Oil imports: habit US hasn't kicked

Fuel becomes a strategic concern again as tight world markets give Iraq new clout.

When Americans think of threats to national security, they usually imagine terrorists, missile attacks, or even a nuclear showdown.

But another threat is beginning to inch its way back onto the nation's radar screen: the soaring price of oil - and Washington's reliance on the Middle East to supply it.

Although the Organization of Petroleum Exporting Countries (OPEC) agreed Sept. 10 to increase output by 800,000 barrels per day, and may add another 500,000 soon, prices remain at a 10-year high near $35 per barrel.

US officials say they expect the price to drop over the course of the next few months. But few foresee a full retreat to the $15 to $20 per barrel prices typical of the late 1990s.

The current high price underscores the dangerous sensitivity of the oil market - and its leverage over jobs and economic growth worldwide.

Oil prices have soared as a strong global economy has gobbled up refinery output. But now, as the fuel spike ripples through prices of other goods, global economies could suffer.

The effects in the US so far have been mild - no protests in the streets yet - but the challenge is particularly troubling at a time when America relies so heavily on imports to fuel its economy.

The United States buys about 55 percent of its petroleum from other countries, up from 30 percent in 1970, according to the Energy Department.

"Even before the price spike, [US reliance on imports] was a problem," says David Nemtzow, president of the Washington-based Alliance to Save Energy. "And if you don't believe me, just visit the United Kingdom."

Parts of Western Europe are gridlocked and without gas, while drivers protest the high prices by blocking distribution points. Analysts warn that a slowdown of the European economy could ripple into the US.

Political trouble-spots

Another concern for the US lies in the relative instability of some of the world's leading oil producers, and the Middle East as a whole. Even close allies like Saudi Arabia are vulnerable to unrest.

In the past, the US has been torn between its strong support of Israel and its desire to maintain good relations with the Arab world. Recently, Iraq accused US ally Kuwait of stealing its oil, and urged other OPEC countries not to bow down to "superpower" pressure to increase output.

According to Guy Caruso, an oil expert at the Center for Strategic and International Studies in Washington, the oil market is so tight right now that a boycott by even one country, such as Iraq, could have a huge effect on the US economy, at least temporarily.

Last year, American companies bought an average of 725,000 barrels per day from Iraq, about 7 percent of all imports. Despite broad US economic sanctions on Iraq, Baghdad can sell oil as part of a United Nations oil-for-food program.

If Iraq wanted to, it could "withhold oil from the market as a political gesture," Mr. Caruso says, and try to force the US to "back down from its positions in the Middle East."

The US does have an emergency oil reserve of 571 million barrels that can lend some short-term stability to the market. It is also setting up a 2-million-barrel reserve for heating oil in the Northeast, which is considered particularly vulnerable to shortages. But officials are divided on whether the current situation is dire enough to justify opening the reserves.

In the long term, analysts say, the US can reduce its dependency on exports by increasing domestic production and cutting use. The proper combination of those factors is being debated by the presidential candidates, Vice President Al Gore and Texas Gov. George W. Bush.

Campaign-trail debate

Mr. Bush, for example, wants to open part of the Arctic National Wildlife Refuge in Alaska for exploration and possible drilling. He says doing so could significantly boost US production. By some estimates, there are more than 10 billion recoverable barrels there.

Mr. Gore, meanwhile, places a greater priority on protecting the land, and has urged Congress to enact a measure that would effectively ban drilling there. He has also emphasized the need for the US to reduce consumption and seek alternative fuels.

Although America made great strides to become more fuel efficient following the oil shortage in the 1970s, that trend has been at least partially reversed by factors such as sport-utility vehicles and large homes that are costly to heat.

At the same time, some of the best oil-producing parts of the country - such as Texas and Alaska - are beginning to dry up.

"The US is the most explored part of the world when it comes to oil," says Mr. Nemtzow of the Alliance to Save Energy.

Philip Verleger, a leading industry analyst at the Brattle Group in Cambridge, Mass., says the US should take the initiative in lowering its own oil prices - rather then beg OPEC to loosen its valves. He sees the strategic reserve as a means to do this, much as the Federal Reserve uses interest rates to influence inflation and other economic indicators.

Also, Mr. Verleger points out, the OPEC countries are just as reliant on their income from oil sales as the US is on fuel.

"I don't think we should go pleading to OPEC to increase production," he says. "We should use the strategic reserve to achieve more price stability."

(c) Copyright 2000. The Christian Science Publishing Society

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