An Analysis of the Likelihood of a Second Oil Embargo and America's Preparedness for It

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The world’s economy is dependent on the availability of crude oil, which supplies the fuels needed for the transportation of labor, raw material, and most importantly final goods. Not only does oil fuel our economy, but it also yields over six thousand useful products, including fertilizers, plastic, and rubber. The Organization of Arab Petroleum Exporting Countries (OAPEC) supplies 42.4% of the international demand for crude oil, while also accounting for 43.52% of the world’s proven oil reserves or 724.71 billion barrels (The World Fact Book, 2018). In 1973 the OAPEC realized the true economic and political power that it possessed, leading to the coining of the term “oil weapon”. The OAPEC declared an oil embargo on all countries that supported Israel in the Yom Kippur War. It did so by implementing monthly oil production cuts with the condition that Israeli forces exit occupied Arab lands taken in the six-day war (Graf, 2012). These measures lead to oil prices skyrocketing in the USA from $3 to $12 per barrel (Canadian Broadcasting Corporation, 2006), which translates to $17 and $61 respectively in today’s market. This is due to the fact that it was cheaper to import oil into the USA than it was extract it locally; therefore, the USA was highly dependent on imports from the Gulf to satisfy its demands. According to Roy Licklieder’s 1988 book, ‘Political Power and the Arab Oil Weapon’, the oil embargo led to high inflation rates in Western Europe and the U.S, but the shortage of oil was not enough to change the policies of these countries when it came to the Arab-Israeli conflict. Hence, the 1973 oil embargo ended after March 1974 and was deemed a failure. With the US being more and more involved in the Arab world and having the final say in most of its recent major decisions, can oil, also known as ‘black gold’ due its high profitability, be used as an efficient political and economic weapon against the US? Practically, a second oil embargo would have little to no effect on the USA, due to the political friction between the OAPEC nations created by previous and current US governments and their economic policies that focus on varying oil sourcing and finding innovative energy sources.

Background Information

After the oil embargo of 1973, the prices of foreign oil were still at an all-time high in the US. The Ford administration tried to deal with this issue by tariffing imported oil to stimulate domestic production. Oddly enough, the same administration imposed high taxes on domestic oil producers which lead to employees being laid off and increases in domestic oil prices. After the Ford administration came the Carter administration, which approached the matter from a different perspective; President Carter believed that if US citizen demand for oil products decreased, suppliers would have to lower their proposed prices. He tried to achieve this goal by calling for Americans to be more conservative with their use of gasoline heating oil. Just like Ford’s plans, Carter’s ended up in failure. Carter’s administration did not anticipate the significance of oil in modern day life; domestic production did not pick up, oil prices remained high, and Americans were unable to cut consumption by the same rate of price increase, proving the inelasticity of oil prices.

Post-Carter Domestic Energy Policies

Since the end of Carter’s presidency in 1981, US governments have applied appropriate domestic policies to ensure the independence of its economy from OAPEC’s ‘oil weapon’ or any other organization that possesses similar capabilities. By cutting taxes and eliminating price controls, US governments created a greater incentive for American oil producers to increase production. Since oil wells are limited, the US had to invest in new and innovative ways to supply domestic oil; by investing capital into hydraulic fracking, it was able to access new type of reserves, shale rocks. This technology was available long ago and its resources were available for extraction, but before 1990 it was still too expensive to extract crude oil using fracking. The US government also invested in new infrastructure such as the Strategic Petroleum Reserve and the Trans-Alaska Pipeline. The Strategic Petroleum Reserve holds 115,600,000 m3 of crude oil, meaning that the US can supply its citizens with oil products under normal consumption rates for 90 days in case of a national emergency where no oil is available through local extraction or import. In addition, the Trans-Alaska Pipeline system led to an increase in oil production in Alaska as it was easier now to transport oil to the mainland. The American government has been conducting ongoing research to find new oil wells and reserves. Reserves were estimated to be 24 billion barrels in 1993 and increased to 36 billion barrels in 2013 (US Energy Information Administration, 2013). Taking into consideration the increasing demand for oil, it is remarkable that the US was able to meet this demand while increasing its oil reserves over the past 20 years. Forty-six new oil fields were discovered since 1973 namely the Shenzi field, Atlantis oil field, and the Sugarkane field, which are major contributors to the oil supply. The previously mentioned steps have ensured the US’s self-sufficiency, which has freed it from any political pressure that could be inflicted upon it.

Sustainable Trading Relationships

Although the US is self-sufficient, it still imports oil from foreign countries. The reasons behind this are multifaceted. The import of oil produced in foreign countries remains cheaper than local production. As the US imports foreign oil, it increases it reserves and at the same time diminishes that of the countries it imports from. It is important to note that the US only deals with countries with which it has long and solid relationships. In 2017 oil from neighboring Canada constituted 38.3% of all US oil imports, while only 19.7% of the total 3.702 billion imported barrels where from OAPEC nations. This means that only 3.5% of the total US oil demand is supplied by OAPEC nations (USEIA, 2017) and it shows that the US has improved its foreign policies to create sustainable trade relationships with allied countries. The US has dealt with its domestic and foreign struggles allowing for effective control over oil pricing and quantities.

