Contributed by Chriss Street. Specialist in corporate reorganizations and turnarounds, former Chairman of two NYSE listed companies. His latest book, The Third Way, describes how to achieve management excellence and financial reward by moving organizations from Conflict and Confrontation to Leadership and Cooperation. Chriss lives in Newport Beach, CA.
The United States is on track to achieve independence from imported Middle East oil within the next seven years due to the boom in domestic and North American energy development. Consequently, the United States would have eventually ratcheted down our huge military presence in the Middle East defending oil imports. But just like television scenes of the attack on the United States embassy during the 1968 TET Offensive destroyed public support for the Viet Nam War, last week’s television images of protests against American embassies has devastated public support for a continuing military presence in the Middle East. The American public will soon demand a crash program to exploit domestic energy resources to facilitate a Middle East withdrawal.
American Exceptionalism’s military and economic triumphs in the first half of the 20th Century were directly attributable to secure domestic access to immense amounts of oil. President Coolidge wrote in 1924 after WW I; “the supremacy of nations may be determined by the possession of available petroleum and its products.” During World War II, the United States domestic gasoline output for the military grew 18 times and the production of aviation fuel jumped by 80 times. Half the total weight of supplies shipped overseas to U.S. allies during the war consisted of petroleum products.
Following defeat of Germany’s Afrika Corps in 1943, Middle East oil resources were rapidly commercialized. After the war, massive new volumes of cheap Middle East oil froze the world price of oil at between $2.77 and $3.60 a barrel from 1948 to 1972. During period, American domestic production withered and the bulk of U.S. oil refining capacity was relocated to coastal ports on the Gulf of Mexico, Atlantic and Pacific.
On December 2, 1970, just as oil prices were about to climb, Congress passed the Environmental Protection Agency, which had a huge negative financial impact on domestic oil industry. The number operating oil refineries in the U.S. fell from 301 in 1970 to 134 today. Land-based oil production fell from 9.6 million barrels a day in 1970 to only 5.1 million in 2005. Even with new off-shore production in Alaska and the Gulf of Mexico, total U.S. domestic oil production fell from 10.8 million barrels a day in 1980 down to 8.3 million barrels in 2005. To cover the shortfall as demand continued to grow; imports rose from 1.3 million barrels a day in 1970, providing 12% of supply to a peak at over 12 million barrels in 2005, accounting for 63% of all U.S. oil supply.
But since 2008, fracking and other new drilling technologies have fostered a domestic 25% surge in oil production and a 40% jump in natural gas production. driven down Demand for imported oil has fallen to less than 45% of supply, the lowest level since 1997. Cheap new supplies from Canadian tar sands drove down imports of Middle East oil to less than 10% of U.S. supply.
Radical Islam’s coordinated attacks against American embassies across the Middle East has fractured the region’s respect for U.S. military power and emboldened our enemies. Taliban forces this weekend brazenly penetrated the perimeter of a the joint U.S. and British air base in Afghanistan, blew up 6 Marine Harrier “jump jets” and killed one of the Marine’s highest decorated Air Squadron Leader. After NATO forces suffered their 51st murder by an Afghanistan government forces, the U.S. military suspended all operations with patrolling with Afghan troops.
In 1968, President Lyndon Johnson claimed a military victory as American and South Vietnam forces slaughtered ten times as many Viet Cong as they lost in the TET Offensive. But bloody television images of the battle at the U.S. embassy in Saigon convinced Americans that the Vietnamese could never be pacified. Similar television images of anti-American violence in the Middle East have convinced the American public that the Middle East cannot be pacified.
The American public will soon politically coalesce around a major increase in domestic energy exploration and development, in order to facilitate the elimination of reliance on imported Middle East oil. Fortunately, America has technology and resource potential to rapidly make this initiative a reality. By Chriss Street.