A sharp deviation in oil prices combined with a drop in demand in some parts of the world “certainly has a revenue impact on all producer nations, not only on the ones supplying the economically depressed region,” according to a 2012 International Studies Perspectives article on Global Energy Security. “The 1998 price drop in oil, for instance, was partly triggered by a regional economic depression in Asia, but eventually translated into globally depressed crude prices.”

Relying on viable alternatives to imported foreign oil, such as natural gas or shale oil from the formations in Texas and North Dakota, may help secure U.S. energy supply, but it will not lead to true energy independence.

“The worldwide market for oil makes it almost impossible for a large country like the United States to gain independence, or separation, from that market,” according to a 2012 U.S. Congressional Budget Office report on energy security. Incidents anywhere in the world could cause oil prices to spike, and regardless of how much energy and oil we produce domestically, we’ll still pay the price.

U.S. oil production is on the rise. The U.S. Energy Information Agency predicts steadily rising global oil production through 2035, according to the National Intelligence Council’s most recent Global Trends report. Much of that oil production, the report suggests, will come come from unconventional oil and gas development in North America. “Shale oil production in the U.S. is still in its early stages, and its full potential remains uncertain,” according to the report. “Preliminary estimates for 2020 range from 5-15 million barrels per day.” That’s up to twice as much as the approximately 5.7 million barrels per day produced in 2011 (EIA).

However, even if the United States becomes a net exporter of oil, like Canada, Americans still would be vulnerable to fluctuations and price shocks in the global oil market.

“America faces a series of significant challenges regarding how we produce energy over the next several decades. Our current energy system undermines our national security, is economically unstable, and environmentally unsustainable,” — American Security Project’s Andrew Holland, American Security Quarterly, 2012

The Department of Energy defines energy security as the assured availability of energy at an affordable cost. The Congressional Budget Office defines it as the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets. U.S. officials recognize the immense importance of achieving energy security strategy, but a rapidly changing global landscape and dynamic variables like climate and economics hamper real-time changes.

Complicating matters further, the U.S. government is not the only party involved – in fact, it some cases, when it comes to energy and especially oil, its not even the main player. “In the United States, decisions about how much oil to import are made not by the government, but by private firms that extract, refine, and sell products made from oil—for example, gasoline, diesel, and jet fuel—to households and businesses,” according to a 2012 report by the U.S. Congressional Budget Office.

U.S. Energy Sources, 2011

Source: Energy Information Administration, 2011

Affordable and reliable access to oil is the core of energy security. Despite the rise of natural gas and efforts to develop alternative energy sources, the U.S. and the world still rely on oil as their largest source of energy. Consider how much oil the U.S. consumed last year. The U.S. consumed 6.87 billion barrels of oil in 2011, which contributed to about 35% of total U.S. energy consumption. Natural gas followed at 25%, while coal came in third at 20%.

Over 70 percent of this oil consumption went toward transportation purposes. However, not only is oil used to power cars, trucks, and airplanes, it is also used to create plastics, synthetic materials, chemicals, asphalt, heating oil, and more.

The director of the energy security initiative at Brookings Institution, Charles Ebinger gave this definition of energy security: “At the most basic level, energy security means having access to the requisite volumes of energy at affordable prices.“

The brunt of energy security revolves around the fuel that is being pumped through the world at the greatest volume, and is thus also the most vulnerable to price fluctuations. That fuel is oil, and is projected to be oil for decades into the future.

The increase in U.S. imports from Canada results in large part from the development of sophisticated technology that allows companies to extract oil from Canada’s tar sands.

Global petroleum and other liquid consumption and production

in thousands of barrels per day

Looking at these charts, a few trends emerge.

First, American consumption of oil has decreased. This is partly because of a decline in demand due to high oil prices, but also because the U.S. has become more energy efficient. Newer cars, and new kinds of cars like hybrids, get more miles to the gallon, among other efficiencies. The drop in oil consumption, especially when combined with growing U.S. domestic production, also has raised important foreign policy questions, like whether the U.S. will stop needing oil from OPEC countries.

Second, the spike in oil consumption in Asia is a significant trend caused mostly by the steady increase of populations in places like India, China and Indonesia. Asia’s steady increase in oil production, while far from Middle East levels, has the potential to create new and strong Asian markets.

The same climb in oil demand is true for the Middle East. Oil-rich nations like Saudi Arabia, whose population is also increasing, may need to cut down on exports to serve domestic demand.

Yet Middle East oil continues to dominate the world’s oil production, despite increases in Asian and U.S. production.

Energy security is not a military operation issue … it’s a market-centered subject.

