Drilling Deeper Into the Iraqi Oil Embargo
By Tony Crescenzi
Special to TheStreet.com
04/08/2002 05:01 PM EDT
Iraq's use of oil as a weapon against the U.S. and its effect on the financial markets serve as reminders of just how much the world depends on oil from the Middle East. With its export stoppage, Iraq ostensibly hopes to disrupt the supply of oil, thereby raising its price. The ultimate success of that strategy rests almost entirely on a broadening of the embargo. Fortunately, there are no indications of that possibility happening.
Despite the lack of an immediate threat to the U.S. and to the global economy, Iraq's move necessitates a closer look at the particulars of energy usage in the U.S. Below are the major points, followed by frequently asked questions on the subject. All of the information was obtained from U.S. government sources.
As a share of gross domestic product, U.S. consumption of crude oil is much smaller today than it was in the 1970s, when two major oil shocks spurred economic recessions.
Global reserves of crude oil are significantly higher than they were in the 1970s, when reserves were first established.
While the U.S. imports more crude oil today than it did in the 1970s, the U.S. gets a smaller percentage of its oil imports from the Organization of Petroleum Exporting Countries, better known as OPEC.
Frequently Asked Questions
How much crude oil does Iraq produce, and how much does it export daily?
Iraq produced an average of 2.45 million barrels a day in 2001, with exports averaging roughly 2.0 million barrels a day. In 2002 Iraq has exported roughly 1.5 million barrels a day.
How much crude oil does the U.S. import from Iraq?
The U.S. imported an average of roughly 778,000 barrels a day from Iraq in 2001.
How does Iraq export its oil?
Recently, about 75% of all Iraqi exports went through the port of Mina al-Bakr, with the rest of it flowing through the Iraq-Turkey pipeline, which was said to stop flowing at 6 a.m. ET Monday. Al-Bakr is used largely for exporting to Asia. Iraqi oil is commonly sold initially to Russian firms, with other large producers including Italian, Malaysian, French and Chinese firms. The oil is then resold to a variety of companies, including ExxonMobil (XOM:NYSE - news - commentary - research - analysis), ChevronTexaco (CVX:NYSE - news - commentary - research - analysis), Citgo, BP (BP:NYSE ADR - news - commentary - research - analysis), Marathon (MRO:NYSE - news - commentary - research - analysis) and Coastal.
How much oil is produced in the world daily?
Global production of crude oil is roughly 74 million barrels a day.
How much capacity is there in the world to produce oil?
The estimated production capacity for oil worldwide is 80.2 million barrels a day. That means that there's now about 6 million barrels of spare capacity in the world. Of those 6 million, roughly 5 million of the spare capacity is in OPEC countries. About 60% of OPEC's spare capacity is in Saudi Arabia.
How much oil does the U.S. consume daily?
The U.S. consumes roughly 19.5 million barrels a day.
How much oil does the U.S. import daily?
The U.S. imports roughly 11 million barrels a day.
How much of U.S. imports are from OPEC?
The U.S. imports roughly 5.2 million barrels a day from OPEC.
As a share of total U.S. consumption, how does the U.S. import of oil from OPEC compare with levels seen in the 1970s? In other words, how dependent on OPEC oil is the U.S. today compared with the 1970s?
In 1977, 33.6% of U.S. oil imports were from OPEC. Today roughly 26% of U.S. oil imports are from OPEC.
How much oil does the U.S. import daily from Saudi Arabia?
The U.S. imports roughly 1.6 million barrels a day from Saudi Arabia. Oil revenue represents roughly 90% to 95% of total Saudi export earnings, underscoring that country's dependence on oil for revenue.
How much oil does Iran produce, and how important is oil in Iran's economy?
Iran produces roughly 3.6 million barrels a day. Oil revenue accounts for about 80% of all export earnings in Iran and 40% to 50% of its government budget.
What is energy's share of the U.S. economy?
Today, energy expenditures constitute just 7% of the U.S. economy, compared with about 14% in 1980. Crude oil and crude oil products make up about 3% of the economy, compared with about 8% in 1980.
How much crude oil is held in reserve in the U.S. and abroad?
The U.S. holds 561.4 million barrels of crude oil in its Strategic Petroleum Reserve. That amounts to 53 days of inventory protection. There are an additional 30 days of inventories held by private companies. Countries in the Organization for Economic Cooperation and Development, or OECD, hold a total of 1 billion barrels of oil in strategic reserves.
How much crude oil does the U.S. military consume?
Worldwide, the U.S. military's consumption of petroleum amounts to roughly 1.6% of total U.S. domestic consumption.
Would rising oil prices stoke inflation in the way it did in the 1970s?
The runaway inflation of the late 1970s helped the Federal Reserve to recognize that, to avoid a spillover of inflation in crude oil to other goods, it must avoid monetizing the rise in crude oil prices. In other words, the Fed now knows it can reduce the upward pressure on other goods by limiting the amount of money available in the financial system. So, if an extra dollar gets spent on crude oil, that would reduce the demand for other goods by a dollar, thereby creating a disinflationary influence for other goods.
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Through the years, key policy decisions have helped to reduce both the likelihood and the potential damages of an oil embargo. Our close ties with Saudi Arabia and the establishment of the Strategic Petroleum Reserve are two examples. New drilling in the Arctic National Wildlife Refuge and greater cooperation with non-OPEC states such as Russia could reduce these risks further.
Meaningful shock absorbers are in place, and given the economics of the situation, OPEC won't likely join Iraq's embargo. Nonetheless, the situation in the Middle East is probably the single biggest threat to the U.S. economic expansion.
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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. |
