(Graphics: U.S. Department of Energy)Huntington provided testimony regarding the probability of major foreign-sourced oil supply disruptions - defined as 2+ million barrels per day (MMBD) - occurring in nations outside the United States that have geopolitical, military and terrorist-caused risks. The study did not consider domestic and weather-related oil disruptions, nor the risks associated with friendlier suppliers such as Canada.
EMF categorized the countries in which the disruptions are the most likely to occur into four regions. The major supplying regions considered were Saudi Arabia; the remaining Persian Gulf nations; Russia, including the Caspian Sea; and other oil-producing nations with risks, such as Mexico, Venezuela, Algeria, Nigeria and Libya.
Huntington told the senators:
* There is an 80 percent probability of a major disruption lasting at least one month during the next 10 years.
* There is a 70 percent probability of a major disruption lasting six months or more.
* There is a 35 percent probability of a major disruption lasting 18 months or more.
* By region, there was an 83 percent probability of a Persian Gulf-based major disruption, a 72 percent probabililty from other oil-producing nations, a 49 percent probability from Saudi Arabia and a 17 percent probability from Russia.
* For even higher supply disruptions, there is a 65 percent probability of a 3 MMBD disruption of one month or more, 50 percent for a 5 MMBD disruption, and 7 percent for a 10 MMBD shortfall.
"The nation is vulnerable to another major disruption not because the economy imports oil, but primarily because it uses a lot of oil, primarily for gasoline and jet fuel," Huntington stated. "Even if domestic production could replace all oil imports, which I am not advocating, the economy would remain vulnerable to the types of disruptions discussed here."
He also shared the EMF concern for the U.S. dependence on the oil-producing cartel. He reminded the Foreign Relations Committee that the OPEC-generated oil shocks in the 1970s and 1990s caused major inconveniences to the country. He suggested that the numerous recent attacks and problems - a thwarted suicide attack in February at the Abqaiq oil processing facility in Saudi Arabia, a string of turmoil in the Niger Delta in Nigeria, and the anti-government explosion of a pipeline connected to Venezuela's largest oil refinery - were minor in comparison to what a cartel-led action could cause.
"Although these episodes have made oil-importing countries nervous and have imposed some very high costs on people and infrastructure, they have yet to duplicate the types of oil shocks that were experienced during the 1970s and early 1990s," Huntington argued.
Even if this type of economic action were not to occur, he said the experts participating in the EMF felt that a war, a major terrorist campaign or a geopolitical event could lead to another oil shock that would rival the cartel-led shocks not so long ago. A significant disruption in supply would "have more serious effects on oil and prices and the economy than we have seen with the Katrina and Rita hurricanes," Huntington advised his audience.
"Although another major oil disruption is not a certainty, its likelihood is significantly high enough to be worrisome," Huntington added. He emphasized that policy-makers need to be cognizant of the threats and use the time available to plan and prepare proactively, rather than reactively. The world oil supply should be viewed by policy-makers as a pool, rather than scattered puddles. Enough of a disruption in the pool from one isolated cause, let alone more than one, is the risk that needs to be managed.
Even without a supply disruption, import oil prices are under continuing pressure because of increasing world demand. Today, the emergence of China and its growing thirst for oil is resulting in upwards price movement. Soon after China, the emergence of India, another highly populated nation is expected to further drive oil prices up. Should a disruption occur in this environment, the impact would be even higher.
Tom Mast, an energy expert and author of "Over a
Barrel," says that, "The world peak in oil production is expected in the next few years, with demand outstripping supply and leading to oil shortage worldwide." Mast notes that 80 percent of today's oil supply will be gone within 60 years. He argues that the inability to find an effective alternative for oil before demand outstrips supply could be one of mankind's biggest disasters.Leadership choices have as many dimensions as they do consequences. "As a general rule," Huntington suggested, "strategies that reduce our dependence on oil consumption are more effective than policies that reduce our imports." He cited, as an example, the high reliance the domestic transportation sector has on foreign oil that goes hand-in-hand with a higher level of risk. Federal strategies and initiatives to transition transportation away from oil, sooner than later, is one example of the type of pre-emptive planning needed, if it occurs in time.
The downside is more widespread than just domestic prices paid by Americans. Over-dependency on foreign oil could erode the country's to foreign policies to minimize nuclear proliferation and to reduce terrorism. In addition, poor or slow decisions impact the ability of American industries to compete on a global scale, as well as curbing consumer spending domestically. Finally, funds spent pursuing other goals with limited positive effect could instead have been used to work more quickly towards energy independence.
(Source: EMF,
U.S. Department of
Energy, Tom Mast "Over a Barrel")
