Business and ex-military leaders caution against U.S. supporting Middle Eastern oil cartel

Just a few weeks after issuing policy recommendations aimed at weaning the U.S. from foreign oil, a group of business executives and retired military leaders known as the Energy Security Leadership Council (ESLC) seized on the political turmoil in Libya and other oil-rich nations to press its case. With oil prices once again hovering at $100 per barrel the council held a press conference Thursday to caution the U.S. against continuing to commit money and military resources to support what is essentially an oil "cartel" in the Middle East.

It is one of the U.S.’s greatest economic risks to be tethered to increasing supplies of imported petroleum from politically unstable parts of the world, in particular the Middle East and North Africa, Fedex Corp. President and CEO Frederick Smith said Thursday. Smith, who is co-chair of the ESLC, added that every U.S. economic recession since the first Arab oil embargo of 1973 has been "preceded or contemporaneous with a significant run up in oil prices."

That’s not surprising given the way the rising price of oil acts like a tax on U.S. consumers collectively—a total rate of about $75 billion is taken out of the country’s purchasing power for every $10 increase in the cost of a barrel of oil, according to Smith. "The most important thing to recognize about the oil market, and what requires urgent and decisive action on the part of United States government, is that it is not a free market," he said. "It is a market which is basically managed on the margin by a cartel which, if it were doing the things it does on a routine basis in this country, would find itself in violation of the laws of the United States."

The recent uprisings in Egypt, Tunisia, Libya, Bahrain and other countries in the region were unforeseen and another reminder of the fragile balance of power in that part of the world, General Charles Wald, USAF (Ret.), said at the press conference. Wald, an ESLC member and former deputy commander of U.S. European Command, added that the crisis in Libya alone is shutting out between 300,000 to potentially 350,000 barrels of oil per day.

Since 1970 the U.S. has spent between $65 billion and $85 billion annually to have a military presence in the Middle Eastern region to ensure the security of, and U.S. access to, the oil produced there, Wald said, citing a Rand Corp. study. The U.S. received yet another wakeup call in 2008 when oil spiked to $147 per barrel, causing the U.S. military’s fuel costs to jump by $11 billion that year, Wald said, adding, "It’s time for our country to become less dependent on imported oil and to look for an alternative."

Former Sen. Byron Dorgan (D–N.D.), who also spoke at the press conference, noted that the U.S. makes up 5 percent of the world’s population and produces about 10 percent of the world’s oil but consumes as much as 25 percent of the total oil produced worldwide. "I think our country would be simply brain dead if what we are seeing and watching and reading about [in the Middle East] doesn’t force us to recognize the threat to our way of life," he said. "To have our economy continue to hang in the balance with what is happening in a very troubled and unstable part of the world is dangerous."

Unfortunately, the press conference was long on statistics and calls to action but short on the specifics of such actions. Nor did Smith, Wald or Dorgan propose how to reconcile the differing opinions in U.S. government and industry regarding how (and with what) to replace foreign oil. Dorgan, in particular, knows firsthand that warnings about dependence on foreign oil aren’t always heeded. As a senator, Dorgan sponsored the Promoting Electric Vehicles Act of 2010 that sought to provide the financial incentives necessary to turn half of the vehicles on U.S. roadways into plug-ins by 2030. The bill had strong support in the Senate Energy and Natural Resources Committee but was never voted on by the full Senate. It will have to be reintroduced to get anywhere at this point.

Meanwhile, FedEx’s Smith acknowledged that his company, which is a major consumer of gas and diesel, is in only the nascent stages of electrification, with about 350 hybrid electric and 20 all-electric vehicles in its fleet. He said he was encouraged by developments in lithium ion batteries but that the up-front capital costs of buying electric vehicles is still much greater than simply relying on diesel fuel.

By Larry Greenemeier,