- Michael Rühle, Head of Energy Security Section, NATO

When the public thinks of ensuring energy security, they may think of military combat and defense of physical infrastructure crucial for producing or shipping petroleum. In reality, such military operations are rarely required. Rather, the global marketplace is the main stage for regulating energy security through pricing, production levels, and trade between nations. The market determines how much oil is available, how much it costs, and where it can be shipped to. As a result, energy security, defined as ready access to energy at affordable prices, is dependent on the international oil market.

Players in the global oil trade include international oil and gas corporations, such as Exxon Mobil Corporation, as well as state-run enterprises, such as Saudi Aramco Oil Company of Saudi Arabia. In the latter case, governments have a key voice in determining the operations of the company, which are focused on strategic national interests rather than maximizing profits.

The military does play a key role in maintaining the peace and stability in regions necessary for the free trade of oil. But as long as the market is allowed to function normally, global energy security is ensured by the decisions and operations of the oil companies themselves.

So who are these corporate movers of the world’s energy?

Oil companies run the gamut from a few hundred employees to tens of thousands; production capacities from a few thousand barrels per day to tens of millions; and from wholly state owned and run to private, for-profits. The most influential of them can be grouped into three categories:

International oil companies (IOC) – Private companies that operate internationally and independently of national interests. IOCs are profit-driven and have to answer to shareholders. Examples include Exxon Mobil, Royal Dutch Shell and BP (formerly British Petroleum).

National oil companies (NOC) – State-owned companies that primarily operate within national borders and according to national interests. The OPEC countries and some non-OPEC countries run national oil companies, and use the revenue stream as a significant source of funding for their governments. Examples include Saudi Aramco and Petroleos Mexicanos (PEMEX).

NOCs that operate like IOCs – State-owned companies that are market-oriented and operate with a corporate strategy, while acknowledging the objectives of their country. Examples include Petrobras of Brazil, Statoil of Norway.

How big are these oil companies?

State-run NOCs are, in general, much larger than IOCs. Saudi Aramco, the largest of the NOCs and overall, earns over $1 billion in daily revenue according to Forbes, with estimates of annual profit usually north of $180 billion . It had an average production of 11.15 million barrels of oil a day in 2011, according to the CIA World Factbook. By comparison, Exxon Mobil, the largest of the IOCs, brought in $41.1 billion in profits and produced an average of 2.3 million barrels a day.

Where do these oil companies operate?

To get a sense of where oil companies operate, we’ve profiled two companies: the largest NOC and the largest IOC. They come from two of the top oil-producing countries in the world: Saudi Arabia and the United States.

A look at a national oil company: Saudi Aramco Oil Company

Saudi Aramco, headquartered in Dhahran, is the largest oil company in the world and Saudi Arabia’s national oil company. It holds approximately one-fifth of the world’s proven conventional oil reserves, spread out over about 100 oil and gas fields, including eight “super-giant” fields, in the kingdom.

International oil company: Exxon Mobil Corporation

Exxon Mobil, based in Irving, TX, is the largest of the world’s public multinational oil companies. As a public multinational company, it operates worldwide, unlike Saudi Aramco, which focuses its operations in Saudi Arabia.

Map tiles by Stamen Design, under CC BY 3.0. Data by OpenStreetMap, under CC BY SA.

Exxon Mobil operations in North and South America

Oil companies are constantly involved in exploration to replenish their reserves. Last year Exxon Mobil added 2 billion oil-equivalent barrels to its proven oil and gas reserves, replacing 116% of production for the year.Their activities include partnering up with Rosneft, Russia’s biggest oil company, to jointly develop 31 million acres in the Kara Sea north of Siberia. They also made a significant discovery in the Gulf of Mexico Hadrian complex, bringing their total estimated recoverable resources in the area to over 700 million oil-equivalent barrels.

Maps: Exxon Mobil 2011 Financial and Operating Review.

“The United States regards secure oil supplies as part of its interest and mission,” the report continues, “and therefore includes global oil transit in its force planning.”

More simply put, the U.S. military could theoretically ensure a steady supply of oil by protecting oil flows closer to home – from Canada, Mexico, South America, the North Sea and Africa. But the United States also must consider the health of the overall global economic system. A massive shortfall of oil elsewhere in the world would not only affect the price of oil everywhere, but would also almost certainly undermine the global economic system.

Furthermore, the U.S. military relies on assured access to oil, and it isn’t inexpensive. “In addition to buying the fuel, the U.S devotes enormous resources to ensure the military receives the fuel it needs to operate,” according to a report on energy and risks to national security by Alexandria, VA-based CNA Solutions. “A large component of the logistics planning and resources are devoted to buying, operating, training, and maintaining logistics assets for delivering fuel to the battlefield—and these delivery costs exceed the cost of buying the commodity.”