Direct Military Intervention and Weapon Sales in the Middle East

Finally, the US dismantled the ‘oil weapon’ by using different methods to gain political control over rogue middle eastern countries and the raw material available there. One of these methods was the direct military intervention in Iraq. The military intervention was advertised to the public as an act of conserving the freedom of the Iraqi and American people. According to President George W. Bush, the invasion was necessary due to the fact that Iraq possessed weapons of mass destruction and the Iraqi Dictator, Saddam Hussein, was oppressing the Iraqi people. Although it was true that Saddam Hussein did oppress certain ethnic and religious groups in Iraq namely the Kurds and Shi’as; the main claim of Iraq holding weapons of mass destruction turned out to be false. Researches and specialists later revealed that the true motives behind this invasion was to increase US influence in the region and to acquire control over Iraqi oil. The negative effects of the invasion can still be seen today. Iraq, a raw material-rich country, with the fifth largest proven oil reserves in the world, finds itself in a ‘civil war’ to this day while oil extraction continues unregulated and oil floods out of the country. The US also enhances its political presence, and consequently its control over foreign oil, through foreign policies that include interfering in regional conflicts. For example, in the Saudi-Yamani war, where America sided with the Saudis, has proven useful to increase weapon sales in the region. Most recently, the Trump administration signed a ten-year deal that could amount to over 350 billion dollars with Saudi Arabia for weapons and ammunition (The Independent, 2017). Deals of this magnitude have left the Saud government with a notable debt owed to the US. Such deals do not come without conditions for their use, ensuring that US affairs are not affected. The US has also taken several opportunities to spread military bases all over the Middle East and North Africa to strengthen its military dominance. There are a total of twenty-six US military bases, strategically positioned for quick military intervention (bases in Iraq, Jordan, and Saudi Arabia) and the blockade of important naval passageways (bases in UAE, Djibouti, and Egypt). It is clear that the US has established powerful political and military control over this region, and has therefore established control over several of its resources including its oil.

Brief Overview of Opposing Position

Some see that an oil embargo would cause high inflation in US oil prices and that US relations with OAPEC nations are not as stable as they seem. Although OAPEC oil does not constitute a major part of US oil supply (3.5%), even a small change in oil supply to the US can cause an inflation due to the inelasticity of oil pricing as explained previously. Furthermore, the Strategic Oil Reserves have never been tested in a real-life situation and a major concern is that the oil stored there is still in its original form and is not ready for direct consumption. In addition, the oil market is unpredictable over the years prices have changed in an unexpected manner. Arab supply of oil is reliant on various factors other than the direct supply of the product to the US, meaning that an oil embargo should not be limited to the US but its allies and even the world. Later such a strategy might become more effective, since other major suppliers in the market are refusing to increase supply such as Venezuela. Moreover, a revolution or a coup in one or more of the OAPEC nations is always imminent, for in the past eight years there have been more than six revolutions in Arab countries. This is due to the fact that the region is an unstable one, with unpredictable changes occurring on a daily basis, taking Iran as an example we can see how change in power after the 1979 Islamic revolution led to 180° shift in Iranian-American relations.

Limitations

The major supplier figures dealing with crude oil supply and demand is the Central Investigation Agency’s World Factbook. With the website’s search engine being down for the last few months, collection of data and statistics concerned with oil imports and exports was very hard to find, and when found came from secondary sources. Another drawback is the fact that there is no data on oil exports to the US by country before 1980. This particular data is very important to further support my second argument which states that the US has better trading partners when it comes to oil.

Conclusion

To sum up, the US has taken the necessary actions to ensure its self-sufficiency and chosen its oil suppliers well enough that it has freed itself from Gulf oil dependency. At the same time with so much political and military power in the Middle East, a second oil embargo seems unlikely mainly because US political influence is deeply involved with the governments of biggest oil producers (Saudi Arabia, UAE and Iraq) and that an oil embargo would not be of the interest of OAPEC nations due to the sever political and economic backlash that they would face from such a decision. The only way OAPEC nations can be in a position of political strength is if they find common grounds upon which they can built just like in 1973. A lot of variables, including social, religious, economic, and political variables, need to be accounted for before such complex ideas can be implemented. Hopefully our young Arab generation can take advantage of our natural resources to put the Arab world back on the map.

References

Graf, R. (2012). Making Use of the ‘Oil Weapon’: Western Industrialized Countries and Arab Petropolitics in 1973-1974. Diplomatic History. 36(1), 185-208. doi: 10.1111/j.1467-7709.2011.01014.x.
Licklider, R.E. (1982). The Failure of the Arab Oil Weapon in 1973–1974. Comparative Strategy. 3(4), 365-380. doi: 10.1080/01495938208402648
Canadian Broadcasting Corporation. (2006, April 18). The Price of Oil – In Context. [News Article] 42_crawl. Internet Archive in the Wayback Machine, San Francisco, CA. Retrieved from https://web.archive.org/web/20070609145246/http://www.cbc.ca/news/background/oil/
Central Intelligence Agency. (2018). Crude Oil. The World Factbook. Retrieved from https://www.cia.gov/library/publications/resources/the-world-factbook/fields/264.html
Renner, M. (2003, January 1). Post-Sadam Iraq: Linchpin of a New Oil Order. Foreign Policy In Focus. Retrieved from https://fpif.org/post-saddam_iraq_linchpin_of_a_new_oil_order/
Sampathkumar, M. (2017, May 17). Donald Trump to Announce $350bn Arms Deal with Saudi Arabia – One of the Largest in History. The Independent, Retrieved from https://www.independent.co.uk/news/world/americas/us-politics/trump-saudi-arabia-arms-deal-sale-arab-nato-gulf-states-a7741836.html
U.S. Energy Information Administration. (2015). Top 100 U.S. Oil and Gas Fields. Washington, DC: U.S. Department of Energy. Retrieved from https://www.eia.gov/naturalgas/crudeoilreserves/top100/pdf/top100.pdf

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An Analysis of the Likelihood of a Second Oil Embargo and America’s Preparedness for It

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