What they don't want you to know about the coming oil crisis

By Jeremy Leggett [read full article here]

Of the current global demand for oil, America consumes a quarter. Because domestic oil production has been falling steadily for 35 years, with demand rising equally steadily, America's relative share is set to grow, and with it her imports of oil. Of America's current daily consumption of 20 million barrels, 5 million are imported from the Middle East, where almost two-thirds of the world's oil reserves lie in a region of especially intense and long-lived conflicts. Every day, 15 million barrels pass in tankers through the narrow Straits of Hormuz, in the troubled waters between Saudi Arabia and Iran. The US government could wipe out the need for all their 5 million barrels, and staunch the flow of much blood in the process, by requiring its domestic automobile industry to increase the fuel efficiency of autos and light trucks by a mere 2.7 miles per gallon. But instead it allows General Motors and the rest to build ever more oil-profligate vehicles. Some sports utility vehicles (SUVs) average just four miles per gallon. The SUV market share in the US was 2 per cent in 1975. By 2003 it was 24 per cent. In consequence, average US vehicle fuel efficiency fell between 1987 and 2001, from 26.2 to 24.4 miles per gallon. This at a time when other countries were producing cars capable of up to 60 miles per gallon.

Most US presidents since the Second World War have ordered military action of some sort in the Middle East. American leaders may prefer to dress their military entanglements east of Suez in the rhetoric of democracy-building, but the long-running strategic theme is obvious. It was stated most clearly, paradoxically, by the most liberal of them. In 1980 Jimmy Carter declared access to the Persian Gulf a national interest to be protected "by any means necessary, including military force". This the US has been doing ever since, clocking up a bill measured in the hundreds of billions of dollars, and counting. With such a strategy comes a disquieting descent into moral ambiguity, at least in the minds of something approaching half the country. The nation that gave the world such landmarks in the annals of democracy as the Marshall Plan is forced by deepening oil dependency into a foreign-policy maze that involves arming some despotic regimes, bombing others, and scrabbling for reasons to make the whole construct hang together.

Of the 11 countries in the Middle East, only five are significant oil producers: Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates, known sometimes as the Middle East Five. They produce around 20 million barrels a day today, a quarter of the global total. If global demand rises at the average rate of the past 30 years, 1.5 per cent per year, these five countries will have to meet around two-thirds of the demand, oil-industry analyst Michael Smith calculates.

Let us assume they can do what they say they can, no more, no less. Where does that leave us? Saudi Arabia says it can lift production from 9.5 million barrels per day today to 12 million by 2016 and 15 million beyond that. This despite 50 per cent of the oil coming from the Ghawar field, where a water cut is already reported. Smith sums all the reported capacities in the Middle East Five and finds that if the rate of demand growth continues at 1.5 per cent they will fail to meet global demand by as soon as 2011. If it rises to 2.5 per cent the demand gap appears in 2008. If it is 3.5 per cent - the rates in China and the US of late - the gap is already here.

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Note: None of this even considers the current situation with Iran. If they were to be sanctioned they would most likely shut down the Straight of Hormuz, and/or halt their oil production, gas prices would, without any doubt, skyrocket well over $100/barrel. Corroborating article.

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