After a bitter war in Yemen, tougher sanctions on Iran, threats by Tehran to close the Strait of Hormuz and the decision to send an American aircraft carrier to the region, geopolitical turmoil in the Persian Gulf has intensified with attacks on two Saudi oil tankers in Emirati waters. These attacks highlight oil’s importance to the global economy, and the impending arrival in the Gulf of the USS Lincoln demonstrates the volatile commodity’s harmful influence on the United States, the world’s largest oil consumer.
Described as a “sabotage” by Saudi energy minster Khalid al-Falih, the two Saudi tankers were among at least four vessels targeted, including oil-industry ships from the UAE and Norway. One of the Saudi ships involved, a 2.2-million-barrel capacity vessel called the Amjad, was due to pick up oil from the Saudi port of Ras Tanura for export to the United States. The incident drew immediate condemnation from the Gulf Cooperation Council, with council general secretary Abdul Latif bin Rashid al-Zayani calling the incident a “dangerous escalation.” For its part, Iran described the attack as “alarming and regrettable.” The U.S. government, however, has already stated that Iran is likely behind the attacks.
Inevitably, the price of oil jumped in response. Brent crude rose 1.9 percent to trade at $71.75 per barrel, while U.S. crude oil futures gained 1.6 percent to $62.48, as fears continue to grow of an armed conflict erupting in the Strait of Hormuz. This waterway is a critical choke point through which 18.5 million barrels per day passed in 2016, approximately one-third of all the world’s seaborne oil and close to one-fifth of the world’s total oil supply.
This price increase is concerning for the United States, because oil is the lifeblood of the American economy.
This price increase is concerning for the United States, because oil is the lifeblood of the American economy. Aside from being the world’s largest oil consumer, accounting for one-fifth of daily global supply, the U.S. transportation network is 92 percent dependent on oil, with no alternatives available at scale. Even as domestic production reaches new highs, the uniquely global nature of oil prices—in which a supply disruption anywhere affects prices everywhere—means the events unfolding in the Middle East will result in higher pump prices in the U.S., regardless of how much oil the United States produces. As of last week, the EIA calculated that the weekly retail average all grades gasoline price was slightly less than $3.00 per gallon.
This week’s infrastructure hearings offer an initial pathway for U.S. policymakers to reduce the nation’s exposure to volatile oil prices. Today’s Senate Energy and Natural Resources Committee hearing will discuss S. 1317, the American Mineral Security Act,a bipartisan bill that identifies as a national security priority the domestic production and processing of a range of minerals required for the manufacturing of electric vehicle batteries. In response to its announcement, SAFE President and CEO Robbie Diamond said he was pleased to see U.S. minerals production become a congressional priority, adding that the United States is “in a race with China and others to secure minerals and the supply chain as transportation worldwide moves toward an electrified and digitized future.”
Additionally, the Senate Judiciary Committee is holding a hearing on 5G and its impact on national security, competition and innovation. As the next generation of internet delivery, 5G promises speeds far in excess of the current 4G infrastructure, and it offers economic benefits worth trillions of dollars. SAFE’s recent issue brief “The Race to 5G” identifies the significant benefits this technology can bring to roadway safety. This technology also promises a pathway to the infrastructure required for the effective operation of connected, autonomous, shared and electric vehicles.
Both these hearings point the way toward a transportation system not based on oil, but one based domestically produced and more secure domestic alternative fuel sources. Electricity, in particular, is the most viable near-term option, offering a fuel that is not only domestic and diverse in origin, but also low and stable in price: While the price of gasoline has fluctuated from a May 2011 high of $4 per gallon to approximately $2.95 today, electricity has hovered around a price equivalent to $1 per gallon.
Most importantly, however, these hearings point toward a future where oil is not the dominant U.S. transportation fuel. Since the U.S. military spends at least $81 billion every year on securing global oil supplies, this shift away from oil finally would provide the country with a transportation system that truly works in our national interest.