The U.S. military has used force or the threat of force to protect its energy interests around the world, primarily in the Middle East, for more than five decades, safeguarding foreign oil sources and the sea lanes through which they pass.

According to Roger Stern, an energy professor with the National Energy Policy Institute who also teaches about energy and national security at the University of Tulsa, the cost of keeping a U.S. military presence—particularly naval forces— in the Persian Gulf from 1976 to 2007 was $7.3 trillion. The policy was formulated during World War II when the U.S. battled with Japan over oil shipping choke points in the Pacific. The approach was adopted by the Truman and Eisenhower administrations when Soviet adventurism in Iran and pan-Arab unrest in the Middle East threatened the Persian Gulf oil deliveries.

It was made explicit in 1980 by the Carter administration in response to the Soviet Union’s encroachment in the Persian Gulf. Oil is vital not only to American national security but also U.S. allies’ security because their economies are heavily dependent on petroleum imports. As a result, protection of the world’s oil facilities became part of U.S. national security strategy.

“We believe safe, uninterrupted flow in the commerce of petroleum is one vital to the U.S. and secondarily to our friends and allies,” said Richard Zilmer, a retired Marine Corps lieutenant general. “The United States will always play a role in ensuring the safe transit of petroleum as well as commerce across the sea lanes. We have a vital interest of freedom of navigation around the world that has always been an interest of the United States.”

U.S. military operations and protecting access to oil are not always directly related.But history has shown oil to be an important factor in determining U.S. foreign policy and military strategy, from protecting oil disruption by Iraq’s invasion of Kuwait and Saudi Arabia in the 1990s to today’s redeployment of some military assets to the Asia Pacific region to ensure maritime stability and the freedom of navigation there.

Stern said the U.S. government’s fear of peak oil, the point when maximum oil extraction is reached and terminal decline begins, and Soviet aggression for oil started in the 1950s, but that this growing trend of irrational fears about oil supplies did not immediately translate into military actions to secure oil. “There was a great deal of military activity and the country was in permanent military mobilization, but not that much mobilization had to deal with oil until 1970,” he said.

Even though the U.S. is becoming less dependent on foreign oil thanks to a surge in domestic production, it still imports more than half of its oil. Because of oil discoveries around the globe, the U.S. also increasingly devotes military resources to protect oil-producing regions that are relatively more stable than the Middle East such as West Africa. The stakes are high in the rush to secure oil resources in that region, which has led to a perceived competition between U.S. and China, as both states compete to secure their share of oil supplies.

One of the earliest uses of the military in defending U.S. oil interests came during the Suez Crisis in 1956, when Egyptian President Gamal Abdel Nasser took steps to nationalize the Suez Canal, a vital oil choke point co-owned by the British and French. “The immediate threat is to the oil supplies to Western Europe, a great part of which flows through the Canal,” said Prime Minister Anthony Eden of England to U.S. President Dwight D. Eisenhower. “We are all agreed that we cannot afford to allow Nasser to seize control of the Canal in this way, in defiance of international agreements.”

Britain and France wanted to assert their power over the canal through military action and found support from Israel, which was constantly threatened by Egypt. The parties agreed on a plan to take over the Sinai Peninsula and the canal. The major operations were undertaken by Israeli forces who stopped short of the canal to allow the Anglo-French forces to seize it. The U.S. opposed the military action and called for a political solution.

The U.S. stance since 1956 would change over the next coming decades; the 1960s saw a decade of relative calm, while the 1970s and beyond introduced the U.S. to new difficulties and conflicts.

1970s

The 1970s opened with a decade of new vulnerabilities for the United States and its national security interests. Until 1972 the U.S. relied on the British for security in the Gulf and lacked a significant military presence in the region. It also relied on Iranian leader Shah Mohammad Reza Pahlavi even as he was growing increasingly unpopular in his own country. “The British left, and then we [U.S.] delegated that protection of U.S. interests to the Shah [the ruler of Iran]. …We really looked to him to provide U.S. security of U.S. interests in the Gulf,” said Gary Sick, a former member of the National Security Council.

After that, the U.S. slowly had to assert its influence in the region because of the vacuum left by the British. There was a need to contain the Soviet Union’s encroachment towards the Middle East. But before the British departure, in May 1972, President Richard Nixon traveled to Tehran to meet with the shah. Afterward, Nixon significantly boosted military aid to Iran as part of a proxy strategy to maintain the safe flow of oil from the region.

