Gulf Roils, But US Buys Oil Elsewhere

Friendly Venezuela, not Saudi Arabia, is largest US supplier; it's doubling output.

So far, leaders in Saudi Arabia have refused to agree to let United States forces use bases in their country to strike an obstinate Iraq to preserve the political stability of the oil-rich Persian Gulf.

Meanwhile, just across a much closer gulf - the Gulf of Mexico - oil companies in Venezuela are scrambling to pump more oil to feed a fuel-hungry US.

While the Middle East prepares for military conflict, Latin America is assaulting the Persian Gulf's share of the world's largest oil consumer - the US.

In 1996, Venezuela overtook Saudi Arabia to become the biggest exporter of oil to the US. It's a change that illustrates how much less reliant the US has become on Persian Gulf oil since the 1991 Gulf War.

Two decades ago, the US imported 32 percent of its oil from the Middle East. Today that's down to less than 20 percent.

Venezuela alone has grabbed about 20 percent of the US market; Saudi Arabia now has about 15 percent, down from 21 percent in 1979.

The gap is likely to widen in the next decade. Venezuela has announced plans to double production and defiantly ignore its quota as set by the Organization of Petroleum Exporting Countries, a group it helped found. Overproduction by Venezuela is already contributing to the drop in world oil prices, analysts say.

That's good news for American consumers: Gasoline prices have fallen an average of 17.8 cents since the end of August.

Increasingly, US officials have touted the importance of the shifting reliance as a way of ensuring the stability of oil coming into the US.

"Is the Middle East any more stable today that it was in 1973, 1978, 1991?'' asked Sen. Frank Murkowski, chairman of the Energy and Natural Resources Committee, at an energy conference last month in Caracas. "The latest moves by Saddam Hussein certainly show that it is not. We must continue to explore avenues for further cooperation in the Western Hemisphere to ensure stability of supply.''

Some wonder whether the shift will cause the US to lessen its peacekeeping commitment in the Middle East. "A great deal of our oil is coming from other places,'' says Jason Feer, president of Target Research, a Washington-based consulting firm specializing in Latin America. "The consensus in the US that we should protect the Middle East could break down. It could be potentially difficult to convince people that we get a lot out of this.''

Julius Katz, a former deputy US trade representative, says that would never happen. "There is a single world oil market that is affected by a disruption anywhere,'' says Mr. Katz, who worked for the Bush administration and now is an international consultant. "We just can't divorce ourselves from [protection of] the Middle East or any major supply. It's not possible for the Western Hemisphere to supply all of the oil the world needs.''

More stable than the Middle East

Nevertheless, the push is on throughout Latin America to find new oil. Colombia, Ecuador, Brazil, and Argentina are all opening up parts of their oil sectors to private companies. Mexico, which still has a closed market, is also trying to boost production. Argentina and Brazil are forging regional integration projects that could speed economic development.

US oil imports from the region increased almost 10 percent in 1997 and are expected to grow another 10 percent this year, Mr. Feer says.

Since the 1991 Gulf War, the US has been steadily shifting away from using Mideast oil. Iran and Iraq were completely cut off after 1991.

Meanwhile, under the leadership of Luis Giusti, Venezuela's state oil company opened up to foreign firms in the early 1990s and decided to bust its OPEC quota. (See story, below.)

Foreign investment is helping to boost production and has created a furor in the industry. Multinationals have rushed in to explore for oil in the region's most oil-rich nation - despite tough terms that will make it difficult to turn a profit.

"Geologically, this is a very prolific oil corridor that runs from the lesser Antilles of the Caribbean down through South America,'' says Tom Nicewarner, president of Conoco Venezuela, which plans to spend $2 billion in Venezuela over the next five years. "It is an unexplored region with a lot of potential."

Venezuela has 65 billion barrels of oil reserves, the sixth-highest amount in the world. But it is also sitting on an estimated 1.2 trillion barrels of extra-heavy crude oil, which, if recovered, would make Venezuela at least the equal of Saudi Arabia.

While Venezuela suffers from some of the worst government inefficiency and corruption in South America, the country's well-established democracy and proximity to the US - just across the Gulf of Mexico - gives US officials peace of mind. The friendship between the two nations dates to World War II, when Venezuela provided an estimated 60 percent of the petroleum used by the Allied forces.

Today, the US imports about half of its oil from the Western Hemisphere - Venezuela, Canada, and Mexico are the leading suppliers.

'Integrating' the Americas

At a conference last month in Caracas, energy ministers discussed "integrating'' the Western Hemisphere's energy markets by the year 2005. Integration would entail opening markets and physically connecting energy networks between countries with pipelines and other infrastructure.

US Secretary of Energy Federico Pea said such an integration would also increase national security in the hemisphere by reducing the region's reliance on energy sources in "unstable parts of the world.''

But there are also warning signs that the US might decrease its reliance on imported oil, which hit a record 53 percent last year. That could spell trouble for countries such as Venezuela that are deeply committed to the US market.

Recently developed fuel cells could lead to cars that would be twice as fuel efficient as today's models, Feer says. In 1997, personal vehicles accounted for 34 percent of US oil consumption.

US exploration for oil in the Gulf of Mexico is improving thanks to advances in seismic technology. That could lead to more domestic reserves. "This year the estimate was that you would see US oil production rise for the first time since the Gulf War,'' Feer says. "It didn't happen, but the slide in US production is slowing, which is somewhat worrisome to Venezuela.''

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