tag:theconversation.com,2011:/us/topics/us-oil-industry-85815/articlesUS oil industry – The Conversation2023-10-11T13:55:47Ztag:theconversation.com,2011:article/2146702023-10-11T13:55:47Z2023-10-11T13:55:47ZRising oil prices, surging inflation: The Arab embargo 50 years ago weaponized oil to inflict economic trauma<figure><img src="https://images.theconversation.com/files/552594/original/file-20231006-29-4blfs7.jpg?ixlib=rb-1.1.0&rect=321%2C1017%2C3548%2C2355&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cars lined up for gasoline in New Jersey in 1973 as supplies ran low and prices shot upward.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/drivers-queue-for-fuel-at-a-petrol-station-near-trenton-new-news-photo/155367107">Frederic Lewis/Archive Photos/Getty Images</a></span></figcaption></figure><p>Fifty years ago, a secret deal among Arab governments triggered one of the most traumatic economic crises to afflict the United States and other big oil importers. </p>
<p>Saudi King Faisal and other Arab leaders <a href="https://history.state.gov/milestones/1969-1976/oil-embargo">launched an oil embargo</a> on Oct. 17, 1973, as payback for Washington siding with Israel in <a href="https://history.state.gov/milestones/1969-1976/arab-israeli-war-1973">its war with neighboring Egypt and Syria</a>.</p>
<p>The oil market hostilities arose from a pact between Faisal and the leaders of Egypt and Syria, whose armies planned surprise drives to retake their territory under Israeli occupation. If the United States intervened to assist Israel, Faisal and other Arab producers agreed to retaliate with the “oil weapon.”</p>
<p>When Washington <a href="https://amcmuseum.org/history/operation-nickel-grass/">airlifted in U.S. weapons</a> that helped Israel thwart Arab gains, Faisal and OPEC’s Arab members retaliated. They increased oil prices, banned oil shipments to the United States and cut production by 5% per month. </p>
<p>The ensuing economic and political carnage is legendary. The embargo catalyzed a long period of upheaval in global oil markets and pain at the gasoline pump for Americans and consumers globally. Oil prices <a href="https://www.federalreservehistory.org/essays/oil-shock-of-1973-74">quadrupled nearly overnight</a> and remained high for over a decade. Producing countries leveraged the opportunity to reclaim sovereignty over their oil reserves. By 1980, many had completed the process of kicking Western oil companies out of their territories.</p>
<p><iframe id="EbIGW" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/EbIGW/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Oil’s global regime change</h2>
<p>The embargo’s disruptive power was due to two key factors: OPEC’s dominance of world oil supply, and oil’s supremacy in the global energy mix.</p>
<p>Prior to the embargo, oil fueled almost half of total energy consumption in the United States (47.5%) and worldwide (49%). While OPEC countries produced more than half (53%) of <a href="https://www.energyinst.org/statistical-review">global oil</a>, the concessions were operated by Western oil majors.</p>
<p>After the embargo, producer states took over. Control of global oil production passed from Western oil giants like Shell and Exxon to newly formed national oil companies.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Men in suits sit at two rows of tables across from one another. Ahmed Zaki Yamani is looking into the camera." src="https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=492&fit=crop&dpr=1 754w, https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=492&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/552582/original/file-20231006-21-fz8jzx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=492&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Saudi oil minister Ahmed Zaki Yamani, second from left at the table, negotiated a deal that shifted control of Arabian American Oil Company from Exxon, Chevron, Mobil and Texaco to Saudi Arabia. Saudi Aramco is now the world’s largest oil producing company.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/picture-taken-08-october-1973-in-vienna-showing-the-news-photo/97661766?adppopup=true">AFP via Getty Images</a></span>
</figcaption>
</figure>
<p>As a result, a torrent of cash from oil sales poured into Middle Eastern countries where rudimentary services like electricity were still being built out. Oil revenues in Saudi Arabia jumped fortyfold between 1965 and 1975, from US$655 million to $26.7 billion. These countries also amassed <a href="http://cup.columbia.edu/book/energy-kingdoms/9780231179300">new geopolitical power</a>. </p>
<h2>How the oil price spike played out in the West</h2>
<p>In the West, price increases wreaked havoc on economies and transport systems that were far less efficient than today. Inflation soon boiled over into “<a href="https://www.cnn.com/2023/08/10/investing/premarket-stocks-trading-stagflation/index.html">stagflation</a>,” a combination of economic stagnation and high inflation. Misguided policies, including gasoline <a href="https://www.eenews.net/articles/what-the-1970s-teaches-about-todays-energy-crisis/">price controls</a> and rationing, exacerbated shortages, creating long lines at service stations and emboldening gasoline thieves.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/ra9Ep6jEcLA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A look back at the 1970s oil crisis.</span></figcaption>
</figure>
<p>America saw a pell-mell downsizing of <a href="https://www.youtube.com/watch?v=8VrjlpAdTrU">gas-guzzling vehicles</a> and a simultaneous ramping up of imports of fuel-efficient Japanese cars. Drivers obsessed over miles per gallon, and the U.S. government imposed corporate average fuel economy, or <a href="https://afdc.energy.gov/data/10562">CAFE, standards</a>, aimed at saving fuel by requiring automakers to sell more fuel-efficient cars.</p>
<p>Western oil companies, kicked out of the Middle East and other oil regions, pivoted to more difficult terrain: the offshore Gulf of Mexico and North Sea, and the Arctic regions of northern Alaska.</p>
