The Real Price of Middle Eastern Oil
American gasoline is cheap at the pump because consumers pay only for the oil, refining, and transportation to market -- plus tax. What we don't calculate is what the United States spends to defend the oil in the ground or the sea lanes that allow it to be shipped from the Middle East. We don't calculate the perversion of American principles as we coddle dictators to ensure they don't turn off the taps. Factoring those in makes the use of imported oil for transportation fuel much more expensive and distasteful.
The Middle East accounts for about 30% of the world's oil supply (North Africa, mainly Libya and Algeria, is another 6%), with 20% of the supply passing through the Strait of Hormuz. The U.S. is the primary defender of the sea lanes, beginning with the Strait and extending through the Indian Ocean and the Pacific. Along this route, oil is delivered to India, Japan, China, and South Korea, among others. It is an enormous undertaking, costing the U.S. billions of dollars annually and having a heavy political and military impact.
Politically, it requires a potent relationship with Saudi Arabia. The Saudi government is discriminatory toward Jews, Christians, women, and foreigners. It was the original funder of al-Qaeda and continues to export an extremist ideology. But it pumps a reliable 9+ million barrels a day, which appears to balance the scales.
Oil policy involves the U.S. in uprisings for and against dictators in Libya, Yemen, and Bahrain. It skews the American relationship with Israel and encourages Palestinian intransigence. It encourages the U.S. to temper its public defense of civil rights and individual liberty to ensure the continued flow of oil.
Militarily, it has meant the establishment and maintenance of CENTCOM, designed to protect the Gulf but located in Tampa, FL to avoid "regional sensitivities," meaning the Arabs we protect don't want to see us very often. It has fueled an arms-first relationship with dictators -- U.S. aid to Hosni Mubarak was split $1.25 billion for arms and $250 million in civilian support. It meant American involvement on Saddam's side in the Iran-Iraq war, and then against him in the Gulf War and the Iraq war. It meant involvement in Libya on behalf of French and British oil interests. It means that the U.S. has now assumed primary responsibility for keeping the Strait of Hormuz open should Iran try to close it.
On the other hand, securing the Strait of Hormuz and the passage of Persian Gulf oil ensures the safe arrival of about 77% of Japan's oil imports, 74% of South Korea's imports, and 43% of China's imported oil. India imports 11% of its crude oil from Iran, 18% from Saudi Arabia, and 34% from elsewhere in the Middle East -- making it over 60% dependent on the region. (If you think the 1 July embargo on Iranian oil greatly changes these figures, be aware that the Obama administration has issued waivers to 20 of Iran's biggest customers, including China and India.) To defend what is arguably of greater importance to them than to us, India, Japan, South Korea, and China pay exactly nothing.
This is a good time to consider the relationship among transportation fuel, defense policy, and defense spending. Over the next decade, nearly $500 billion (9%) will be cut from the Defense budget if the planned Sequestration goes through in January. This falls on top of $487 billion in cuts already agreed to by DoD. Both the secretary of defense and the chairman of the Joint Chiefs have called the situation dire.
Earlier this year, President Obama said, "The size and structure of our military and defense budget have to be driven by a strategy -- not the other way around." But to the extent that the U.S. assumes military responsibility for defending indefensible regimes and ensuring China's access to oil, our military spending is at odds with our strategic aims. Defense of our friends and deterring/eliminating our adversaries should be our national security drivers.
The time is right -- the world's energy picture is changing in terms of resources and who controls them. Israel and Cyprus are poised to be major players in Europe and Asia. Canada is developing additional resources, and the U.S. is reclaiming its stake in domestic energy. The shift can be hastened by the recognition that Middle Eastern oil is not now and never has been cheap.
Shoshana Bryen is senior director of The Jewish Policy Center; Stephen Bryen is president of SDB Partners.