Oil struggle behind Iran WMD showdown: analysts

Writes David Wood of Newhouse News Service, April 26 (emphasis added):

WASHINGTON — If Iran succeeds in building nuclear weapons, it will be paid for in part by American drivers.

With oil prices and global oil consumption at near-record levels, the radical Islamist government in Iran is raking in more than $68.4 billion a year in oil revenues, helping it finance its nuclear program and underwrite terrorist operations against American soldiers in Iraq and elsewhere across the Middle East.

And with global oil markets sucked dry of excess by growing oil consumption in the United States and China, even a small disruption in the flow of oil would drive prices through the roof and stagger the world’s economies.

The United States does not buy oil directly from Iran. But the disappearance of Iran’s 2.5 million barrels per day from the world’s oil markets would be felt acutely in the United States, probably costing 1 million jobs, according to Orde Kittrie, a former State Department official who teaches economics and international law at Arizona State University.

“Iran knows this,” said Kittrie, explaining why the United States has been unable to bring sufficient diplomatic pressure on Iran to derail its nuclear research program and has, instead, been left to bluster about potential military action. “America’s enemies literally have us over a barrel.”

America’s unchecked appetite for oil, creeping up quietly even as drivers gape in shock at pump prices, is now seriously jeopardizing U.S. security, despite the billions of dollars the U.S. spends to safeguard steady access to cheap oil.

The corrosive effects of America’s oil “addiction,” as President Bush calls it, have prompted the president to campaign on behalf of such alternatives as ethanol, a fuel made from corn or, much more cheaply, from grasses.

Americans spend $1 billion every weekday on imported oil. Many of those dollars are used to frustrate critical U.S. diplomatic goals, underwriting terrorist organizations and financing anti-American jihadist movements in the Middle East and southern Asia.

America’s demand for oil makes it rely on such troublemakers as Venezuela’s Hugo Chavez and Teodoro Obiang Nguema of Equatorial Guinea, and leaves the U.S. economy vulnerable to terrorist attacks on oil facilities — such as have recently occurred in Nigeria and Saudi Arabia — that disrupt supply and send prices skyward.

“These countries know we need their oil, and that reduces our influence, our ability to keep the peace in some areas,” Bush said in a speech to the Renewable Fuels Association on Tuesday. “And so energy supply is a matter of national security. It’s also a matter of economic security.”

But Bush’s legislative proposals have been timid, critics say. He has proposed just a $150 million increase in alternative fuels research — less than the Pentagon is spending on one new F-22 jet fighter.

Ironically, spiking gasoline prices are making political action less likely, with motorists clamoring for price relief above all else. At a recent hearing to review urgent measures that could be taken to conserve energy and boost alternatives to oil, Sen. Richard Lugar, R-Ind., chairman of the Senate Foreign Relations Committee, lamented that anyone advocating strong action would be thrown out of office.

“What in the world do we do at this particular point?” he said. “There is not really any leadership focus in all this, despite all of the pledges for people to do something.”

With intensifying international demand for oil — especially in China and India — Americans have little choice about where their oil comes from. Galloping increases in global consumption are running ahead of conventional production. So far, the gap is being filled with more costly oil production from shale and coal, for instance.

The tight oil markets have little excess to absorb even temporary disruptions in supply, petroleum experts say. Though the United States currently has a near-record inventory of crude oil on hand, that’s a mere three-day supply.

In a recent study of oil markets at Stanford University, experts concluded there is an 80 percent chance of a significant oil shock within a decade, spreading recession and unemployment across the nation. That’s a surer bet than the chance of drawing any of the 39 hearts, diamonds or clubs from a shuffled deck of cards.

“I think we have to be worried about it,” Hillard Huntington, a Stanford University economist and energy expert, told the Senate Foreign Relations Committee recently — “quite worried.”

A prolonged disruption of the West’s oil supplies is a key goal of al-Qaida, according to manifestos from 9/11 mastermind Osama bin Laden. Just two months ago, al-Qaida terrorists struck at the world’s largest oil processing facility at Abqaiq, Saudi Arabia.

The attack failed, but “Saudi oil production remains extremely vulnerable to sabotage,” said Simon Henderson of the Washington Institute for Near East Policy, a nonprofit think tank.

Even a minor attack could have major impact. Massive oil tankers, which navigate narrow channels like the Persian Gulf’s Strait of Hormuz and the Strait of Malacca on the main shipping route between the Indian and Pacific oceans “are vulnerable to small, fast boats,” Henderson said. “Any serious damage would send panic around the world even if the physical disruption to supplies is small.”

Experts say that within the context of what Americans really pay for oil, significant new investments in alternatives begin to make sense.

One recent study by the National Defense Council Foundation, a nonprofit think tank in Alexandria, Va., estimated that Americans pay $8.36 per gallon, far more than the actual pump price of gasoline, for such indirect costs as maintaining a military capability to keep oil flowing from the Persian Gulf and the opportunity costs of sending money to foreign suppliers rather than spending it at home.

The United States maintains a naval fleet in the Persian Gulf for oil security and has based troops there since the 1980s, a major presence cited by bin Laden as evidence of the United States’ “crusade” against Islam.

The war in Iraq is often justified by U.S. officials as necessary for stability in the region. This year the war will cost $9.8 billion a month, according to the Congressional Research Service.

“These hidden costs are an enormous economic drain on the economy,” said Milt Copulos, the combat-decorated Special Forces soldier and self-described Reagan Republican who is president of the National Defense Council Foundation.

Given some government help, ethanol production in the United States has a bright future, say experts like former CIA Director James Woolsey.

“We don’t need white-coated scientists,” said Woolsey, who tools around Washington in a hybrid gas-electric Toyota Prius. Using cellulosic ethanol made from cheap plains grasses rather than corn could bring the cost of driving down to 50 or 60 cents a gallon, he said.

Other steps might include a tax on gasoline to dampen consumption, or a dramatic increase in fuel efficiency standards for American automakers.

But such steps require a strong government push, and there is no political backbone for such measures.

“The (Republican) leadership is against it,” said Rep. Sherwood Boehlert, R-N.Y., who has pushed every year for the past five years for increased fuel efficiency standards. While his proposal has been gaining support, this year the House leadership refused to let it come up for a vote.

Boehlert is retiring this year. But until then, “I will try my darnedest to get this passed,” he said.

For more information on alternative fuels and auto fuel efficiency, including state tax incentives, see the U.S. Energy Efficiency and Renewable Energy Information Center at www.eere.energy.gov.

See our last post on Iran, Iraq and the struggle for global dominance.