<p>As scholars of <a href="https://scholar.google.com/citations?user=wXoaLZMAAAAJ&hl=en">energy</a> <a href="https://www.bakerinstitute.org/expert/mark-finley">policy</a>, we have long studied the embargo’s spillover effects on the global economy and political systems. These outcomes are a central theme in Jim Krane’s 2019 book “<a href="http://cup.columbia.edu/book/energy-kingdoms/9780231179300">Energy Kingdoms</a>.” On the embargo’s 50th anniversary, Oct. 17, 2023, King Faisal’s son, the former Saudi Ambassador to Washington Prince Turki Al Faisal, is joining us for a <a href="https://www.bakerinstitute.org/event/chaos-energy-markets-then-and-now-50-years-after-1973-arab-oil-embargo">conference at Rice University’s Baker Institute</a> to discuss the still-valid lessons of the Arab oil embargo.</p>
<h2>50 years later, new pressures</h2>
<p><a href="https://www.bakerinstitute.org/event/chaos-energy-markets-then-and-now-50-years-after-1973-arab-oil-embargo">Fifty years on</a>, markets have changed. But oil continues to be the world’s dominant energy source.</p>
<p>On one hand, crude oil use has grown dramatically. <a href="https://www.energyinst.org/statistical-review">Global supply has risen</a> from less than 60 million barrels per day in 1973 to nearly 94 million barrels per day in 2022. Motor fuel prices are still a critical input to inflation; we calculate that the <a href="https://www.eia.gov/outlooks/steo/">increase in gasoline prices</a> in 2022 cost the <a href="https://usafacts.org/data/topics/people-society/population-and-demographics/population-data/households/">average American household</a> roughly $1,000.</p>
<p>On the other hand, OPEC’s importance – and oil’s share of the global energy mix – has declined. <a href="https://www.opec.org/opec_web/en/about_us/25.htm">OPEC’s 13 members</a> account for just 36% of global oil production today. The high oil prices caused by the 1973 embargo created incentives for oil drillers to diversify toward new sources of oil and develop substitute fuels to replace oil.</p>
<p><iframe id="lBwcG" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/lBwcG/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Within 15 years of the embargo, production outside OPEC increased by a massive 14 million barrels per day. Oil from Alaska and the Gulf of Mexico helped stabilize U.S. production. Later, the <a href="https://www.strausscenter.org/energy-and-security-project/the-u-s-shale-revolution/">shale revolution</a> turned the United States into the world’s largest producer and a <a href="https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php">net exporter of oil</a>, capping a 50-year quest.</p>
<p>The world has also become much more efficient, reducing the amount of oil needed to maintain the same activity. Global per-capita oil use per dollar of gross domestic product has fallen by a massive 60% since 1973, our calculations show.</p>
<p><iframe id="Jh9iZ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Jh9iZ/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>But, as in 1973, energy security concerns are back at the top of national agendas. </p>
<p>Russia’s 2022 invasion of Ukraine reprised the risks of energy “weaponization.” Europe, in particular, has been hurt by <a href="https://www.bakerinstitute.org/research/putin-bulldozing-russias-energy-exports-and-pushing-energy-transition">overdependence on Russian natural gas</a> and has raced to <a href="https://energy.ec.europa.eu/news/eu-reaches-90-gas-storage-target-ahead-winter-2023-08-18_en">shift its energy sources</a>. The Israel-Hamas war that began on Oct. 8, 2023, has not yet ignited retaliatory responses from Arab governments, and the initial <a href="https://www.barrons.com/articles/israel-hamas-war-energy-gas-boom-oil-mediterranean-3ac6b224?st=rhcg1eq7ytb7xgi">impact on oil</a> has been minimal, but geopolitical effects from such a large event could still roil markets.</p>
<p>Energy security itself is also being altered. The transition to renewable energy sources like wind and solar <a href="https://www.bakerinstitute.org/research/more-transitions-less-risk-how-renewable-energy-reduces-risks-mining-trade-and-political-dependence">insulates consumers from most supply chain risks</a>. Electric vehicles likewise protect owners from swinging oil prices. So, while crucial materials can still be manipulated by governments, shortages and price spikes mainly affect component manufacturers and their investors. If supplies are bottlenecked long enough, the energy transition could be delayed.</p>
<figure class="align-center ">
<img alt="Aerial view in 2014 of the Houston Ship Channel and surrounding energy facilities in Houston." src="https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/552553/original/file-20231006-25-733dzz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The U.S. still imports more than 8 million barrels of petroleum per day, but since 2020, it has exported more than it has imported. More than one-third of U.S. crude oil exports go through the Houston Ship Channel.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/iip-photo-archive/16549974959">Carol M. Highsmith/U.S. State Department Bureau of Global Public Affairs</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>Like the embargo 50 years ago, today’s crises have rendered the future of energy massively uncertain. Changes in the global energy mix, especially the rapid growth of electric vehicles, could <a href="https://www.bakerinstitute.org/research/should-abu-dhabi-quit-opec-reconsidering-uaes-membership">weaken the importance of oil and the cartel</a> that oversees it.</p>
<p>As <a href="https://www.economist.com/leaders/2003/10/23/the-end-of-the-oil-age">former Saudi oil minister Ahmed Zaki Yamani</a> was reported to have said a quarter-century ago: “The Stone Age did not end for lack of stone, and the oil age will end long before the world runs out of oil.”</p><img src="https://counter.theconversation.com/content/214670/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Krane has received research funding from the government of Qatar and is affiliated with the Energy Policy Research Group at the University of Cambridge. </span></em></p><p class="fine-print"><em><span>Mark Finley owns shares in bp. He has consulted for the King Abdullah Petroleum Studies and Research Center. He is also a member of the US Association for Energy Economics and the National Association for Business Economics.</span></em></p>Russia’s 2022 invasion of Ukraine reprised the risks of energy weaponization, but the oil landscape today and energy security itself are changing.Jim Krane, Fellow in Energy Studies, Baker Institute for Public Policy; Lecturer, Rice UniversityMark Finley, Fellow in Energy and Global Oil, Baker Institute for Public Policy, Rice UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1369882020-04-23T10:30:55Z2020-04-23T10:30:55ZWill American shale oil go bust?