The U.S. did not have significant military installations in the Middle East throughout the 1970s. The oil price surge caused by the Arab oil embargo, which began in October 1973 and went through March 1974, led U.S. administrations to develop foreign and military policies that prioritized protecting oil in the Gulf. “When you are being strangled, it is a question of either dying or living. And when you use the word ‘strangulation’ in relationship to the existence of the United States or its nonexistence, I think the public has to have a reassurance, our people, that we are not going to permit America to be strangled to death,” President Gerald Ford said on Jan. 23, 1975.

On Aug. 24, 1977, President Jimmy Carter was even more aggressive, signing Presidential Directive 18, which authorized the Pentagon to create a Rapid Deployment Force to respond to any oil disruptions in the Gulf region and described the force as light with strategic mobility and independent from overseas bases. By 1979, the uprisings in Iran had turned into a full-fledged revolution; the shah fled the country and was replaced by a virulently anti-U.S. religious cleric, Ayatollah Ruhollah Khomeini. Within a year, 66 Americans were taken hostage at the U.S. Embassy in Tehran, followed by a 444-day hostage crisis.

In response to incidents such as the Iranian revolution, the standoff between South Yemen and North Yemen, and the Soviet Union’s threat to Saudi Arabia, the Carter administration sent an aircraft carrier group from the Pacific theater to the Arabian Sea.

Fearing disruptions in its oil supply from the Soviet Union and unstable regimes, the U.S. increased its emphasis on maintaining a long-term military presence in the Persian Gulf in late 1979, allocating seven prepositioned ships with mechanized equipment, ammunition fuel and other supplies, as well as 300 jet transports and 500 turboprop transports that were made available for airlift. There were tactical air force contingencies that would be able to reach the Middle East within hours. B-52 bombers were conducting reconnaissance flights into the Indian Ocean for the first time and an amphibious ready group of 1,800 marines detachment were deployed into the area also for the first time.

1980s

This militarized energy policy was formalized by President Jimmy Carter in January 1980 when, in response to the Soviet’s invasion of Afghanistan and the Islamist revolution in Iran, he announced that the secure flow of Persian Gulf oil was in “the vital interests of the United States of America” and that, to protect oil interests, the U.S. would use “any means necessary, including military force.”

Carter’s principle of using force to protect the flow of oil became known as the Carter Doctrine. It was later cited by President George H.W. Bush to justify American intervention in the Persian Gulf War of 1990-91 and provided the underlying strategic rationale for the invasion of Iraq in 2003.

The U.S. also engaged in several cases of preventing oil from falling into the hands of unstable regimes as well as the freedom of navigation. On Aug. 8, 1983, President Ronald Reagan announced the deployment of two AWACS electronic surveillance planes, eight F-15 fighter jets and ground logistical support forces to assist oil-rich Chad against Libyan forces. In March 1986, after Libyan missiles fired at U.S. forces engaging in freedom of navigation exercises around the Gulf of Sidra in the Mediterranean Sea, the U.S. retaliated with missile strikes that shot down two Libyan jets.

By 1983, Reagan took the first steps toward transforming a rapid deployment force that the Pentagon had established into a much larger permanent unified command, the United States Central Command, or CENTCOM, carving out a geographical area of responsibility in the Middle East from regions previously served by European and Pacific Commands.

The Tanker Wars from 1984 to 1988 were a turning point for the U.S. in its direct confrontation with Iran over protecting oil supplies. During that period, the Iran-Iraq War was at its height. Iraqi forces attacked Iran in 1980 when Saddam Hussein saw an opportune moment as Iran was transitioning from its revolution. The U.S. was supporting Iraq and Iran laid mines in the Persian Gulf to disrupt Kuwaiti oil tankers as a response to Kuwait’s economic assistance to the Saddam Hussein regime. The U.S. responded with Operation Earnest Will from July 1987 to September 1988 to reflag Kuwaiti oil tankers and provide military escorts through the Persian Gulf and to de-mine the gulf.

“[The U.S. is] fundamentally, irrevocably committed to maintaining the free flow of oil through the gulf,” said Vice President George H.W. Bush in April 1986 to a group of American businessmen in Saudi Arabia.

After the guided missile frigate USS Samuel B. Roberts struck an Iranian mine in the Persian Gulf on April 14, 1988, the U.S launched Operation Praying Mantis, in which the U.S. Navy attacked two Iranian oil platforms and destroyed 25 percent of the Iranian navy.

1990s

In the 1990s, U.S. officials started to express interest in other major oil-producing regions besides the Persian Gulf, including the Caspian Sea basin in Central Asia, as well as Africa and Latin America. President Bill Clinton sought to exploit the energy potential of the Caspian basin and established military ties with future suppliers, including Azerbaijan, Kazakhstan and Georgia, to deter instabilities in the region.

