Is U.S. foreign policy still addicted to oil?: Analysis

Is U.S. foreign policy still addicted to oil?: Analysis


Traditional wisdom says: Since America is addicted to oil, OPEC countries have huge political leverage on U.S. foreign policy. Indeed, since the 1970s, liberal circles have criticized U.S. foreign policy for being lenient towards Arab countries simply due to oil. Moreover, conspiracy theories explain away the United States’ military adventures with long-term oil interests.

This U.S. oil dependence adage has its roots in the 1970s when OPEC countries imposed an oil embargo on Western countries following the Arab-Israeli conflict. However, 50 years on or so, we are seeing remarkably different dynamics. While the United States is still one of the largest consumers of crude oil, its foreign policy now seems to be disconnected from its oil interests. The widespread use of economic sanctions has become a regular policy practice for the United States in the post-Cold War world. Currently, the United States is putting sanctions on Venezuela, Russia and Iran. One should note that all three countries are among top crude oil producers in the world. We have recently seen U.S. President Donald Trump ending exemptions from sanctions for countries still buying oil from Iran, thereby reinforcing its sanctions regime against the Islamic Republic. Waivers for China, India, Japan, South Korea and Turkey will expire in May, after which they could face U.S. sanctions themselves if they continue purchasing oil from Iran. This decision is intended to bring Iran’s oil exports to zero, denying the government its main source of revenue.

So how could one reconcile America’s apparent oil addiction with the extensive oil sanctions imposed on many countries? How can the United States afford to do this?

The answer lies in changes in crude oil production and consumption patterns over the last 30 years. This period corresponds to the formation of trading blocs in both Europe and North America. For example, the creation of NAFTA in 1994 helped the oil production and transport process become more efficient and extensive across the United States, Canada and Mexico. In fact, North American oil production has increased by 36.5 percent between 1987 and 2017, going from 14,732 million barrels per day (MBPD) to 20,112 MBPD. As of 2017, North American crude oil production exceeded U.S. oil consumption.

Moreover, if we consider the close relationship between Saudi Arabia and the United States and add the former’s production figures to the latter, we see that oil production in countries within their sphere of influence now largely surpasses their consumption. In fact, the ratio of North American and Saudi Arabian oil production-to-consumption is around 161 percent, compared with 116 percent back in 1987. This shows that the United States has ensured a comfortable and reliable crude oil supply chain for its economy. The table below shows the production and consumption details.

The last 30 years were event-filled for the energy world because efficiency increases in the auto and energy sectors translated into slower-than-expected increases in oil demand. Furthermore, more frequent use of natural gas in industrial production brought about a substitution effect, particularly in America. The rising importance of natural gas was also helped by the significant shale gas discoveries in the United States during the last decade. 

In sum, the United States is no longer overly dependent on oil from countries such as Iran, Venezuela and Russia. This explains how they can afford to be so assertive with certain countries and why economic sanctions have become one of their most used tools in international relations. Besides, the United States now having a very advanced oil and energy industry means it is less concerned about high oil prices given that these directly benefit parts of their economy.

Turkey has been indirectly impacted by U.S. sanctions since the first Gulf War. Due to its strategic position, all major geopolitical and economic developments in the Middle East (first in Iraq, now Iran) have negative consequences for Turkey. Unfortunately, America’s never-ending sanctions hurt the Turkish economy, and our country has never been compensated for such losses.

With Turkey on the receiving end of the sanctions’ ramifications, its situation is similar to that of other continental European countries such as Germany, Austria, Belgium and Holland. For instance, Germany is also facing pressure due to its Russian gas pipeline in the North Sea. Common issues like these are one of the reasons Turkey can and should cooperate with the European Union to promote its interests. Indeed, given its energy advantage, the United States is unlikely to become more sensitive to the energy needs of Europeans and Turks. It would be naïve to expect the U.S. government to understand and accommodate Turkey’s energy concerns neither. Undoubtedly, Turkey is better off pursuing its independent energy policies in cooperation with its main trading partners.