<figure><img src="https://images.theconversation.com/files/329799/original/file-20200422-47826-9rv4c9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What goes up... </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/us-oil-industry-price-crash-due-1709506078">Aku Alip</a></span></figcaption></figure><p>US oil is suffering unprecedented distress, as demonstrated by the benchmark West Texas Intermediate (WTI) crude price crashing into negative territory. <a href="https://www.cnbc.com/2020/04/21/the-oil-industry-shakeout-is-just-beginning-with-more-production-cuts-and-bankruptcies-ahead.html">This is</a> a “triple <a href="https://www.investopedia.com/terms/b/blackswan.asp">black swan</a>” of an oversupply of oil driven by <a href="https://www.cfr.org/blog/opec-plus-zero-sum-oil-game">Opec and Russia</a>, COVID-19 demand destruction, and having nowhere to store it. </p>
<p>Oil traders reacted on April 20, the day that May forward contracts for WTI crude were due to settle. Many <a href="https://theconversation.com/oil-crash-explained-how-are-negative-oil-prices-even-possible-136829">offloaded</a> their contracts at any price to avoid taking delivery of oil they couldn’t store, and the May WTI price <a href="http://www.worldoil.com/news/2020/4/20/wti-crude-price-goes-negative-for-the-first-time-in-history">plunged to</a> US$-37.53 (£-30.36). Now attention has turned to the June price, which is <a href="https://www.barchart.com/futures/quotes/CLM20">just under US$15</a>, still the lowest <a href="https://www.macrotrends.net/1369/crude-oil-price-history-chart">in decades</a>. </p>
<p>Though prices will rebound, the bigger question concerns long-term viability. US oil companies have feasted on a decade-long diet of rampant liquidity thanks to very low short-term interest rates and quantitative easing. With many able to finance and refinance drilling with a breakeven price <a href="https://www.dallasfed.org/-/media/Documents/research/energy/energycharts.pdf?la=en">of US$40</a> and above per barrel?, this brought into play lots of shale oil, whose fracking requirements are far costlier than basic onshore oil. </p>
<p>This tripled US oil production in the past decade to become world number one, overtaking Russia and Saudi Arabia. Around two-thirds <a href="https://www.eia.gov/tools/faqs/faq.php?id=847&t=6">is shale</a>, which is now in big trouble. Of the 16% of US companies that are “zombies”, meaning cash flow doesn’t cover their debts, a good proportion will be in oil. Oil companies’ loans will be based on assumptions about prices that definitely won’t include the current levels. Companies also finance themselves by issuing corporate bonds at the lowest investment grade. These are vulnerable to being downgraded to junk, causing borrowing costs to rise sharply. </p>
<p><strong>US crude oil production in barrels per day</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://hbr.org/2020/04/10-questions-to-guide-boards-through-the-pandemic">Macrotrends</a></span>
</figcaption>
</figure>
<p>Even “normal” onshore drilling looks challenging today, with over two-thirds of Texas wells <a href="https://www.bloomberg.com/opinion/articles/2020-04-20/texas-like-opec-can-t-turn-back-time-to-protect-oil-producers">uneconomic</a> at prices below US$25 by some estimates. Rigs <a href="https://www.bloomberg.com/news/articles/2020-04-21/world-s-biggest-oil-storage-firm-says-almost-all-space-is-sold">are shut down</a> as <a href="https://oilprice-com.cdn.ampproject.org/c/s/oilprice.com/Energy/Energy-General/A-Massive-Wave-Of-Shut-Ins-Fails-To-Halt-Oil-Price-Crash.amp.html">there is</a> nowhere for oil to go, globally. </p>
<p>The value of US energy companies in the S&P 500 <a href="https://us.spindices.com/indices/equity/sp-500-energy-sector">has halved</a> in 2020 to US$633 billion, less than half that of Microsoft. Research firm Rystad Energy <a href="https://oilprice.com/Energy/Energy-General/Oil-Market-Crash-Could-Lead-To-Mass-Bankruptcies.html">predicts</a> up to 533 bankruptcies by the end of 2021 if WTI prices average US$20, a massive increase from 2019. So where do things go from here?</p>
<h2>The road to Black April</h2>
<p><a href="https://www.opec.org/opec_web/en/">Opec</a>, led by the Saudis, controls substantial portions of global oil. It tries to set oil prices by raising or cutting production. For the past three years, Opec has been making these decisions in a <a href="https://www.nytimes.com/2016/12/10/business/russia-opec-saudi-arabia-cut-oil-output.html">formal alliance</a> with Russia and other nations that is known as Opec Plus. </p>
<p>Two events caused the current crisis. Saudi Arabia flooded the market with oil in March after Russia refused to sanction any further Opec action to raise the price. This caused a price war just when COVID-19 was crushing world oil demand. Prices fell hard. </p>
<p><strong>West Texas Intermediate crude price in US$</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bbc.co.uk/news/topics/cmjpj223708t/oil">BBC</a></span>
</figcaption>
</figure>
<p>To some, the Russians and Saudis were playing a “good cop, bad cop” routine to drive US shale out of business, <a href="https://www.aljazeera.com/programmes/countingthecost/2020/03/saudi-arabia-oil-price-war-russia-200315114308947.html">with the</a> Saudis playing protector of global prices and the Russians, wounded by US economic sanctions, refusing to play ball. Either way, both <a href="https://www.oxfordenergy.org/publications/the-new-deal-for-oil-markets-implications-for-russias-short-term-tactics-and-long-term-strategy/?v=79cba1185463">have much to gain</a> by knocking out pricier US shale. Meanwhile, China has been buying up Saudi and Russian oil on the uber cheap, while <a href="https://www-rigzone-com.cdn.ampproject.org/c/s/www.rigzone.com/news/wire/trump_urged_to_pressure_china_on_us_oil_promise-21-apr-2020-161836-article/?amp">delaying on promises</a> to buy US oil. </p>
<p>Some say the Saudi-Russia price warriors miscalculated America’s response. President Trump <a href="https://www.forbes.com/sites/daneberhart/2020/04/15/an-oil-cut-deal-if-you-can-keep-it/#207794d44f66">used threats</a> like <a href="https://www.insider.com/trump-threatens-saudi-arabia-russia-oil-tariffs-2020-4">hefty oil tariffs</a> to secure a <a href="https://www.cfr.org/blog/opec-plus-zero-sum-oil-game">new Opec Plus deal</a> to cut production by 10% on April 12. This was <a href="https://www.ft.com/content/150df67b-839f-455a-9546-6edf72a08df0">bolstered by</a> production cuts from other G20 countries. Yet prices <a href="https://www.bbc.co.uk/news/topics/cmjpj223708t/oil">kept falling</a>: arguably the deal was more about allowing Americans to save face rather than seriously committing to production cuts, and therefore higher prices and stability. </p>
