Bush’s annual speech leaves no impact on oil producers

Jyotsna Ravishankar finds out why the Middle East is not reacting to US energy independence claims

  • E-Mail
By  Nicholas Wilson Published  March 2, 2006

US President George Bush should have checked his facts about oil before his annual speech. His claims to cut dependence on Middle East oil will not do any favours to the already drooping American image in this part of the world. Also, his rhetoric about not needing oil from the Middle East may just be music to the Asian consumers’ ears, according to most industry insiders. The Middle East, for its part, has given Bush the cold shoulder, and no panic statements were issued by any of the regional producers. To the contrary, Nawaf Obaid, a Saudi oil adviser, told Reuters, “It really doesn’t matter to us. We can sell our oil anywhere.” That precisely is the reason why Middle East producers are no longer concerned about the American threat to cut dependence on their oil. Asia, not the United States, is the Middle East’s number one consumer, says Anas Alhajji, associate professor of economics at Ohio Northern University. “The United States,” Alhajji says, “only imports oil from three Middle Eastern nations, which are, Kuwait, Iraq and Saudi Arabia.” Most of the supplies to the United States actually come from Canada, Mexico, Venezuela, Nigeria, Angola, Columbia, Algeria, Ecuador, United Kingdom, Norway, and Trinidad and Tobago. Saudi Arabia, Iraq and Kuwait together accounted for only 2.1 million barrels per day (bpd) of the 9.2 million bpd that the United States imported during the first 11 months of 2005. In terms of import figures, Saudi Arabia comes behind Canada and Mexico. So, if the US is trying to reduce dependence on Saudi Arabia, it is essentially absurd, agree most traders. Besides, oil is a commodity freely traded on global markets. Bush offered no explanation of how oil importers would selectively stop buying Middle East oil. “How do you get large-scale importers to preferentially focus on non-Middle East sources?” asked Ken Stern, an energy analyst for FTI Consulting in New York. “It seems to me that without an economic driving force, it’s much more words than action.” These statements have also led experts to question the United States’ understanding of energy dynamics. Bush urged Saudi Arabia, earlier last year, to invest in refineries and also production expansion capabilities to feed the American “oil-addicted” consumer. Saudi Arabia in return presented Bush with an US $50 billion expansion programme, when the Saudi King Abdullah — then the kingdom’s crown prince — met the US president at his ranch in Texas last year. The two nations have since embarked on a “strategic dialogue” to balance priorities of the world’s biggest oil producer and its biggest consumer, with meetings in Riyadh and Washington. So this sudden backtracking is not going to urge Opec producers to spend their boom year cash on any developments, the International Energy Agency chief has warned. “We are absolutely delighted that President Bush has recognised at last that his country is addicted to oil,” IEA head Claude Mandil said. “But the way he said it — to get rid of dependence on Middle East oil — will not help us convince those countries that they will have to increase their investment.” Reports seem to suggest, however, that the Middle Eastern countries are not going to stop any expansion programme, because they have more affable consumers in mind, i.e., Asia. Saudi state-owned producer Saudi Aramco, has recently flooded its website with messages from its President Abdullah Jumah in praise of the Asian consumer, chiefly China and India. Furthermore, imported crude commands a premium on Asian markets, where refiners have historically been willing to pay extra to lock in supplies. India also announced recently its plans to build the strategic petroleum reserves, which means that it needs to secure more supplies. So, the Saudis do not really seem to have much to worry about even if the Unites States’ unrealistic dreams are fulfilled. But analysts believe that the challenge is almost insurmountable. The United States wants to boost spending on research to develop cellulose-to-ethanol technology, which uses corn stalks and even switchgrass to make ethanol. In addition, Bush called for increased research spending to accelerate development of hydrogen-powered cars and better hybrid-fuel vehicles. Environmentalists have dismissed his claims, as the former oil man is still sticking to his guns when it comes to drilling in Alaska’s Arctic National Wildlife Refuge. According to David Hamilton, director of the Sierra Club’s global warming and energy programme, who said to the Washington Post, “The energy package clearly appears to be something about which they said, ‘Okay, what can we cobble together and make it look like we’re actually doing something?’” Alhajji further analysed Bush’s claims and told Oil&Gas Middle East, “If Bush is successful in his plan, he will reduce imports from the Middle East by a mere one million barrels less than today’s imports. If the plan does not materialize, US imports from the Middle East will increase by more than three million bpd by 2005.” He also says, even if the United States is successful in reducing the demand for oil, the technology it uses for that purpose will not be available to the rest of the world, and so there will be no decline in world energy needs. This is principally because the technology that Bush speaks about only exists when governments can provide substantial subsidies to producers of ethanol and bio-fuel. But a clear indication that the president’s speech was grossly ill-researched came when Chevron Vice Chairman Peter Robertson said Saudi Arabia’s massive oil resources are key to international energy security, and US President George Bush’s desire to cut his nation’s dependence on Middle East oil shows a “misunderstanding” of global energy supply. The US would be better off working for “interdependence” with oil producing countries rather than seeking to cut dependence, Robertson was quoted as saying. “This notion of being energy independent is completely unreasonable,” Robertson said to a largely Saudi audience at the Jeddah Economic Forum. Analysts like Muhammed Ali Zainy from the Centre for Global Energy Studies believes that the message was purely political and meant only for sending signals within the party about foreign policies. “The president’s vision is completely unrealistic, and the speech was only to stir up patriotic fervour among voters.” Zainy also believes, however, that it was irresponsible for the world’s largest energy consumer to make statements about cutting down Middle East oil by 75%. “Such statements do not particularly encourage the producers who are currently spending billions of dollars on expanding production facilities.” Alhajji says that the rhetoric has been repeated for over 30 years by various presidents, and US oil imports have only continued to grow. Even if Bush’s efforts for hybrid cars and ethanol fuels are noble, his intention to diminish the powers of Saudi Arabia as an oil exporter will never materialise, agree analysts.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code