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U.S. Dependence on Middle East Oil Eroding
Daily Policy Digest

Energy Issues / Oil Supplies

Friday, March 15, 2002
The U.S. and the rest of the industrialized world are quietly growing less dependent on Middle Eastern oil. The petroleum industry's search for new supplies and profits is behind the trend -- which has calmed fears of a disruption of Persian Gulf supplies during critical phases of the war on terrorism.

 To be sure, the Middle East is still an important supplier. But as other sources come into play, increased competition is acting as a cap on sudden price hikes. Fears of a supply disruption caused prices to rise to nearly $30 a barrel in the days immediately following Sept. 11 -- but they soon fell back and oil is now trading at about $24 a barrel, thanks to the proliferation of new supply sources.
  • Relative political stability in Russia since 2000 has spurred new investment in previously mismanaged Soviet-era facilities -- which allowed it to increase output by 500,000 barrels a day last year.
  • Mexico for the moment has displaced Saudi Arabia as the primary exporter to the U.S. -- and Canada and Venezuela are close behind.
  • Producers in Alberta collect nearly solid tar-like crude and distill it into gasoline and other products in a process that is expected to yield 500,000 barrels a day by 2007.
  • Similarly, nearly solid crude is being pulled up along the Orinoco River in Venezuela utilizing new technologies -- those operations are now yielding 200,000 barrels a day and are expected to triple by 2006.
Some of these operations -- such as those in Russia -- are too far away for them to be direct U.S. suppliers. But they still contribute to the world pool of non-Middle Eastern oil that reduces our dependency on the Persian Gulf countries.

 Source: Thaddeus Herrick, Marc Lifsher and Jeanne Whalen, "As Oil Supplies Grow, U.S. Is Less Reliant on Middle East," Wall Street Journal, March 15, 2002.

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