According to Michal Klare, a Columbia University professor in peace and world security studies, Clinton was the first to champion construction of a pipeline from Azerbaijan’s capital, Baku, to Ceyhan in Turkey and took steps to protect that conduit by boosting the military capabilities of the countries involved. President George W. Bush later continued the effort, increasing military aid to these countries and deploying American combat advisers.

With the invasion of Kuwait by Iraqi forces beginning on Aug. 2, 1990, President George H.W. Bush ordered forward deployment of U.S. armed forces into the Persian Gulf region to help defend Saudi Arabia. The U.S. demanded that Iraq withdraw from Kuwait. Iraq’s refusal led to the launch of Operation Desert Storm on Jan. 16, 1991, as aircraft of the U.S. and its coalition of allies attacked Iraqi forces in Iraq and Kuwait in what became known as the first Gulf War.

The U.S. victory generated animosity in Iraq, leading to an attempted car bomb intended to kill the elder Bush during his visit to Kuwait in April 1993. In response, Clinton ordered a cruise missile strike against the Iraqi Intelligence Service building in Baghdad two months later.

2000s

After the Sept. 11, 2001 attacks, global terrorist organizations rapidly expanded their targeting of petroleum extraction, refining and transport infrastructure, among other targets. Concerned that such terrorist activities could paralyze allies that lacked counterterrorism capabilities, the U.S. expanded its new “War on Terrorism” around the globe to help allies prevent the proliferation of terrorist organizations.

The U.S. still maintained a strong presence in the Persian Gulf but, because West Africa and South America have seen an increase in exports to the U.S., they also have seen a surge in American military’s interest in protecting the region.

Between late 2002 and early 2003, the U.S. sent Special Forces advisers to train 4,000 Colombian soldiers in counterinsurgency warfare to protect a 500-mile pipeline that transports more than 100,000 barrels of crude oil per day and was attacked at least 170 times in 2001. While the U.S. receives only a small amount of its oil from Colombia, the pipeline was owned in part by a Los Angeles-based company.

The Pentagon also provided military aid to Angola and Nigeria and continues to help them with training and recruiting. Meanwhile, the U.S. hoped to establish permanent bases in the region, with a focus in Western African countries including Senegal, Ghana, Mali, Kenya and Uganda.

The U.S. acquired basing rights and access to airfields in Djibouti, Uganda, Mali, Senegal and Gabon, as well as port facilities in Morocco and Tunisia. In addition, it also expanded its covert intelligence operations across Africa in the name of combatting terrorism. By expanding its military presence in Africa, Washington hoped to ensure the free flow of African oil.

In 2005, the U.S. launched the Gulf of Guinea Guard Initiative to help Nigeria, Angola, Chad, Equatorial Guinea and other West African governments deal with transnational threats, including the protection of harbors, ships and oil platforms. On Oct.1, 2008, the U.S. established AFRICOM, or Africa Command, in part because of the continent’s strategic stores of oil and mineral deposits and its position along key shipping lanes.

2010s

In 2011, during Operation Odyssey Dawn, coalition forces enforced U.S. Security Council Resolution 1973 with bombing of government forces in oil-rich Libya as they tried to suppress a rebellion. In the same year, the U.S. sent in combat troops to Nigeria and Uganda as advisers.

Since late 2011, the U.S. has been rebalancing to the Asia Pacific, where the world’s emerging economic powers are aggressively pursuing energy to fuel their growths. Countries like China, India, Vietnam and the Philippines are in heated disputes over the oil-rich South China Sea in Western Pacific. Fearing the escalation of ongoing disputes could lead to larger armed clashes that will disrupt the freedom of navigation, the U.S. has been developing new naval capabilities and incrementally deploying more ships to the Pacific in order to secure the vital see lanes and choke points. The U.S. is also in discussion with Vietnam, Thailand and the Philippines regarding reusing some long-shuttered military bases and facilities.

China sees the South China Sea as a second Persian Gulf in terms of future oil capacity, and it is being more assertive in claiming the region, both diplomatically and militarily. The Beijing government is also developing long-range anti-ship missiles and modernizing its South Sea Fleet, sparking concerns in the U.S. and among its less-powerful regional allies, which also largely depend on oil imports.

Cornell University energy experts Danielle Cohen and Jonathan Kirshner caution against interpreting this shift as a race for oil. Cohen and Kirshner attribute the outcry to “the cult of energy insecurity” — the belief that U.S. national security requires foreign policy measures to assure access to energy. The scholars instead argue that pricing plays the dominant role in dictating access to energy:

“The problem for the next few decades … is not that we will run out of oil. It is that we will probably have to pay exorbitant prices to get it. And no foreign policy will change that, though wise domestic policies might.” — From “Myth-Telling: The Cult of Energy Insecurity and China-US Relations” by Cohen and Kirshner.