<p>With a sniper’s precision, some believe, Saudi oil tankers <a href="https://www.wsj.com/articles/saudi-oil-stranded-in-supertankers-as-backlog-piles-up-11587478831">are timed</a> to reach New Orleans in May to unload a 50 million barrel “<a href="https://oilprice-com.cdn.ampproject.org/c/s/oilprice.com/Energy/Oil-Prices/Incoming-50-Million-Barrel-Saudi-Oil-Bomb-Could-Send-Prices-Even-Lower.amp.html">oil bomb</a>” into Saudi-owned US refineries. There is precious little space for existing American crude, much less Saudi imports, hence the April 20 historic price drop. </p>
<h2>Uncle Sam to the rescue?</h2>
<p>Trump has said the US <a href="https://www.theguardian.com/business/2020/apr/21/oil-prices-fall-below-zero-coronavirus-barrels-crude">is devising</a> a rescue plan to save its oil industry. <a href="https://www.morganlewis.com/pubs/cares-act-key-takeaways-for-energy-companies">As part of</a> its US$2 trillion <a href="https://www.visualcapitalist.com/the-anatomy-of-the-2-trillion-covid-19-stimulus-bill/">stimulus package</a>, rescue moves <a href="https://www.wsj.com/articles/texas-regulators-decline-to-force-oil-cuts-but-companies-are-cutting-anyway-11587486457">could even include</a> buying stakes in firms, though negotiating with congressional Democrats looks difficult. </p>
<p>An alternative is to “virtually” buy more US oil and await better days, paying production companies to keep it in the ground – possibly by <a href="https://www.bloomberg.com/opinion/articles/2020-04-16/trump-spr-plan-would-pay-frackers-for-virtual-oil">designating this</a> part of the US strategic petroleum reserve. This would help contain <a href="https://www.forbes.com/sites/chuckjones/2020/04/18/one-chart-shows-coronavirus-stunning-job-losses/#50c8341a7fb0">jobs devastation</a> and help Trump in <a href="https://www.politico.com/news/2020/04/13/economic-meltdown-democrats-hope-texas-184613">vote-rich Texas</a> and other key areas, while pleasing contributors to his campaign war chest. <a href="https://www.bloomberg.com/news/articles/2020-04-20/trump-eyes-saudi-oil-import-ban-spr-fill-as-prices-go-negative">Another option</a> is retaliatory tariffs on Saudi oil refined in America, or even a full ban. </p>
<p>Oil companies are restructuring hastily – assessing the value of reserves, and asking creditors for debt waivers. The US government has helped <a href="https://home.kpmg/content/dam/kpmg/us/pdf/2020/03/tnf-cares-act-signed-mar30-2020.pdf">by extending</a> companies’ ability to offset losses against future tax liabilities, which can make them more attractive to buyers. </p>
<p>Nonetheless, some companies sitting on the priciest oil will get liquidated. In other cases, big creditor banks could take over businesses, or demand mergers and acquisitions, including consolidations. </p>
<p>The biggest uncertainty is how long until the oil price rebounds? With <a href="https://www.healthline.com/health-news/what-happens-if-country-reopens-on-may-1#1">the economy</a> only likely to reopen gradually, demand will stay low for some time while supply remains too high. <a href="https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html">The futures markets</a> expect WTI to bounce back to the high US$20s by the end of the year, but don’t foresee a return to even US$40 oil until December 2024. </p>
<p>How much US shale oil is worth saving in these straitened circumstances is key. <a href="https://www.worldoil.com/news/2020/3/27/experts-see-a-future-for-shale-rocks-don-t-go-bankrupt">Some estimate</a> as many as 70% of firms will go out of business overall, with some never coming back until oil stabilises above US$50. Others may be taken over by companies prepared to wait for higher prices. As oil historian <a href="https://www.worldoil.com/news/2020/3/27/experts-see-a-future-for-shale-rocks-don-t-go-bankrupt">Daniel Yergin says</a>, “Rocks don’t go bankrupt”. US shale is in a sort of death pageant, and will probably remain that way for the foreseeable future.</p><img src="https://counter.theconversation.com/content/136988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jorge Guira does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Oil prices are going through what some have termed Black April, but the bigger question is what happens longer term to US oil.Jorge Guira, Associate Professor of Law and Finance, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1063002018-11-28T11:41:07Z2018-11-28T11:41:07ZCompanies blocked from using West Coast ports to export fossil fuels keep seeking workarounds<figure><img src="https://images.theconversation.com/files/247597/original/file-20181127-76770-1cj6mfa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One of the many would-be sites for fossil fuel exports in Washington state.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Coal-Terminal-Treaty-Rights/798f70f9080f49c3a9ebcc013c2a37ee/1/0">AP Photo/Elaine Thompson</a></span></figcaption></figure><p>A year after <a href="https://www.seattletimes.com/opinion/editorials/an-environmental-victory-for-washington-but-economic-challenges-remain/">Washington state denied key permits</a> for a coal-export terminal in the port city of Longview, the <a href="https://www.seattletimes.com/seattle-news/corps-of-engineers-moving-forward-with-review-of-longview-coal-terminal-despite-state-objections/">Army Corps of Engineers</a> announced it would proceed with its review – essentially ignoring the state’s decision.</p>
<p>This dispute pits federal authorities against local and state governments. It’s also part of a larger and long-running battle over fossil fuel shipments to foreign countries that <a href="https://www.sightline.org/research/thin-green-line/">stretches up the entire American West Coast</a>.</p>
<p>We are <a href="https://scholar.google.com/citations?user=MHv76OkAAAAJ&hl=en&oi=ao">sociologists</a> who have studied how people respond to news about plans for big <a href="https://scholar.google.com/citations?user=a1e-_ycAAAAJ&hl=en&oi=ao">energy facilities in their communities</a>. With President Donald Trump pushing hard for more fossil fuel production and exports, we believe it could get significantly harder for local communities to have a say in these important decisions.</p>
