OIL-SECURITY KEY IS VOLUME FLOWING FREELY IN TRADE

Bob Tippee

The Russia-US energy summit in Houston Oct. 1-2 featured repeated reference to US reliance on oil from the Middle East, Saudi Arabia in particular. Progress toward a strategic joint venture between the former Cold War foes on energy hinged at times on concern about US imports of Saudi crude.

The 1.5 million b/d that the US receives from Saudi Arabia—one sixth of its total crude imports and one tenth of what its refineries run to stills—has been judged excessive, although Canada supplies more and Mexico and Venezuela nearly as much.

So the presumption is strong that the US would benefit from importing more crude oil from Russia and a similar amount less from Saudi Arabia. To that end, among others, the US and Russian governments will spend the next year negotiating agreements, making commitments, and issuing communiques about how much they're doing for energy security.

In fact, useful as a Russo-American energy strategy can be in some areas, it might do more harm than good to energy security.

How much oil the US imports from Saudi Arabia or any other single exporter doesn't matter much. What matters to countries with irreversible needs to import oil is that exporters sell their oil on market terms to somebody.

What, indeed, would happen if the US raised imports of Russian oil by, say, 500,000 b/d and cut imports from Saudi Arabia by the same amount? Saudi Arabia would sell that much more in Asia or Europe, where Russia would sell that much less. That's about all.

The US makes itself no more secure by oxidizing Russian instead of Saudi hydrocarbon molecules. And it might compromise security if it sacrificed anything—including purchasing flexibility—to secure extra Russian supply.

Security in the modern market comes from oil flowing liberally in trade. It's a function primarily of the number of suppliers to that market and secondarily of the number of suppliers to specific buyers—not of who buys how much from whom.

A joint energy strategy can be good for the US and Russia. But it should proceed for sound reasons.

(Online Oct. 4, 2002; author's e-mail: bobt@ogjonline.com)

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