SOURCES OF IMPORTS

The immense consumption of the U.S., of which only about one third is covered by domestic production,²⁰¹ means that it is dependent on considerable imports, which it currently procures from a wide variety of sources. Among the most important sources is Saudi Arabia, which in the last six years has typically provided 15-20% of U.S. imports. As has been mentioned earlier, Saudi Arabia and the U.S. have a special relationship, one might even say partnership, meant to secure the interests of both states. This cooperation was initiated during World War II, as the U.S. worried about its ability to provide sufficient supplies of oil for itself and its allies.²⁰² In 1943, President Franklin D. Roosevelt stated that "the defense of Saudi Arabia is vital to the defense of the United States."²⁰³ Since then, the special relationship has been reaffirmed on several occasions. President Harry Truman wrote to King Ibn Saud in 1950 that

“[n]o threat to your Kingdom could occur which would not be a matter of immediate concern to the United States.”²⁰⁴ The Eisenhower Doctrine moreover guaranteed military support to help defend U.S. allies in the Middle East against Soviet-backed enemies. Under President Nixon, the U.S. provided military aid to Iran and Saudi Arabia. Finally, after the 1979 Iranian

199 James M. Day. “Can U.S. Petroleum Companies Compete With National Oil Companies?”, Business Law Brief, Fall 2005

200 Ibid.

201 EIA statistics

202 Wikipedia definition of the Carter doctrine

203 Ibid.

204 Ibid.

revolution, which ended the U.S.’ close relationship with Iran,²⁰⁵ and the Soviet invasion of Afghanistan, the Carter Doctrine, in very clear terms, provided an explicit security guarantee to the states of the Persian Gulf. The Carter administration perceived the presence of Soviet troops in Afghanistan, so close to the Middle East, as "a grave threat to the free movement of Middle East oil".²⁰⁶ While the Caspian region is not the Middle East, and one cannot

necessarily draw conclusions about U.S. policy in one region based on policy elsewhere, it is interesting that the U.S. has apparently always been willing to state, quite explicitly, the importance of oil to U.S. national interest, and its willingness to protect the supply of oil, by force if necessary.

Currently, the special relationship between Saudi Arabia and the U.S. means that the U.S.

helps prop up the Saudi regime, primarily through military assistance and security guarantees.²⁰⁷ While it would be an exaggeration to call the Saudi royal family a puppet regime, Saudi Arabia provides some influence with OPEC for the U.S., as well as a guarantee of sorts that OPEC will not take actions that have dramatically negative effects for the U.S.

Even if this was not the case, however, the stability of Saudi Arabia, or rather the stability of its oil production, would still be of great concern to the U.S., or any other oil importer for that matter. Both the reserves and current production of Saudi Arabia are immense, and any disruption of production there would quickly be felt around the globe. Saudi Arabia has partly repaid the U.S. for its support by maintaining spare production capacity to help cushion the shock of supply disruptions elsewhere. These factors taken together should make it clear why the special relationship has been a cornerstone of U.S. foreign policy and why, according to the EIA “Saudi Arabia's national security concerns dictate that it maintain a very high profile as a supplier to the United States market, even at the cost of lower netbacks.”²⁰⁸

In fact, Saudi Arabian production is so important to the U.S. that plans for seizing the Saudi Arabian oil fields, should the Saudi regime be overthrown, have been discussed.²⁰⁹ The problem with this reliance on Saudi Arabia is, as the existence of such plans indicates, the relatively weak position of the Saudi monarchy domestically. Radical Islamic groups, in

205 Up until the revolution, the shah’s Iran was a close regional ally of the U.S. as well as an important and reliable source of oil, largely because of a “special relationship” similar to that the U.S. still maintains with Saudi Arabia.

206 Wikipedia definition of the Carter doctrine

207 Backed up by the aforementioned numerous earlier statements guaranteeing the security of Saudi Arabia and other Gulf states

208 EIA: Oil Market Basics

209 Ian Rutledge. 2005. Addicted to Oil

particular, seek to undermine and eventually overthrow it, and find considerable support in the population for this goal. Due to its fragility, the Saudi regime is hesitant to crack down hard on the radical clerics who provide ideological fuel to this fire.²¹⁰ This results in a highly unpredictable and unstable situation, which is cause for concern in Washington, D.C. Saudi Arabia is not the only unstable Middle Eastern oil producing state, however. Instability and unpredictability seems to be the norm, rather than the exception, in most of the Arab world and most Middle Eastern oil producers have considerable, and influential, anti-American elements in domestic politics. As Middle Eastern states taken together provide almost a quarter of U.S. imports, this leaves the U.S. vulnerable. The instability of the region, and the political costs associated with close relations with “unsavory” regimes has led the U.S. to seek sources outside the Middle East. In other words: diversification of supply. In fact, the

relatively low share of Middle Eastern producers among suppliers to the U.S., compared to their share of production, is in itself testament to this.

