China's discomfort with reliance on world markets for this vital resource could translate into a political alliance with one or more oil-exporting states in the hope that this would mean a more secure source of oil. The problem for the United States with such an alliance is that China's partners in the Middle East will most likely not be American allies but those considered rogue states, such as Iran. China's friendly relationship with Iran has given Iran plenty of access to Chinese advanced-weapons technology. One worst-case scenario for the United States would be that Iran would take an aggressive stance, armed with nuclear weapons obtained from the Chinese, or enter into some sort of defense pact with the Chinese.
Continued U.S. Oil Supply and the Strategic Petroleum Reserve (SPR)
Petroleum reserves are vital to modern economies, but controlling them does not guarantee prosperity or security. As with other mineral resources and raw materials, petroleum is distributed within a well-developed market, one that allows almost any country access to the commodity, even during times of conflict, as long as adequate worldwide supplies exist within a reasonable and customary price range. Once the oil-supply chain is upset by events such as civil wars in developing countries, however, prices may become volatile. Additionally, increased production can destroy land and the environment, and eventually overdevelopment may cause large migrations of displaced people, for example in Africa. A widely accepted summary of the state of oil in the future is that this resource is finite, production will peak well before the middle of the century, and an alternative must be found to avoid widespread dislocations in modern life.
One strategy for dealing with the risk or threat of disruption in petroleum supplies has been to encourage public and private stocking. Planners generally give the government the role of creating its own strategic reserves and establishing incentives for such stocking. Because the stocks would help ensure the flow of oil, they could reduce the U.S. need to intervene during a crisis—or at least the need to intervene quickly. These stocks could provide time needed to bring alternative energy sources online—to shift, say, from oil to coal for electricity generation in dual-fuel-capable boilers, or to start pumping oil wells that were temporarily idle. This has been the strategy adopted by the U.S. government and the International Energy Agency (IEA).
The Arab oil embargo of 1973–74 and later price spikes motivated the United States to create the Strategic Petroleum Reserve (SPR), a series of underground salt caverns along the Gulf of Mexico coast with a capacity of 560 million barrels. The SPR was authorized in 1975 and
TABLE 10.1
| Chokepoint capacity, limitations, and threats, 2004 | ||||
| Chokepoint | Usage (ships/day, 2003) | Additional capacity | Limitation | Threat |
| *dwt = deadweight ton | ||||
| SOURCE: Jean-Paul Rodrigue, "Table 1. Chokepoints: Capacity, Limitations and Threats," in Straits, Passages and Chokepoints: A Maritime Geostrategy of Petroleum Distribution, revised version, July 2004, http://people.hofstra.edu/faculty/Jean-paul_Rodrigue/downloads/CGQ_strategicoil.pdf (accessed September 23, 2004) | ||||
| Hormuz | 50 | Limited | Narrow corridors | Iran/terrorism |
| Suez | 38 | Some | 200,000 dwt* and convoy size | Terrorism |
| Bosporus | 135 | Very limited | Ship size and length; 200,000 dwt* | Restrictions by Turkey; navigation accident |
| Malacca | 600 | Substantial | 300,000 dwt | Terrorism/piracy |
| Panama | 35 | Limited | 65,000 dwt | No significant |
began operation in 1977. It is the first line of defense against an interruption in petroleum imports. If necessary, the reserve can be drawn down at a rate of 4.3 million barrels per day, equal to about 40% of daily U.S. oil imports.
At the same time as the reserve was established, the industrial nations agreed to hold reserves equal to ninety days' imports. They also agreed to coordinate their responses, in the event of an interruption in oil supplies, through the twenty-three member countries of the IEA.
In November 2001 President George W. Bush issued a directive to fill the Strategic Petroleum Reserve to its capacity. Since then, the SPR has been adding to its reserve. As of May 2003 the oil stockpile passed the 600-million barrel mark, a new high. The SPR's goal is an eventual stockpile of 700 million barrels. According to the Department of Energy, Office of Fossil Energy Web site (http://www.fe.doe.gov/programs/reserves/), storage capacity as of 2004 was 727 million barrels.
Emergency use of the SPR occurred in January 1991, at the start of Operation Desert Storm, the U.S. military campaign to oust Iraqi forces from Kuwait. According to the Institute for National Strategic Studies (Strategic Assessment 1999: Priorities for a Turbulent World, Washington, DC, 1999), "The mere announcement of SPR sales had a considerable stabilizing effect on world markets. Only 17 million barrels were actually sold before market conditions returned to normal."
Reserve oil was also loaned to southern refineries after the disruption of normal offshore production and import deliveries during the hurricane seasons of 2002 and 2004. Energy Secretary Spencer Abraham noted in an October 2004 press release that "the SPR was designed to protect American consumers against supply disruptions, including natural disasters."
U.S. Internal Oil Production versus Conservation
The ultimate exhaustion of the world's oil reserves—which would be preceded by hefty price increases that could occur well before the year 2050—constitutes a long-term national security problem. Because oil is a nonrenewable resource (i.e., there is only a limited amount of it), many believe that Americans should begin seriously to reduce their use of energy, particularly energy from oilbased sources. Although recent public-opinion polls have shown that most Americans support the idea of decreasing our dependency on foreign oil, especially in the wake of the terrorist attacks of September 11, 2001, Americans continue to use great amounts of energy—one illustration of this is the continued popularity of heavily gas-consuming sport utility vehicles (SUVs).
Conservation efforts, while one option, are not the only route to decreasing U.S. dependence on foreign oil. Increasing production by exploiting known reserves in various regions of the United States has also been proposed. Such regions include the Great Lakes, the Gulf Coast, and, particularly, the 19.6-million acre Arctic National Wildlife Refuge (ANWR), the largest national wildlife refuge in the United States. Oil companies have long been interested in ANWR and, along with their political supporters, have challenged its protected status. According to Secretary of the Interior Gale Norton in testimony before the House Committee on Resources in March 2003, there are an estimated 10.4 billion barrels of oil in the ANWR coastal region. Conservationists and others who feel the ecological and environmental damage caused by drilling would be significant, even disastrous, have been fighting off these challenges.
Until September 11, 2001, public support tended to be on the side of the conservationists, but immediately after the terrorist attacks, U.S. opinion changed radically. When The Wirthlin Report asked in July 2001 whether the positives of producing oil and natural gas by drilling in ANWR outweighed the negatives, only 39% of Americans surveyed agreed. When asked the same question soon after September 11, however, 61% felt the positives outweighed the negatives. In August 2001 the House of Representatives passed a bill that would have allowed drilling within ANWR, but the Senate rejected this proposal in April 2002, thereby continuing the area's protected status. It is likely that drilling in ANWR will continue to be a matter of debate for some time.
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