<h2>Access to Asia</h2>
<p>Oil and gas exports have dramatically increased nationwide over the past decade, ever since technological advances turned the U.S. from a top importer of these fuels to a <a href="https://www.reuters.com/article/us-usa-oil-exports/why-record-u-s-oil-exports-are-poised-for-even-more-growth-idUSKBN1AC0ER">growing exporter</a>.</p>
<p>Energy companies have <a href="https://www.springer.com/us/book/9783642821301">sought more access to West Coast ports for decades</a> for routes to Asia and Australia. The region’s deepwater ports, railroad and pipeline networks, and proximity to some of the nation’s most productive oil, gas and coal fields make it particularly attractive for export terminals. </p>
<p>In some cases, exporting through the West Coast is the only economically viable option, as <a href="https://www.naturalgasintel.com/articles/115975-lng-canada-given-green-light-by-shell-partners">longer overland transportation routes would be too costly</a>. Moreover, shorter trips by sea <a href="https://www.eia.gov/todayinenergy/detail.php?id=36632">to reach China and other growing Asian markets</a> cut costs. </p>
<p>Yet Western ports do not <a href="https://www.eia.gov/dnav/pet/PET_MOVE_EXPCP_A1_Z00_EP00_EEX_MBBL_A.htm">export as much crude oil</a> as other American coastal areas. </p>
<p><iframe id="9pNWU" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/9pNWU/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>In addition, there are no facilities yet in California, Oregon or Washington for exporting liquefied natural gas, a form of the fuel that has been cooled to very low temperatures for easier storage and shipping.</p>
<p>This is not for lack of trying. All the numerous export terminals energy companies have proposed for liquefied natural gas up and down the West Coast have faced significant public opposition that <a href="https://www.sightline.org/2017/06/20/mapping-the-thin-green-line/">made securing permits</a> hard if not impossible. </p>
<p><iframe id="S6ao6" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/S6ao6/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Likewise, <a href="https://www.eia.gov/coal/production/quarterly/pdf/t13p01p1.pdf">relatively small volumes of coal</a> are being shipped abroad from ports on the West Coast despite efforts to build new export terminals there.</p>
<p><iframe id="h1P45" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/h1P45/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Energy dominance</h2>
<p>With his “<a href="https://theconversation.com/is-energy-dominance-the-right-goal-for-us-policy-79825">energy dominance</a>” policy, Trump has emphasized expanding production and export of fossil fuels and weakening environmental regulations – including those that address climate change. </p>
<p>His administration is <a href="https://www.hcn.org/articles/jordan-cove-lng-oregon-gas-export-rises-project-again-with-support-from-the-rockies">siding with energy companies and landlocked states</a> like Wyoming and Colorado angling to ship coal, oil and natural gas mined and drilled within their borders to lucrative and growing Asian markets.</p>
<p>At the same time, many local and state governments on the West Coast are <a href="https://www.opb.org/news/article/oregon-coos-bay-jordan-cove-lng-ballot-measure-2017-fossil-fuels/">on board with demands</a> made by environmental activists for renewable energy development and advocates for more local control over development. </p>
<p>Local supporters of fossil fuel exports point to the positive local effects these facilities can have. <a href="http://thelens.news/2017/10/12/labor-urges-passage-of-millennium-bulk-terminals-permit-to-boost-economy-create-jobs/">Labor unions</a>, <a href="https://tdn.com/news/local/county-sides-with-millennium-in-coal-suit-cancels-health-study/article_8490e300-e7d9-56af-b111-d520bc813f45.html">county governments</a>, business councils and ports frequently argue that bolstering fossil fuel exports would create jobs, entice investment and increase the tax base. </p>
<p>Opponents argue that transporting, storing, handling and shipping fossil fuels – via railroads, pipelines and ships – endangers nearby communities and contributes to <a href="https://www.sierraclub.org/san-francisco-bay/dirty-energy">climate change</a>.</p>
<p>They point to <a href="https://www.opb.org/news/series/oil-trains/mosier-derailment-cost-9-million/">oil train derailments</a>, the public health perils of increased <a href="https://tdn.com/news/local/health-study-diesel-fumes-bigger-hazard-than-coal-dust/article_11e75f2c-b5b2-54e7-81fe-b582402a8a0d.html">diesel fumes</a> and <a href="https://www.seattletimes.com/seattle-news/environment/environmentalists-sue-bnsf-to-cover-coal-trains-prevent-water-pollution/">coal dust</a>, and pipeline explosions and leaks. They also highlight the <a href="https://www.seattletimes.com/seattle-news/environment/effects-of-proposed-coal-export-terminal-outlined-in-study/">climate implications</a> of shipping fossil fuels abroad that may affect the carbon footprints of other countries, where the fuel would be burned. </p>
<p>These people have maintained a <a href="https://www.cnbc.com/2018/10/15/reuters-america-u-s-eyes-west-coast-military-bases-to-export-coal-gas-report.html">virtual blockade against new export facilities</a> so far. But in our study of this issue, we have found it remains unclear if the federal government will overturn or override local and state decisions to deny permits. </p>
<p><iframe id="2W42P" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/2W42P/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Mobilization</h2>
<p>Public opinion research indicates both support and opposition for fossil fuel export depending on fuel type. Our <a href="https://doi.org/10.1016/j.enpol.2018.05.066">2017 national survey</a> showed that about a third of U.S. citizens sampled opposed exporting natural gas, while about half supported it and almost a fifth were undecided. Our forthcoming survey of Washington residents found similar levels of opposition to natural gas exports. We also detected higher rates of disapproval of oil and coal exports, with about half of residents opposing them. </p>
