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Business and ex-military leaders caution against U.S. supporting Middle Eastern oil “cartel”

The views expressed are those of the author and are not necessarily those of Scientific American.


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Libya,oil, protestJust a few weeks after issuing policy recommendations aimed at weaning the U.S. from foreign oil, a group of business executives and retired military leaders known as the Energy Security Leadership Council (ESLC) seized on the political turmoil in Libya and other oil-rich nations to press its case. With oil prices once again hovering at $100 per barrel the council held a press conference Thursday to caution the U.S. against continuing to commit money and military resources to support what is essentially an oil "cartel" in the Middle East.

It is one of the U.S.’s greatest economic risks to be tethered to increasing supplies of imported petroleum from politically unstable parts of the world, in particular the Middle East and North Africa, Fedex Corp. President and CEO Frederick Smith said Thursday. Smith, who is co-chair of the ESLC, added that every U.S. economic recession since the first Arab oil embargo of 1973 has been "preceded or contemporaneous with a significant run up in oil prices."

That’s not surprising given the way the rising price of oil acts like a tax on U.S. consumers collectively—a total rate of about $75 billion is taken out of the country’s purchasing power for every $10 increase in the cost of a barrel of oil, according to Smith. "The most important thing to recognize about the oil market, and what requires urgent and decisive action on the part of United States government, is that it is not a free market," he said. "It is a market which is basically managed on the margin by a cartel which, if it were doing the things it does on a routine basis in this country, would find itself in violation of the laws of the United States."

The recent uprisings in Egypt, Tunisia, Libya, Bahrain and other countries in the region were unforeseen and another reminder of the fragile balance of power in that part of the world, General Charles Wald, USAF (Ret.), said at the press conference. Wald, an ESLC member and former deputy commander of U.S. European Command, added that the crisis in Libya alone is shutting out between 300,000 to potentially 350,000 barrels of oil per day.

Since 1970 the U.S. has spent between $65 billion and $85 billion annually to have a military presence in the Middle Eastern region to ensure the security of, and U.S. access to, the oil produced there, Wald said, citing a Rand Corp. study. The U.S. received yet another wakeup call in 2008 when oil spiked to $147 per barrel, causing the U.S. military’s fuel costs to jump by $11 billion that year, Wald said, adding, "It’s time for our country to become less dependent on imported oil and to look for an alternative."

Former Sen. Byron Dorgan (D–N.D.), who also spoke at the press conference, noted that the U.S. makes up 5 percent of the world’s population and produces about 10 percent of the world’s oil but consumes as much as 25 percent of the total oil produced worldwide. "I think our country would be simply brain dead if what we are seeing and watching and reading about [in the Middle East] doesn’t force us to recognize the threat to our way of life," he said. "To have our economy continue to hang in the balance with what is happening in a very troubled and unstable part of the world is dangerous."

Unfortunately, the press conference was long on statistics and calls to action but short on the specifics of such actions. Nor did Smith, Wald or Dorgan propose how to reconcile the differing opinions in U.S. government and industry regarding how (and with what) to replace foreign oil. Dorgan, in particular, knows firsthand that warnings about dependence on foreign oil aren’t always heeded. As a senator, Dorgan sponsored the Promoting Electric Vehicles Act of 2010 that sought to provide the financial incentives necessary to turn half of the vehicles on U.S. roadways into plug-ins by 2030. The bill had strong support in the Senate Energy and Natural Resources Committee but was never voted on by the full Senate. It will have to be reintroduced to get anywhere at this point.

Meanwhile, FedEx’s Smith acknowledged that his company, which is a major consumer of gas and diesel, is in only the nascent stages of electrification, with about 350 hybrid electric and 20 all-electric vehicles in its fleet. He said he was encouraged by developments in lithium ion batteries but that the up-front capital costs of buying electric vehicles is still much greater than simply relying on diesel fuel.

Image of Libyan protesters earlier this month in Washington, D.C., courtesy of Ted Eyton, via Flickr.com

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  1. 1. landonthegr8 3:14 pm 02/25/2011

    Come on people! We can stop this if we can get our brain dead lawmakers to listen. Of course that would take DRASTIC action! Like … an email or 2? To your state senators and representatives. Not that difficult. Show your support for a terrorist free way to power the future.

