Libya's Oil Shock Wake Up Call
With Libya in turmoil, the U.S. is getting another reminder of the dangers of tying our economy to unstable, uncontrollable petro nations.
With Libya’s rancid Qaddafi regime coming apart at the seams, the U.S. is getting another reminder – as if one were needed – of the dangers of tying the U.S. economy to unpredictable, uncontrollable events in dysfunctional petro nations.
In response to Middle East turmoil, congressional Republicans have fallen over themselves to call for more domestic oil production. Not one though has said much of anything about pushing the envelope of fuel efficiency, through a revenue-neutral carbon price or other means. In effect, they signaled to the OPEC cartel barons that the U.S. is not serious about getting off the sauce.
What you seldom hear from the drill-till-we-drop crowd is that oil is a globally traded and priced commodity, and the OPEC gang remains the market’s marginal supplier. U.S. conventional oil in the ground, about 2 percent of the world’s total, is dwarfed by OPEC’s reserves. Any additional domestic output, when it arrives on the market, would do little to lessen the dangerous vulnerabilities of oil dependence.
Libya illustrates the perils of keeping our apron strings tied to the world oil market. The North African country doesn’t contribute much to U.S. oil supply. In 2009, America sourced about 29 million barrels from Libya, less than 1 percent of total crude oil and petroleum product imports. Instead, Libya’s importance is that it produces a higher quality of oil – low in sulfur with lighter viscosity - that is more easily refined into gasoline and jet fuel.
So, even if Saudi Arabia, OPEC’s big tuna, deployed some of its approximately 3 million barrels per day of spare production capacity to replace lost Libyan output, refineries that can’t use the heavier varieties of Saudi crude would still bid up the price of the lighter grades, which would reverberate worldwide.
On Wednesday, the price of benchmark West Texas Intermediate shot up $5 on the New York Mercantile Exchange. Crazy Moammar’s atrocities are roiling the global oil market. Sooner or later, the price will show up at the pump in Peoria.
And if the Saudis turned their valves to full open in order to calm the markets, there would be that much less spare capacity to balance markets tightened by demand growth or by another Middle Eastern petro regime crashing and burning – think Algeria, for example.
Or, in the worst-case scenario for oil traders, Saudi Arabia. The news out of the world’s largest gas station is that a “day of rage” rally is planned for March 10. No wonder King Abdullah stepped off the plane after a three-month bout of medical tourism and announced he’s splashing out $37 billion for housing assistance, soft loans, and other candy designed to keep the kingdom's unemployed kids off the streets and away from troublemaking Facebook pages.
As long as America’s energy future is tied to oil, that energy future will depend on the stability of regimes with feet of clay. Yes, more domestic oil production would help a bit on the margins. It’s far from a complete answer, however, and as long as congressional Republicans give little more than lip service to energy efficiency or, worse, bad-mouth efficient use of energy as a socialist plot to destroy freedom, America will remain vulnerable to the vicissitudes of harsh regimes that have worn out their welcome.