U.S. Dependent on Saudi Oil

The United States is set to become more reliant on Saudi oil although it will try to diversify its crude imports from the volatile Middle East region, experts said. Saudi Arabia, the world's oil powerhouse, is already the largest crude exporter to the US and growth in such exports could be stifled by a political rift over terror issues and the overthrow of former Iraqi President Saddam Hussein. But in size, the US is expected to import more Saudi oil to meet a steady growth in its domestic crude consumption and face pressure on its dwindling reserves. "The US does not have too many options in this field… Saudi Arabia has been its main oil supplier and will remain so in the long term despite the recent strain in their relations," said Louis Hubeika, a former World Bank expert. "I believe their differences are temporary rather than being fundamental differences in the long run… they can be sorted out and I am sure the US will not allow a further deterioration because it needs Saudi Arabia more than any other oil supplier."

Sitting atop a quarter of the proven global oil wealth, Saudi Arabia supplied the US with around 500 mm barrels of crude last year, a daily average of nearly 1.36 mm barrels. Supplies hit a record 663 mm (1.8 mm bpd) in 1991 when the Gulf Kingdom sharply boosted oil production to make up for a market loss of more than 4 mm bpd because of the 1990 Iraqi invasion of neighbouring Kuwait. Last year's supplies accounted for nearly 15 % of the US's total oil imports and analysts expect the level to widen in the coming years due to a rapid growth in domestic consumption and a gradual decline in the reserves of the US and other suppliers. From around 16.7 mm bpd in 1991, the US oil consumption surged to 19.6 mm bpd in 2001 and demand is projected to have risen to more than 20 mm bpd in 2003, nearly a quarter of the world's total crude consumption.

Figures by the US Department of Energy (DoE) showed the volume of the country's oil imports had already attained a record level and covered 55 % of national consumption compared with around 42 % in 1990. According to DoE, the situation is projected to deteriorate further, with energy demand expected to increase by about 32 % by 2020, representing a far more rapid annual growth rate than the rate of increase in domestic production. This implies that the national energy supply/demand gap will rise by 50 % during 2000-20. Analysts believe a large part of the increase would be met by Saudi Arabia, which controls around 262 bn barrels and can boost capacity to 15 mm bpd. They cited last year's call by a group of US senators for raising oil imports from Saudi Arabia.

"The serious deterioration in relations between Saudi Arabia and the US since the events of September 11, 2001 together with the uncertainties caused by the occupation of Iraq and the upsurge in terrorist activity in the Middle East and elsewhere, constitute new and serious threats to the oil supplies of the US and other consuming countries," said Nicholas Sarkis, Director of the Paris-based Arab Oil Institute. "The call by 31 American senators for President George W. Bush to put pressure on Saudi Arabia to increase its oil exports is another sign of climate of mistrust between the two countries…. the fundamental problem resides in both the political and economic factors holding back the development of the production capacity in Saudi Arabia and many other oil exporting countries."

"It is in the interest of the US to diversify its oil supply sources... this means that it will naturally import more oil from Iraq in the future and this will stifle growth in its oil purchases from Saudi Arabia," Saeed Al Shaikh, Chief Economist at the Saudi National Commercial Bank, said. "But that does not mean the US will limit its oil imports from the Kingdom... I don't think it will be an intended policy by Washington to shift away from Saudi Arabia... don't forget the long-established relationship between the two countries and the large US interests in Saudi Arabia."
Source: Al Nisr Publishing