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Oil report from the "Diplomatic Council on Energy Security"

The USA has selected a number of diplomats to form what they call the “Diplomatic Council on Energy Security”, DCES. One of those included in the DCES is the USA’s ambassador to Sweden from 1994 to 1998, Thomas L. Siebert. They have now presented their first report “Oil and the Trade Deficit: Rising Energy Expenditures and U.S. Energy Security” (read the report).

In their “Letter to the President, Congress and the American People” they write,

The nation’s dependence on oil poses a serious and ongoing threat to economic and national security.

Oil is traded globally and oil prices are set in open commodity markets. These prices are affected by events in oil-producing and oil-consuming nations around the world in addition to events in nations that host important shipping channels or infrastructure. High and volatile oil prices driven by both demand and supply factors result in vast wealth transfers and cause severe economic disruption and dislocation, and every American recession over the past four decades has been preceded by—or occurred concurrently with—an oil price spike, including the most recent.

U.S. armed forces expend enormous financial and human resources patrolling oil transit routes and protecting chronically vulnerable infrastructure across the globe. American diplomacy is constrained by the need to minimize disruptions to the flow of oil. Hostile regimes in numerous oil-producing countries and regions, that share neither our values nor our interests, grow rich with petrodollars. Both the United States and its allies are put at risk.

The events that unfolded across the Middle East and North Africa last year and continued regional tensions today—particularly with respect to Iran—demonstrate clearly how both physical supply outages and the fear of future disruptions play an important role in determining the price of oil. A history of regional instability and few reasons to be optimistic that a prolonged period of instability is not ahead only serve to underscore the necessity of urgent action to address U.S. oil dependence.

As recently as 2002, the annual U.S. trade deficit in petroleum was less than $100 billion and its contribution to the total U.S. trade deficit in all goods and services below 25 percent. Six years later, when oil prices peaked at $147 per barrel in July 2008, the trade deficit in petroleum contributed 65 percent of the 5 monthly total. Progressively higher oil prices have in fact increased the total cost of the net U.S. oil import burden in recent years even as import volumes have declined. As a result, the United States has run an aggregate deficit in petroleum of more than $1.5 trillion since 2007. In 2011, oil import prices averaged a record $103 per barrel. Despite continued growth in domestic oil production and a first year of net petroleum product exports since 1949, the U.S. trade deficit in oil increased to $327 billion, contributing 58 percent to the total, its highest ever annual share.

The size of the U.S. trade deficit creates significant risks and vulnerabilities for the economy, including an increased dependence on consistent capital inflows from foreigners. This compounds America’s international debt burden while lowering the prospects for long-term U.S. economic health. A readjustment of the U.S. trade balance is almost certain to be necessary. This process will likely harm the American economy and American families.

There are opportunities to mitigate this damage. Petroleum represents a crucial component of the U.S. trade deficit on which changes in policy can have a clear, direct, and significant impact. This report outlines the threat that this emergent challenge poses to the nation. It is yet another important argument for taking critical steps to end U.S. dependence on oil.

Ambassador Elizabeth Frawley Bagley , Ambassador Alfred Hoffman, Jr.

When one reads the material from the Diplomatic Council on Energy Security one is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. It feels as though we now have the first informed American report on the oil issue. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective. Of course, I hope that the committee will read my book “Peeking at Peak Oil” and learn even more about the problems that the world faces.

Editorial Notes: PDF of the report: Oil and the Trade Deficit: Rising Energy Expenditures and U.S. Energy Security. About Kjell Aleklett's new book: Translating "Peeking at Peak Oil" by Michael Lardelli. -BA

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