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  2. 2. gesimsek 3:36 pm 02/25/2011

    Let’s get real. For more than three decades, the US has supported authoritarian regimes in the middle east for an easy-access to oil. In return those regimes put petro-dollars in US and European markets instead of investing in their own countries. This "smart" policy undermined the social fabric of both societies: causing widespread poverty and corruption in the middle-east thus creating fundamentalist ideas against the west, and causing a culture of financial economy in the east creating financial bubbles and undermining real economy. Now facing a huge oil demand from China, price of oil is bound to rise and the wealth created by it is finding its way to financial centers of the far-east. The only viable solution to this problem is to empower people in the middle-east so that they can have more say in their own government which has to invest more at home to please their voters, thus creating a growing demand in the region for western goods, which would help job creation at home.

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  3. 3. John_Toradze 6:15 pm 02/25/2011

    Nuclear power. None other than Stewart Brand, the creator of the Whole Earth Catalog, said, "We environmentalists were wrong. Nuclear power is the least damaging."

    If we had continued on the nuclear trajectory in the 1970′s we would be independent now, we would not have global warming looming.

    The only other serious alternative is orbital solar-electric stations to transmit power back by microwaves. This method was design in he 1960′s, it would work without damage to the environment. The energy density would be able to support cattle ranching on the land over the receiving antenna.

    Our "NO TO EVERYTHING!" environment stance has dictated the worst options continue. Those are coal and oil.

    It doesn’t have to be this way.

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  4. 4. JamesDavis 8:57 am 02/26/2011

    We are not addicted to oil, we are addicted to greed. We need to get these greedy auto makers like GM, Chrysler and Ford to start mass producing affordable all electric cars and get them on the market as quickly as possible. 2030 is too far away; by then we will be in our own civil war and tilting on the edge of a third-world economy and society.

    Nuclear power plants are too expensive and to time consuming to build; it will take too long. We need to rapidly advance a more renewable, cheaper and never ending power source like Geothermal, Solar and Hydrokinetic power that only takes a short time to build and start producing. Total electric cars will quickly get us away from foreign oil and we can start using our oil production for more important things.

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  5. 5. sethdayal 2:48 pm 02/27/2011

    With fossil to nuclear conversion rates of return in the 40% range, there should be a push to move the off coal and fossils to nukes for health, economic, national security and jobs reasons.

    No need for oil imports.

    Only our corrupt politicians with their Big Oil/Coal campaign donations and other more personal payouts stand in the way.

    US nuclear costs built by public power power are now dropping to under $3B/Gw 4 cents a kwh which is cheaper than both coal and natural gas. With Repug plans to strip our NRC – the most ineffective incompetent regulator in the OECD, of its power and to build 100 new nukes, nuke power costs will soon drop to the levels now predicted in China – $1B/Gw 1.5 cents a kwh with the same 3 year build times . Far cheaper than coal or natural gas.

    The Chinese are so enthused with their builds of American built Westinghouse AP-1000 that they are increasing their old 70 GW of nukes by 2020 goal to 120 Gw.

    Coal kills 30K Americans every year and sickens hundreds of millions more – an estimated cost of $120B per annum. The US spends $800B annually on fossil fuels. $2500B would be enough to replace all fossils with mass produced nukes – a 40% rate of return on the nuke investment.

    During World War II with an industrial capacity a tiny fraction of today’s, the USA at its peak was building the equivalent of 3 nuke plants a day with its Liberty ship production alone.

    As we convert to nukes, NG electricity and heating applications would immediately convert to nuclear electricity. The freed up gas would be available to make CNG, methanol, DME (propane), and synfuel transportation fuels as we transition to nuclear produced synfuels and electric vehicles.

    Check out Shell’s first of kind natural gas to liquids plant, Pearl in Qatar. Produces diesel for under $25 a barrel. With Shell’s experience this plant built in the USA could make diesel out of natural gas at $15 a Barrel. Could easily be converted to using nuclear hydrogen and atmospheric CO2 as a feed stock. Never gets reported in the media as Big Oil doesn’t want you to know as you there is another way as you fill up with the $100 a barrel stuff.

    Call it the nuclear Picken’s plan.

    Obama by embracing this national nuke conversion using FDR’s TVA and Bonneville models would overnight end unemployment, end the global warming/peak oil menace, save the lives of tens of thousands of Americans every year and create the greatest construction boom in US history.

    He’d likely be reelected!!!!

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