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Oil imports—America's Achilles' heel

Very few Americans realize how precarious their lifestyle has become in recent years, as the United States becomes increasingly dependent on imported oil. Every year our aging oilfields produce less oil, while newly virulent hurricanes will likely continue to tear up oil and gas fields in the Gulf of Mexico .

Of the 20+ million barrels we burn each day, some 12 million are now imported from nearly 70 different countries either as crude oil or refined products. These countries range from our friendly neighbors, Canada and Mexico , to quite a few who for, one reason or other, don’t like America one bit and who would like nothing better than to stop “their” oil from going into “our” tanks.

As the growth of world oil supplies slows, more oil-short technically-advanced nations with something tangible to offer, such as China, India, Korea, and Japan, are propositioning the world’s oil producers in an effort to ensure future access to oil supplies. In this competition, US oil companies and their sisters in Europe , are finding themselves at an increasing disadvantage. This situation is almost certain to lead to serious problems for the United States very soon in the form of reduced access to importable oil.

As the value of oil exploded in recent years, the major oil companies, operating under years-old contracts, found themselves earning record (some say obscene) profits for no other reason than they were able to sell cheaply purchased and produced oil at current prices. These unprecedented profits, of course, have made their local operations prime targets for nationalization or at least contract renegotiation by governments outraged by the inequity of it all.

Dissatisfaction with the division of the pie is not a new phenomenon. Nearly 70 years ago, the Mexicans kicked out the foreign oil companies and enshrined the principle of “it's our oil” in their constitution. Forty years later, most Middle Eastern oil producers followed suit. During the past week, Venezuela , Bolivia and Ecuador have moved to take control over their oil and gas assets. The objective, of course, is to maximize the revenue the local government receives for its oil and to minimize the profits of foreign oil companies to the extent possible.

The new factor in all this is that oil-exporting countries can now find other partners to take the place of the international oil companies. There are now a number of oil-importing countries that have the resources and technical expertise to assist the oil-exporting countries in return for a guaranteed source of oil.

All this does not bode well for the US . Many of the countries from which we import our oil are already facing some sort of restrictions on their ability or willingness to sell oil to the US . The most politically friendly and stable— Canada , Mexico , the UK , and Norway , are all undergoing, or will soon face, varying degrees of oil depletion. It is important to remember that as an oil exporting country goes into depletion, exports will drop at a much faster rate than the country’s oil production, for an exporter will cover its domestic requirements first.

The many perils to the future of Middle Eastern oil exports are obvious. A future for Iraqi oil exports shows less promise with each passing day. The possible outcomes of the Iranian nuclear impasse range from oil market rattling exchanges of threats, through a complete or partial stoppage of Iranian exports, to military hostilities. At best, this situation will contribute to higher priced gasoline and at worst, it will lead to a sudden and major reduction in US oil imports.

Throw in growing Sunni-Shiite sectarian violence, Al-Qaeda’s proclaimed objective of destroying Middle Eastern oil facilities, and the likelihood of a succession crisis in Saudi Arabia , and the chances of oil flows continuing at current rates look very poor indeed.

Currently however, the best prospects for an imminent reduction in the US oil supply are the Nigerian and Venezuelan situations. In Nigeria an insurgency has already succeeded in shutting down some 20-25 percent of oil production. Last week, the insurgents announced they are preparing for another round of attacks that will shut down even more— and they usually mean what they say.

Last week in Venezuela , President Chavez unilaterally announced a contract-breaking new division of oil revenues that could cost the foreign oil companies some $2 billion per year. This initiative clearly will test the oil companies’ patience. If they conclude there is no longer money to be made in Venezuela , they might reduce their operations or even abandon their investments and pull out. Indeed, this could be exactly what Chavez has in mind as he lays the groundwork to sell oil to anybody but the US .

As the world approaches oil depletion, the United States carries an especially heavy burden. We have blundered into a dependency on imported oil that approaches 70 percent of our consumption and can only end in disaster. The US position as the world’s current military and economic power has built up a reservoir of resentment and ill will around the world. Issues range from support for Israel to growing tension between militant Islam and other cultures, to unfair exploitation of foreign resources.

Thus, the American lifestyle faces a double-edged problem: worldwide oil depletion and soon the inability to import oil at anywhere near the current rate. When world oil depletion arrives and oil supplies start to dwindle at anywhere from three to eight percent a year, the rate at which oil ceases to be available to the US economy will be higher— perhaps much higher.

Editorial Notes: In a related article ("Are Investors Waking Up?) in the Falls-Church News-Press, Nicholas F. Benton writes:
News-Press columnist Tom Whipple’s weekly “Peak Oil” column now routinely gets circulated through web portals and links onto some of the world’s most popular sites discussing the subject. Whipple, a North Arlington resident, is a former career CIA analyst whose thoroughly-documented and prescient insights into the “peak oil” phenomenon published in the News-Press every week are in the forefront of this global dialogue.

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