Scenario planners around the world are carefully considering their options when it comes to securing supplies of oil. Indeed, without being dramatic, one can see some very worried planners around the globe.
Consider Iran. Last week, Iranian President Mahmoud Ahmadinejad invited China, Russia, and other Central and South Asian nations to convene a special meeting to boost energy cooperation.
Speaking at an open session of a gathering of a regional group, Ahmadinejad suggested that energy ministers from the 11 nations meet in Iran “to explore more effective ways of cooperating.”
The group, known as the Shanghai Cooperation Organization, began a decade or so ago by dealing with border security but more recently has expanded its scope to include counterterrorism and economic issues. That has raised concerns in Washington that it is developing into an anti-Western security and economic bloc.
Strategic reserves
Could such a group limit supplies of oil to the US or other Western nations? At least in the case of a cut-off of Iranian oil exports, US Energy Sec. Sam Bodman said recently, “We certainly could handle it for a while.”
He said the US emergency crude oil stockpile could be tapped in the event that Iran cut oil exports. “If push were to come to shove and there would be a reduction in availability of oil exports from Iran, which I do not anticipate...there is the Strategic Petroleum Reserve,” he said.
Less assuring, however, is news that the US is inadequately prepared for a loss of oil from Venezuela and that action by Venezuela to cut oil exports to the US would boost fuel prices by at least 15% and crimp short-term economic growth.
That’s not Hollywood screenwriters talking, either. It comes from a study by the Government Accountability Office, and the threat is very real as Venezuelan President Hugo Chavez has repeatedly threatened to “cut off” oil shipments to the US if Washington continues, as he alleges, to “plot” his overthrow.
Sukhois on order
“A loss of 2.2 million b/d of crude oil for 6 months would, all else remaining equal, result in a crude oil price spike of up to $11/bbl in the early stages of the disruption,” the GAO report says. Such an increase from the current price of about $70/bbl would cut US economic output by about $23 billion, the report said.
Even the closure of Venezuela’s Citgo refineries in the US would have serious political consequences. “If closing the refineries was deemed a threat to US national security, Venezuela could potentially face sanctions by the US government,” the report says.
Interestingly, just like Iran, Venezuela is now turning to Russia for protection. According to Chavez, Venezuela will purchase 24 new Russian-made Sukhoi fighter jets this year as his government moves forward with plans to set up factories to produce Russian-designed Kalashnikov assault rifles under license.
