Secure supplies

May 12, 2003
With the Senate now debating sweeping energy legislation (see related story, p. 26), some US lawmakers say a key policy goal should be to encourage oil and gas development outside the volatile Middle East.

With the Senate now debating sweeping energy legislation (see related story, p. 26), some US lawmakers say a key policy goal should be to encourage oil and gas development outside the volatile Middle East.

Oil experts do not dispute that Russia, the Caspian, West Africa, and Latin America will be increasingly important supply sources for US markets. But analysts told senators none of these areas could supplant the Middle East in the foreseeable future.

"We should be under no illusion that a major supply disruption of prolonged duration in the Middle East can be replaced by such sources," Ed Chow, visiting scholar, Carnegie Endowment for International Peace, told the Senate Foreign Relations Committee Apr. 30.

"Given their position as the world's swing producers with the most abundant and cheap oil to produce, sitting between major oil markets in Europe and the US and rapidly rising demand in Asia, Persian Gulf countries have a unique and irreplaceable position in the oil supply chain."

Middle East distrust

A vocal minority of US policymakers, primarily within the Department of Defense, say the US must quickly wean itself from Middle East oil. Their specific concern is Saudi Arabia; some feel the political regime is unstable enough that the US should be more aggressive about taking steps that effectively limit the kingdom's dominating presence in international oil markets.

It's unclear whether US President George W. Bush agrees with this view.

The White House in its official statements consistently says Saudi Arabia is a key ally. The kingdom, for example, kept oil markets well supplied so the US could avoid releasing emergency stockpiles from the Strategic Petroleum Reserve.

Non-OPEC

While acknowledging deep ties to the House of Saud, the US also has stepped up its call to diversify energy supplies.

US officials say they are keen to cultivate investments in countries that are not members of the Organization of Petroleum Exporting Countries. The administration also is resisting industry calls to relax restrictions against Iran, a key OPEC oil producer that could provide attractive investment and transit opportunities for US-based multinational oil companies.

Julia Nanay, senior director of PFC Energy, told lawmakers that diversity of energy supplies is important. But the perception the US faces a greater energy security risk because of recent Middle East developments may not be justified.

"As the war in Iraq seems to demonstrate, the risks of depending on the Persian Gulf have been exaggerated, and billions of dollars in national product and consumer income were spent unnecessarily on war premiums," she said.

She warned lawmakers that if the US is truly serious about energy security, it should not micromanage pipeline routes and investment choices for a policy goal that could change before a project is even built.

"What will companies do with a trade route that may last 40 years if it is undercut by another more efficient route that suddenly opens up because of policy changes? " she asked.