More than half of the world’s oil is transported by sea, making maritime security one the most crucial factors of energy security. Before getting to U.S. consumers and industry, oil leaves ports and harbors around the world and passes through global choke points – narrow sea lanes that are often highly vulnerable to disruption.

Throughout history, the world’s largest choke points have been the target of attacks, including piracy, robbery, and mining by hostile nations. These vulnerabilities continue today, and in some cases are on the increase, such as Iran’s current threat to mine the Strait of Hormuz.

The Department of Energy, the U.S. Energy Information Administration, the Department of Defense and other national and international organizations closely monitor these chokepoints due to the potentially catastrophic nature of a choking off of the global oil supply, which could drive up costs and threaten critical energy supply.

Below is a rundown of the world’s largest choke points and the main threats they face.

Source: U.S. Energy Information Administration

It was the president’s judgment that we were overweighted in some areas and regions, such as our military commitments in the Middle East, and at the same time, we were significantly underweighted in some regions, including and specifically the Asia-Pacific region

- National Security Advisor Thomas E. Donilon said in a Nov. 15 speech at the Center For Strategic and International Studies in Washington

Strait of Hormuz

MANAMA, Bahrain—For more than 40 years, the U.S. Navy has used the Naval Support Activity base, a sprawling coastal compound in Bahrain’s capital city, as a global oil police headquarters, projecting vast amounts of military power to ensure that oil from the Middle East gets to its intended consumers—especially those in the United States and its allies.

Protecting oil tankers passing through the Strait of Hormuz, the narrow passage off the coast of Iran and the United Arab Emirates, is one of the critical missions of the Navy here. It is also expensive. By some estimates, the United States has spent as much as $8 trillion on maintaining such a menacing military presence in the region in recent decades, including aircraft carrier groups bristling with jet fighters, to make sure countries like Iran don’t choke off the world’s oil supply.

Roger Stern, a professor at the University of Tulsa National Energy Policy Institute, came up with the $8 trillion calculation in a 2010 study published in the Energy Policy Journal. He concluded that the U.S. has spent that sum on protecting oil resources in Persian Gulf since 1976, when it first began increasing its military presence in the region following the first Arab oil embargo.

Estimates of the actual cost vary. According to a 2009 study by the RAND Corporation, there is no official public U.S. accounting of the costs of protecting U.S. oil interests in the Persian Gulf or elsewhere. However, others like Stern have come up with numbers ranging from $13 billion to $143 billion per year.

According to Stern, U.S. officials spent the money out of fear that oil supplies would run out and concerns about containing Soviet expansionism—and access to oil—in the Middle East.

“The fear grew out of a belief not just in a global peak oil, but a strong CIA conviction, that was shared by the National Security Council, that the Soviets were running out of oil, that their production was going to tank in just a few years and the Soviets [had] no choice but to march to the Persian gulf to get oil, so that was the rationale for the idea that a force was needed,” Stern said in an interview.

But, Stern added, “I am just not one who believes that the supply was ever threatened.”

In 2001, the U.S. reached its peak in terms of importing oil from the Persian Gulf – a little less than 2.8 million barrels a day. By 2011, imports from the region had fallen from 23 percent of the U.S. total in 2001 to 16 percent. And that trend is expected to continue, as the U.S. develops better ways to conserve fuel while relying more and more on new technologies and its own production of alternative sources of energy like shale oil and natural gas.

Today, most of the oil exported from the Middle East goes elsewhere, especially to emerging powers in Asia such as Japan, China, India and South Korea. But none of those countries have any substantial military presence in the Persian Gulf, instead relying on the United States to protect the free flow of oil.

Gary Sick, a retired Navy captain and former National Security Council official under Presidents Gerald Ford, Jimmy Carter and Ronald Reagan, is one of many Gulf watchers who argue that as the U.S. becomes more energy self-sufficient, there may be fewer reasons to keep a large force in the Gulf– especially since most of the oil is going elsewhere.

“We are  sort of the sheriff that watches over the oil flow to make sure they get [oil] because if Japan is cut off or Europe is cut off, that has huge implications for the world economic well-being and our own security,” Sick said in a recent interview.

“Nobody else is willing to pick up that responsibility,’’ he added, “so at the moment we have almost sole responsibility.”

Steve LeVine, author of The Oil and the Glory and an energy security professor at Georgetown University’s School of Foreign Service, said allies like India, which receives about 13 percent of Gulf oil, and Japan, recipient of about 20 percent of the oil, should help the U.S. either patrol the Strait of Hormuz or pay for the security. “Why should we be paying for Japan’s national security?” he asked.

