The curse of oil dependence

By Gal Luft
The Jerusalem Post, December 20, 2002.

Recent turmoil in the two largest non-Arab OPEC countries, Venezuela and Nigeria, together supplying more than 23 percent of the American crude-oil imports, is again raising doubts about America's long-term ability to secure a cheap and reliable oil supply.

The two major petroleum-producing nations are the mainstay of America's post-9/11 policy of reducing dependency on Middle East oil, currently the source of about 18% of the US's total imports. Unlike Persian Gulf oil requiring long and expensive transport, oil from Venezuela and Nigeria is considerably closer. But growing instability in these countries could shatter the hope of a cheap, uninterrupted flow of oil from the non-Arab part of OPEC. This, while looming war with Iraq is already threatening to push oil prices temporarily to at least $ 40 per barrel.

Venezuela ranks among the top 10 producers in the world and is the America's third-largest oil supplier. In recent weeks the country has come to the brink of civil war. Conflict between leftist President Hugo Chavez and a coalition of opposition parties and labor unions has drawn hundreds of thousands of people to the streets calling on the military to overthrow Chavez.

A general strike has brought the Venezuelan economy to a halt and has already disrupted the country's ability to export oil. The strike has already entered its third week and the country is defaulting on international oil contracts. The situation in Venezuela has brought oil prices to rise to $ 30 a barrel adding more strain to the already struggling American economy.

In Nigeria, another major supplier to the US, producer of 1.9 million barrels per day, the situation is not much better. Since civilian government replaced military rule in 1999 and Shari'a law was introduced in Nigeria's northern provinces, the West African country has faced waves of religious riots between Muslims and Christians resulting in more than 10,000 deaths.

The bloodshed that was sparked last month by an article offensive to the Muslims regarding this year's Miss World pageant contest in Nigeria led to riots in the northern city of Kaduna killing more than 200 and injuring more than 500. Nigeria is not the only unstable African country, nor it is the only stage of clashing religions. But it is the only African country supplying almost 10% of America's oil imports, and therefore its plight cannot be ignored. If Nigeria shuts down, the US would be forced to fall back on Arab oil.

It is a sad fact of life that OPEC, despite its generally responsible behavior keeping oil prices fair, is a club of countries which are either politically unstable or are at serious odds with the US. President George W. Bush too recognized that dependence on foreign oil "from countries that don't particularly like the US" has become a matter of national security.

Now, even the few OPEC members who do like America cannot be relied upon. Yet, the US still relies on OPEC for half of its oil imports. Why? Because there really are no good reliable sources that could replace OPEC countries, collectively holding 80% of proven global reserves.

Many suggest that Russia and other non-Middle East producers could take on OPEC and help shift global oil supply away from the tumultuous region. And indeed, Russia's oil production has increased to the point that it has become the second largest exporter behind Saudi Arabia. But Russia's prospects of being a key player in the oil market in the long run are dim. It has only 5% of global reserves, and these reserves are steadily declining. Furthermore, the rush for non-Middle East oil is a shortsighted solution which, in the long run, will only create a bigger problem.

Depletion of the reserves of non-Middle Eastern suppliers will increase OPEC's share of the pie. This means that as of next decade the US will be much more dependent on the club from which it is so eager to divorce.

This leaves the US with only one viable strategy: to increase the supply from reliable sources, improve the fuel efficiency of its current automobile fleet, and embark on an accelerated shift to next-generation fuels.

"That's exactly what my administration is dedicated to do," said Bush last February. What is less clear from his pledge is how dedicated the administration really is and how fast will it act to free America from the dependency on oil from countries that are either divided against themselves or united in their dislike of it.

The writer is co-director of the Institute for the Analysis of Global Security in Washington.

Copyright 2002 The Jerusalem Post
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