<p>Activists in the Pacific Northwest have established what they call a “<a href="https://www.sightline.org/research/thin-green-line/">thin green line</a>” of resistance against any big new fossil fuel infrastructure. Their protests have contributed to state and local decisions to deny permits, as well as the passage of ordinances and resolutions limiting such development. Cities like <a href="https://www.opb.org/news/article/oregon-portland-fossil-fuel-ban-constitutional/">Portland, Oregon</a>, have banned these projects altogether.</p>
<p>Tribal governments have actively opposed many of these proposals, too. For example, the Lummi Nation <a href="https://doi.org/10.1016/j.marpol.2016.10.019">played an essential role</a> in stopping the Gateway Pacific coal terminal proposed for Bellingham, Washington.</p>
<p>Legal fights have ensued. After Washington denied the permit for the Millennium Bulk Terminals coal export proposal, <a href="https://www.sltrib.com/news/environment/2018/05/13/5-states-join-utah-in-legal-fight-over-washington-state-coal-export-terminal/">six interior states and several industry groups</a> joined the company in a lawsuit. They allege that the state’s decision violated the <a href="https://www.law.cornell.edu/wex/commerce_clause">Constitution’s commerce clause</a>, which grants Congress – not states – the power to regulate trade. </p>
<p>In some cases, the courts have determined that local bans <a href="https://www.apnews.com/54c9749da3744cb993568fb188b7b5f0">are not allowed</a>. In others, companies have simply <a href="https://www.seattletimes.com/seattle-news/no-oil-train-terminal-on-the-columbia-river-vancouver-energy-gives-up-plan/">withdrawn proposals</a>, especially after sustained public protests.</p>
<h2>Silencing local voices</h2>
<p>The administration is pursuing multiple workarounds for expanding fossil fuel export, including a recent proposal to set up export facilities on retired <a href="https://www.cnbc.com/2018/10/15/reuters-america-u-s-eyes-west-coast-military-bases-to-export-coal-gas-report.html">military bases</a>. Energy companies and energy-producing states are trying to capitalize on the fossil-friendly administration.</p>
<p>For example, senators from Texas, Colorado and Montana have <a href="https://tdn.com/news/local/millennium-backers-still-confident-despite-web-of-legal-challenges-to/article_1136806e-466d-5723-afa7-31012ab61355.html">encouraged Trump</a> to use his authority under the North American Free Trade Agreement, or the <a href="https://www.usatoday.com/story/news/politics/2018/09/30/nafta-canada-agrees-join-u-s-mexico-new-trade-agreement/1453244002/">deal that may replace it</a>, to override Washington state’s denial of the coal export permit.</p>
<p>These moves at the federal level appear to be restricting opportunities for public participation in siting decisions, a development we find troubling. </p>
<p>In the case of the Jordan Cove natural gas export project in Oregon, the federal agency with permitting authority over the proposal used a <a href="https://theworldlink.com/news/local/business/ferc-employs-new-comment-format-at-scope-session/article_78f51c97-6cb8-59b9-8d80-2f3b3a71a9cb.html">new process</a> for soliciting public comments in 2017. Instead of taking part in a hearing where those attending could hear all comments, members of the public met one-on-one with agency staff and a stenographer.</p>
<p>In <a href="https://journals.sagepub.com/doi/abs/10.1177/0739456X10373079">previous research</a>, we have shown how public hearings on energy projects are critical to the formation of active community groups, who use these opportunities to connect with like-minded individuals.</p>
<p>While one-on-one meetings may seem more efficient and less prone to conflict, they may also stifle important local debates on these issues. And they could potentially push activists toward more <a href="https://www.climateliabilitynews.org/2018/09/25/necessity-defense-valve-turners-climate/">confrontational tactics</a> because they do not feel their voices are adequately heard through official channels. </p>
<p>In addition, some companies have used existing permits and zoning to start handling <a href="https://www.oregonlive.com/environment/index.ssf/2014/07/global_partners_clatskanie_oil.html">a different fuel</a> or <a href="http://www.knkx.org/post/conservationists-press-army-corps-complete-its-environmental-review-expansion-bp-refinery">expand facilities</a> without undergoing environmental review and associated public comment processes.</p>
<p>Despite years of successfully blocking fossil fuel exports from the West Coast, whether the thin green line will hold is far from clear. Its resilience will partly depend on what happens with <a href="https://www.sandiegouniontribune.com/business/energy-green/sd-fi-sempra-lngtariff-20180928-story.html">global fossil fuel markets</a> and the success of export proposals in <a href="https://www.theglobeandmail.com/canada/british-columbia/article-kitimat-bc-residents-brace-for-boom-after-lng-canadas-go-ahead/">Canada</a> and <a href="https://www.sltrib.com/news/environment/2018/08/25/is-utah-coal-bound-baja/">Mexico</a>. Its resilience will also depend on how hard the Trump administration is willing to push and how hard the West Coast is willing to push back.</p><img src="https://counter.theconversation.com/content/106300/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hilary Boudet received funding from the National Science Foundation and Oregon Sea Grant to study community responses to liquefied natural gas facilities in California and Oregon. Seattle University provided funding for a 2017 national survey of public opinion on natural gas exports.</span></em></p><p class="fine-print"><em><span>Shawn Olson Hazboun does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The ‘thin green line’ of resistance against any new infrastructure for shipping oil, gas and coal abroad has won many battles. But it faces a new source of pressure: the Trump administration.Shawn Olson Hazboun, Faculty, Graduate Program on the Environment, Evergreen State CollegeHilary Boudet, Associate Professor of Sociology, School of Public Policy, Oregon State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1064192018-11-13T11:47:12Z2018-11-13T11:47:12ZTrump’s new Iranian oil sanctions may inflict pain at home without serving strategic objectives<figure><img src="https://images.theconversation.com/files/244119/original/file-20181106-74760-wqyttp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Iran's OPEC Governor Hossein Kazempour Ardebili, center.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Algeria-OPEC-Meeting/32454f538d7c416abbb339a78e7e4901/2/0">AP Photo/Anis Belghoul</a></span></figcaption></figure><p>The Trump administration has <a href="https://www.theguardian.com/world/2018/nov/05/iran-launches-military-drill-response-return-us-sanctions">formally imposed new sanctions on Iran</a> aimed at hindering Iran’s oil exports – a move that had been in the works for six months.</p>