A more politically sensitive question, according to LeVine and others, is whether China should also play a bigger role in securing the Middle Eastern sea lanes, relieving the U.S. of some of the burden. That could allow a nonallied country with its own agenda to fill a potential power vacuum in the Gulf, but, conversely, it could also help stabilize the region at no cost to the U.S., they say.

NEW REALITIES AND CHALLENGES

As it enters its second term, the Obama administration acknowledges that it has some tough decisions to make about its global military footprint, including whether it will maintain its current military posture in the Gulf. With costly wars in Iraq and Afghanistan winding down, the military is also facing massive budget cuts, and a shift of assets to the Pacific in a show of force against an expansionist China.

“We looked around the world and asked a very basic question: ‘Where is the United States overweighted in terms of its presence and resources and efforts, and where is it underweighted?’’’  National Security Advisor Thomas E. Donilon said in a Nov. 15 speech at the Center For Strategic and International Studies in Washington.

“It was clear to us that there was an imbalance in the projection of focus of American power around the world,’’ Donilon said. “It was the president’s judgment that we were overweighted in some areas and regions, such as our military commitments in the Middle East, and at the same time, we were significantly underweighted in some regions, including and specifically the Asia-Pacific region.’’

Some key current and former U.S. national security officials said the Obama administration is firm in its commitment to maintaining a significant presence in the Gulf, especially given a potential showdown with Iran over its alleged illicit a possible nuclear weapons program and other security threats in the region.

Prompted by economic sanctions and intensified political rhetoric from regional powers, Iran has threatened since 2008 to close the strait or to use mines to shut down global shipping.

In response, the U.S. and its allies also deployed more military assets to the Gulf. Early in 2011, the Pentagon converted a 40-year-old amphibious assault ship, the USS Ponce, to support countermining and special operations missions in the Middle East.

And last September, the 5^th Fleet hosted the largest naval exercises ever in the Middle East with militaries from more than 27 nations to practice coordinating a response to potential disruptions to the freedom of navigation in the Strait of Hormuz – specifically from mines. The exercises were intended to enhance interoperability between the U.S. and its allies and to also send a signal to Iran that attempts to disrupt the sea lanes will be met with force. [See video of exercises above]

“I think it’s important to note that there is a broad international commitment to this, in one facet or another, and a broad understanding of the imperative that the global commons are safe for transit,” Vice Admiral John W. Miller, commander of the 5^th Fleet, said.

Indeed, during the exercise, a multiplicity of flags waved above different mine sweeping ships. An English vessel sailed alongside a Japanese one, simulating support efforts in the event one vessel was in danger. U.S. carriers launched and retrieved jets, helicopters and drones. A Japanese vessel deployed a mine hunting submarine and an Iraqi frigate participated in an emergency drill against a potential approaching enemy ship.

Recently, Iran also stepped up its naval presence by showcasing two new submarines and two hovercrafts. On Dec. 28, it launched its own naval maneuvers in the strait and the Sea of Oman. The six-day exercise was designed to showcase Iranian capabilities to defend its maritime borders and respond to any force used against it.

“The Islamic Republic of Iran has repeatedly announced that it is capable of establishing security in this vital and strategic region, especially with the cooperation and coordination of regional countries,” Iran’s Navy Commander Rear Admiral Habibollah Sayyari told Iranian television.

In part due to Iran’s saber-rattling, the United States continues to expand its presence in the Gulf, even as the Obama administration promises a new emphasis on Asia.  A 2012 report by the Congressional Research Service, the independent research arm of Congress, said that the U.S. military began a planned $580 million military construction program in Bahrain in May 2010, which will allow larger ships to dock at the naval facility and for more military planes to be stationed there. About $19 million of the budget is allocated for a Special Operations Forces facility. The project is expected to be completed by 2015.

“There’s a lot of things that go on in Bahrain, the headquarters of the anti-piracy, anti-smuggling, anti-terrorism, maritime operations are headquartered over there,” said Kenneth Katzman, a Middle East affairs specialist with the Congressional Research Service.  “The US is always – every year or two – trying to get agreements with the government [of Bahrain] trying to keep expanding that facility and keep improving that facility so that it has more capacity.”

A LONG HISTORY OF INVOLVEMENT

The United States’ presence in the Middle East began in the early 1900s with American companies joining their French and British counterparts in oil exploration. However, close U.S. government involvement only began after Saudi Arabia’s vast oil supply was discovered in 1938. By the late 1940s, Saudi Arabia had become the largest oil exporter, and while the U.S. strengthened its ties with Arabian kingdom, it was not yet a main importer of Saudi oil. This is may explain the low military presence in the region and low interest in oil security in the beginning half of the 1900s.

