U.S. Oil Dependency and the Middle East

January 6, 2012

The one prominent issue that both American political parties can seemingly agree on is that the United States should be less dependent on foreign oil, especially from the Middle East.  This goal has been made much more feasible by the fact that the United States is in the midst of a mini oil boom, which has temporarily reversed the country's increasing dependence on foreign sources of oil, says Ivan Eland, senior fellow and Director of the Center on Peace and Liberty at the Independent Institute.

However, this should not be seen as a great victory against dictatorships and terrorism-sponsoring governments in the Middle East, and portraying it as such is misleading.  The simple fact is that increased domestic production, coupled with depressed domestic consumption, will have little effect whatsoever on those governments that partially lose the United States as a buyer.

  • Dependence on overseas oil has decreased from 60 percent of U.S. consumption in 2005 to a little less than half now.
  • Only about 18 percent of total imports originate from the Persian Gulf, and therefore changes in our supply and demand can have only a marginal impact on their economies.
  • Furthermore, the prices that these nations receive for their oil are not determined by individual buyers like the United States but by the world market, meaning that even if the United States were able to cut out Persian Gulf imports entirely, the resulting price change would be minimal.
  • Finally, the decision by American lawmakers to target the Middle East for removal from the nation's list of imports is largely mitigated by international buyers who have no moral qualms about buying from that region.

These facts make it clear that even if limiting imports from the Middle East is a desirable policy end, the effects on the local governments would be minimal.

Additionally, despite claims that the world will soon deplete its dwindling oil supply, the United States need not convert itself into an aggressive hoarder of oil.  These claims preclude the fact that the oil production market is dynamic and capable of responding to market forces.  As demand has increased in recent years, production methods that were previously not economical became feasible, and the world oil market reacted.  This suggests strongly that the United States is in no immediate danger.

Source: Ivan Eland, "No War for Oil: US Dependency and the Middle East," Independent Institute, December 21, 2011.

For text:

http://www.independent.org/newsroom/article.asp?id=3211

 

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