<p>The U.S. government has also made a second, more surprising, announcement: <a href="https://www.reuters.com/article/us-usa-iran-sanctions-waivers/us-grants-temporary-iran-oil-waivers-to-eight-countries-including-china-pompeo-idUSKCN1NA1OS">It’s granting eight countries waivers</a> that will let them keep on buying Iranian petroleum.</p>
<p>Since I’m a historian of <a href="https://scholar.google.com/citations?user=HysGIKMAAAAJ&hl=en">energy and U.S.-Iranian relations</a>, I’ve been monitoring how the Trump administration’s policy toward Iran has affected global oil markets. I believe that these new sanctions do not serve U.S. energy interests because they may spark price increases that would punish American consumers. More generally, this move illustrates what I see as the incoherence of Trump’s energy policies and international diplomacy.</p>
<h2>Taking aim at oil exports</h2>
<p>Since Iran first became a major oil producer in the 1930s, its government has <a href="https://www.doi.org/10.1016/j.eneco.2011.05.005">depended on oil and gas revenue</a> for most of its budget. When the Obama administration <a href="https://obamawhitehouse.archives.gov/the-press-office/2012/07/31/fact-sheet-sanctions-related-iran">imposed tough economic sanctions on Iran</a> in 2012, to force Tehran to the nuclear bargaining table, the Middle Eastern country’s exports declined sharply.</p>
<p><iframe id="KngGg" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/KngGg/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The U.S. lifted those sanctions after Iran agreed to the <a href="https://www.state.gov/e/eb/tfs/spi/iran/jcpoa/">Joint Comprehensive Plan of Action</a>, an international agreement that placed restraints on Iran’s nuclear program. As a result, its overseas oil sales shot up in 2016 and 2017.</p>
<p>But now President Donald Trump, who has <a href="https://www.bbc.com/news/world-us-canada-43902372">derided the agreement</a> since his electoral campaign, is bringing the hammer back down.</p>
<p>Shortly after <a href="https://warontherocks.com/2018/10/surviving-the-u-s-withdrawal-from-the-iran-nuclear-deal-what-we-do-and-dont-need-to-worry-about/">withdrawing from the nuclear deal in May 2018</a>, the administration announced that it would re-impose sanctions and attempt to <a href="https://www.theguardian.com/us-news/2018/aug/22/us-ready-to-drive-iranian-oil-exports-to-zero-says-us-national-security-adviser">reduce Iran’s oil exports to “zero.”</a></p>
<p>Trump’s team also <a href="https://www.cnbc.com/2018/06/26/oil-buyers-must-cut-all-iranian-crude-imports-by-november-state-dept-.html">vowed that it would retaliate</a> against any countries that kept buying Iranian oil after Nov. 5. <a href="https://www.bloomberg.com/news/articles/2018-10-01/iran-s-tracked-oil-exports-hit-2-1-2-year-low-before-sanctions">Iran’s oil exports then slid</a> from 2.6 million barrels per day to about 1.7 million by September.</p>
<h2>Panic over prices at the pump</h2>
<p>The administration claims that it wants to change Iran’s behavior and that the sanctions are intended to <a href="https://www.voanews.com/a/pompeo-us-not-pushing-for-regime-change-in-iran/4408363.html">pressure the Iranian government</a> to stop supporting terrorism. <a href="https://foreignpolicy.com/2018/07/19/iran-hawks-should-be-careful-what-they-wish-for-regime-change-irgc-revolutionary-guards-qassem-suleimani/">Many</a> <a href="http://nymag.com/daily/intelligencer/2018/07/trumps-iran-strategy-regime-change-on-the-cheap.html">analysts</a> <a href="https://www.rand.org/blog/2018/08/regime-change-in-iran-watch-what-you-ask-for.html">have speculated</a> that the U.S. intends to exert pressure on Iran until <a href="https://www.theatlantic.com/international/archive/2018/04/iran-nuclear-deal-bolton-trump-regime-change/558785/">the regime collapses</a>.</p>
<p>Sanctions may bring about <a href="https://www.cnn.com/2018/11/04/middleeast/trump-iran-sanctions-intl/index.html">pain and suffering for the Iranian people</a>, but I agree with other experts who doubt that they will weaken the most <a href="https://www.brookings.edu/blog/order-from-chaos/2018/11/05/sanctions-are-coming-but-trump-has-no-achievable-end-game-for-iran/">entrenched and conservative elements of Iran’s government</a> – let alone dislodge its leadership.</p>
<p>What’s more, <a href="https://foreignpolicy.com/2017/09/26/the-myth-of-a-better-iran-deal/">negotiators of the original nuclear accord doubt</a> that Iran will agree to anything new. It’s more likely that <a href="https://www.newyorker.com/news/news-desk/trump-launches-game-of-thrones-showdown-with-iran">further confrontation with the U.S.</a> will strengthen Iranian hardliners and neuter chances of further negotiation, just as heightened tensions doomed talks between George W. Bush’s administration and the reformist government of <a href="https://www.tandfonline.com/doi/abs/10.1080/13569775.2014.911501">Mohammad Khatami in the early 2000s</a>. </p>
<p>Regardless of the political effect on Iran, Trump’s effort to squeeze Iranian oil exports have affected global oil markets.</p>
<p>The reduction in Iranian shipments has put pressure on global oil prices, propelling them for a while <a href="https://www.macrotrends.net/2480/brent-crude-oil-prices-10-year-daily-chart">above US$80 a barrel</a> for the first time in four years. Oil <a href="https://www.reuters.com/article/us-global-oil/oil-prices-down-20-percent-in-a-month-as-fundamentals-weaken-idUSKCN1NE050?il=0">prices then tumbled</a> once the Trump administrated granted the waivers. U.S. gasoline prices were falling when the sanctions were imposed yet <a href="https://twitter.com/GasBuddyGuy/status/1059444908849852417">averaging $2.74 per gallon</a>, which is <a href="https://www.eia.gov/todayinenergy/detail.php?id=36993">higher than they’ve been in years</a>.</p>
