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Oil Imports from Saudi Arabia Increase

Brian Hicks

Written By Brian Hicks

Posted August 20, 2012

Despite persistent speculation about impending armed conflict in the Persian Gulf region, the U.S. has increased imports from Saudi Arabia by around 20 percent so far this year.

Reversing a trend of decreased oil dependence, the U.S. started increasing oil imports over summer, and the pace continued to grow.

A large factor here is the worldwide uncertainty over Iran’s nuclear program. Led by the U.S., Iran has come under increasing sanctions that radically restrict its ability to sell crude abroad. Saudi Arabia, meanwhile, agreed to ramp up production in order to protect prices from shooting up. So although prices have remained fairly level and Iran’s economy remains caught in a vise, the U.S. itself has become increasingly dependent on an unstable region.

Certainly Saudi production has kept up with its stated goals, but the region itself has experienced serious fluctuations recently, what with several high-profile deaths in the royal family and sectarian unrest in the east. A long-standing U.S. alliance with Saudi Arabia, however, does exist.

Despite the domestic shale boom, the entire situation highlights how very dependent the U.S. is on foreign crude, something that has conservatives concerned.

From the New York Times:

“At a time when there is a rising chance of either a nuclear Iran or an Israeli strike on Iran’s nuclear facilities, we should be trying to reduce our reliance on oil going through the Strait of Hormuz and not increasing it,” said Michael Makovsky, a former Defense Department official who worked on Middle East issues in the George W. Bush administration.

The reference to the Strait of Hormuz raises another specter: that of Iran closing it off and thereby shutting off vital oil routes. It would be a bit like shooting themselves in the foot, since Iran itself depends on the Strait, but push a country far enough and surprising things can happen.

The Obama administration, at least publicly, remains sanguine. After all, should an emergency arise, there are emergency reserves to be resorted to, and meanwhile, the shale boom continues to provide a rich bounty. Plus, refineries in the Gulf of Mexico could be altered to handle higher-quality crude imports.

In the first five months of 2012, the U.S. imported 1.45 million barrels daily, on average, of Saudi crude. In the equivalent period in 2011, that number was 1.15 million barrels. Such increases have also applied to Kuwait and Iraq. In total, however, both OPEC and non-OPEC imports have gone down. Imports from the Persian Gulf currently account for around 23 percent of total imports, up from 17 percent.

The shale production and Canadian oil sands have been replacing imports from Mexico and Venezuela, but the domestic pipeline infrastructure needs to be overhauled to handle these new flows. And of course, we can’t forget the aftermath of the BP spill; prior to that disaster, Gulf of Mexico oil production was running at 1.75 million barrels a day, projected to rise to 2.2 million barrels a day by now. Instead, due largely to the year-long ban on new drilling, production is lower by around 700,000 barrels a day—and is being replaced by Saudi imports.

Should more unrest occur in the Middle East and Persian Gulf affecting output, prices will likely rise. Benchmark crude on the NYMEX rose on Monday to stay above $96 per barrel.

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