5.3.2 The Western Hemisphere

Producers in the Western hemisphere supply more than half of current U.S. imports. This is partly because of their close proximity, which reduces transportation costs and risks, and partly because the U.S. has consciously preferred to import from its “near abroad”, with which it has traditionally maintained better relations and held greater influence. Venezuela, the largest Latin American oil producer, is an OPEC member, and therefore subject to OPEC production quotas, but has been a reliable supplier, despite recent political disagreements.

Again, this is partly because low transportation costs and almost unlimited demand make the U.S. an attractive market for exporters in the region, just as it makes the Western hemisphere an attractive source for the U.S. Even if Venezuela, for political reasons, might prefer to ship more of its oil to other importers, like China, the logistics involved make it very difficult and expensive. On the other hand, it is believed that Venezuela, with sufficient foreign investment and political will, could be able to supply half or more of the U.S.’ import needs.²¹¹ The coup-makers who attempted to topple Hugo Chávez’ government in 2002 did so after Chávez’s attempted to bring the state-run oil company, PDVSA,²¹² under the control of his loyalists.²¹³ The U.S. did openly support the coup after it had apparently succeeded, although U.S.

210 ”Anti-terrorism in the Gulf: Rooting out their radicals”, The Economist, November 21, 2002

211 It currently supplies approximately 15% of U.S. imports, according to EIA figures.

212 PDVSA is the cornerstone of the Venezuelan economy, which explains the upheaval caused by this action

213 Tim Padgett. “Crazy Like a Fox”, Time Magazine, September 24, 2006

officials have always denied supporting it in advance.²¹⁴ In any case, Chávez’ supporters brought him back to power after only a few days.

Regardless of American concerns over Chávez’s anti-American attitudes, there are also problems associated with such heavy reliance on producers in the Western hemisphere. There is a particular kind of short-term insecurity associated with short-haul oil, such as that

delivered to the U.S. by Western hemisphere producers. Any disruption of production, and hence deliveries, will be felt almost immediately by U.S. refiners, who will have little time to adjust and find other sources to compensate for losses of deliveries. With long-haul oil, such as that coming from Middle Eastern producers, the effects of disruptions in production will not be felt for weeks in the U.S., giving more time to take the appropriate measures. The EIA points to the case of hurricane Roxanne, which damaged several off-shore Mexican

production facilities in 1995 to illustrate this: “Some 40 million barrels of Mexico’s production was eliminated, the vast majority earmarked for refineries along the U.S. Gulf Coast. These refiners, less than a week’s sailing time away, had little time to compensate for this sudden hole in their planned supplies.”²¹⁵ What this means for the energy security of the U.S. is that over-dependence on nearby producers carries its own risks, which ideally should be compensated for by a healthy mix of long-haul and short-haul imports.

5.3.3 Africa

Producers in Africa, primarily Nigeria and Angola, also provide a considerable share of U.S.

oil imports. Like so many other oil producers, however, there are several problems associated with both of these countries. Angola has only recently emerged from a 27 year civil war, which was Africa’s longest-running conflict and followed shortly after Angola’s war of independence with Portugal. The country has only just started recovering and the situation is still somewhat uncertain. Nigeria’s oil industry regularly comes under attack from insurgents in its oil producing Niger Delta region, who feel the local inhabitants are not getting their fair share of the country’s oil riches. These insurgents have attacked oil production facilities and kidnapped foreign employees of IOCs operating in Nigeria, leading to uncertainty about Nigeria’s ability to maintain a reliable, undisrupted flow of oil.²¹⁶ In fact, the recent turmoil in

214 Tom Gibb. “Analysis: After the Would-be Coup”, BBC News Online, April 14, 2002

215 EIA. Oil Market Basics

216 “Attack on Nigeria oil facilities”, BBC News Online, October 25, 2006

“Oil workers released in Nigeria”, BBC News Online, November 7, 2006

“Oil workers flee Nigerian siege”, BBC News Online, November 9, 2006

the country has reduced its oil production by more than 20% from peak levels.²¹⁷ This uncertainty is compounded by occasional sectarian violence and fear about Nigeria’s future viability as a unified state. Despite this, the U.S. is expected to import more crude oil from Nigeria by 2020 than it currently does, both in absolute terms and in share of total imports.²¹⁸

These problems and uncertainties in almost all the regions from which the U.S. imports its oil contribute to the need for diversity of supply and help draw the U.S.’ attention toward

Caspian shores. While the states of the Caspian are not democracies and all have questionable records on human rights, they are considered relatively stable compared to many other oil producers. Clearly, there are uncertainties, particularly with regard to the question of the eventual transfer of power from the current leadership, which is generally made up of people who have remained in power from the Soviet period, to the next generation.²¹⁹ Nonetheless, the Caspian region seems more stable than most alternatives.