<p>Trump has <a href="https://www.cfr.org/blog/oil-prices-and-us-economy-reading-tea-leaves-trump-tweet-opec">fumed about this spike</a>, <a href="https://www.forbes.com/sites/ellenrwald/2018/04/20/trump-tweet-blames-opec-for-higher-oil-prices-market-responds/">blaming the Organization of Petroleum Exporting Countries</a> for not pumping enough to meet worldwide demand.</p>
<p>But OPEC is not responsible for this upswing. Its <a href="https://www.cnbc.com/2018/10/11/opec-hikes-oil-output-in-september-as-irans-production-falls.html">members have been producing more oil</a> lately to make up for declines in Iran and Venezuela. In fact, <a href="https://oilprice.com/Energy/Crude-Oil/How-Much-Spare-Capacity-Does-Saudi-Arabia-Really-Have18418.html">its spare capacity</a>, which could be vital in the event of a major disruption, <a href="https://www.politico.com/magazine/story/2018/10/18/saudi-arabia-oil-221612">is running low</a>.</p>
<p>Saudi Arabia claims it can pump an extra 2 million barrels per day. But data from the Energy Information Administration indicates that Saudi Arabia will only have the potential to increase its daily production by <a href="https://www.bloomberg.com/news/articles/2018-09-28/saudi-arabia-faces-the-ultimate-oil-test-producing-at-the-limit">1.2 million barrels in 2019</a>. That’s a dangerously slim margin.</p>
<h2>Energy dominance</h2>
<p>The Trump administration has an insurance policy against the tightening oil market: its “<a href="https://www.cnbc.com/2017/06/28/trump-america-energy-dominant-policy.html">energy dominance</a>” policy and higher domestic production levels.</p>
<p>Domestic production has <a href="https://www.cnbc.com/2018/01/31/us-oil-production-tops-10-million-barrels-a-day-for-first-time-since-1970.html">doubled in a single decade</a>, thanks to a boom in drilling that <a href="http://www.mei.edu/publications/obama-and-declining-us-dependence-imported-oil-and-gas">began during the Obama administration</a> following <a href="https://www.jstor.org/stable/24483588">groundwork from George W. Bush’s presidency</a>.</p>
<p>Crude oil exports are way up too, thanks to the <a href="https://fuelfix.com/blog/2015/12/18/congressional-vote-obamas-signature-end-oil-export-ban/">repeal of of a 40-year ban</a> on most of those shipments in late 2015.</p>
<p><iframe id="9pNWU" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/9pNWU/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>With domestic production booming, there’s a chance that the U.S. could be insulated from shocks to the global oil market. </p>
<p>But compared to Saudi Arabia, Russia and other major producers, America still sells relatively little crude to other countries and it imports far more oil than it exports. </p>
<p>What’s more, U.S. oil comes from hundreds of smaller fields, which makes it hard to easily cut or increase output. As a result, the notion that the U.S. can serve as a “<a href="http://energyfuse.org/why-the-u-s-is-not-the-new-swing-producer/">swing producer</a>” to restrain global oil price volatility is, in my opinion, unrealistic.</p>
<p><iframe id="NcQnk" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/NcQnk/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>One way that the Trump administration could help is by encouraging energy conservation. <a href="http://time.com/5371256/us-conserve-oil-donald-trump-administration/">Instead, it’s done the opposite</a> by encouraging more fossil fuel investment than ever. Developing more oil fields may boost U.S. production, but it will also deepen American dependence on gasoline and diesel, making the U.S. economy more vulnerable to disruptions in the global market.</p>
<p><iframe id="IWVkE" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/IWVkE/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>No end game</h2>
<p>So why did the Trump administration give eight of Iran’s biggest customers, China, South Korea, Taiwan, India, Greece, Turkey, Japan and Italy waivers? </p>
<p>Perhaps it recognized the risks tied to squeezing Iran’s oil out of the markets altogether. Secretary of State Mike Pompeo said that waivers were granted after each country promised to <a href="https://www.cnbc.com/2018/11/05/watch-trump-administration-press-conference-reimposed-iran-sanctions.html">continue cutting Iranian imports</a> over time.</p>
<p>Trump has admitted that he was “<a href="https://www.reuters.com/article/us-usa-iran-sanctions-trump/trump-says-he-wants-to-go-slower-on-sanctions-for-irans-oil-idUSKCN1NA2CO">going a bit slower</a>” on Iran. “I don’t want to lift oil prices,” he said.</p>
<p>He took this position despite reported <a href="https://www.bloomberg.com/news/articles/2018-11-06/trump-faced-iran-sanctions-rebellion-from-allies-on-the-right">protests among Iran hard-liners</a> like National Security adviser John Bolton. Pompeo, another hardliner, defended the waivers as part of a broader strategy of pressure on Iran. He rejected the idea that this was a retreat.</p>
<p>Whatever the intent, this move did <a href="https://www.bloomberg.com/news/articles/2018-11-06/iran-oil-waivers-how-buyers-are-lining-up-after-u-s-exemptions">soothe fears of a supply shortage</a>.</p>
<p>With these waivers in place, Iran’s <a href="https://www.reuters.com/article/us-usa-iran-sanctions-oil/iran-oil-exports-to-plummet-in-november-then-rebound-as-buyers-use-waivers-idUSKCN1NB0JW">oil exports are likely to rebound slightly</a> in the coming months.</p>
<p>But should the Trump administration change course again, cutting off much more of Iran’s access to global oil markets at a time when the world’s spare capacity is dangerously low, it could <a href="https://www.cfr.org/blog/iranian-oil-sanctions-myths-and-realities-us-energy-independence">lead to much higher gas prices</a> in the U.S. and elsewhere.</p>
<p>And that’s the fundamental contradiction at the heart of U.S. oil policy. Punishing Iran by choking off its access to global petroleum markets will end up punishing U.S. consumers. They will have to pay more at the pump and higher oil prices will make just about every purchase more expensive.</p><img src="https://counter.theconversation.com/content/106419/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory Brew contributes to Oilprice.com, a website dedicated to energy market and geopolitical analysis.</span></em></p>If Iranian crude exports decline further it could make oil and gas prices rise.Gregory Brew, Postdoctoral Fellow, Center for Presidential History, Southern Methodist UniversityLicensed as Creative Commons – attribution, no derivatives.