The U.S. military deployment began in 1948, with the establishment of its first bases in countries like Bahrain. But the U.S. military presence only truly escalated after the Iranian Revolution in 1979, when Washington was shocked to find its Persian ally and primary protector of oil supply in the Middle East had suddenly become an adversary.

According to a 1981 RAND Corporation report written by Paul K. Davis, former acting deputy assistant to the sectary of defense, the U.S. was largely unprepared for this shift in the Persian Gulf policies and began almost “from scratch” to develop a more preemptive, organized and powerful military deployment capability. That was done, in part, to counter suspected efforts by the Soviet Union to gain control over Iran and the Middle East and hence, the oil fields and choke points.

In 1980, in response to that perceived threat, President Jimmy Carter announced that the U.S. would take any action needed to protect its interests in the Persian Gulf. This became known as the ‘The Carter Doctrine,’’ and it continues to drive U.S. policy today.

In the years that followed, the U.S. developed the Rapid Development Joint Task Force with the sole purpose of being a mobile unit responding to any regional contingencies. It was later expanded into what is now Central Command, which oversees a swath of territory that extends far beyond the Persian Gulf.

“The concept of staying home except in crisis, and then responding with the cavalry, had long has an attraction for U.S. policymakers and diplomats,” Davis noted in his 1981 Rand study, advocating for the expansion of the military presence there.
“Militarily, however, the concept has serious drawbacks and vulnerabilities,” he wrote. “As a minimum, we need arrangements with regional countries for use of bases as early in crisis as possible; and it means that the base facilities must be suitable.”

Indeed, as Reagan took office in 1981, efforts to double the U.S.’s force in the region were underway, allocating larger and larger budgets to security in the Persian Gulf.

A Congressional Budget Office report from 1983 warned about the growth and expense of the task force, whose name had been shortened to the Rapid Deployment Force:

“As the RDF is constituted today, it comprises 222,000 troops. The administration plans to increase the size of the RDF, perhaps doubling that number… Moreover, the RDF could affect the U.S. defense budget… particularly the plans for a larger version, could give rise to pressure for eventual increases in the defense budget and could hamper efforts to reduce the budget deficit in the next few years.”

The need for a U.S. presence in the Gulf increased in the so-called Tanker Wars between Iran and Iraq that began in 1984, when Iran began attacking oil tankers travelling out of Iraq into Kuwait. In 1987 the U.S., fearful of the effect of the attacks on the oil market and supply, responded to a call for help from its ally Kuwait, and reflagged the oil tankers with U.S. flags – making any attack on the ships an attack on the U.S. It also escorted many of the ships, and increased patrols in the Gulf.

According to a 1991 U.S. General Accounting Office report, the U.S. spent $359 billion nominal dollars to defend American interests in South West Asia, namely the Persian Gulf. The report noted that much of that money went toward Central Command resources, reflagging of the Kuwaiti oil tankers, and Operations Desert Shield and Desert Storm.

A 1992 report by the Congressional Research Service concluded that far less– about $13 billion per year— was spent specifically on protecting oil resources.

Since the 1980s, the U.S. military and diplomatic presence in the Persian Gulf has only increased. First came the Gulf War of 1990, and then again in the run-up to the Iraq War in 2003. Today, the U.S. presence in the Middle East has extended beyond ground bases in the Gulf and naval patrols in the Strait of Hormuz, to broader military efforts that include training and maintaining strategic alliances, peacekeeping forces and providing humanitarian aid.

“The U.S. presence in the Middle East now has more to do with advancing global principles of nonaggression, human rights and democracy than it does oil,” according to the CRS’s Katzman.

“Just because we’re not importing as much oil from the Middle East, doesn’t mean we don’t have objectives aside that.”

Sick, the retired National Security Council official and Navy captain, would beg to differ.

“If the Persian Gulf had no oil, we would treat it with the same degree of attention as say – as we do Bolivia,” he said.

In early February, the U.S. Navy has announced it will not deploy the USS Harry S. Truman carrier to the Persian Gulf region due to budgetary constraints, leaving only one carrier to patrol the Gulf – a shift away from the U.S.’s usual two carrier group deployment in the region.

Straits of Malacca

Suez Canal

Egypt’s Suez Canal, spanning 120 miles, connects the Red Sea with the Mediterranean Sea. Most of the oil transiting through the canal is destined for European and North American consumers. Traffic through the canal has generally declined over the past decade, partly because of the decreased demand for oil from the U.S. and Europe.

The main threat facing the Suez Canal is piracy – specifically by Somali pirates. While Somali piracy has declined in recent years, it continues to be a danger to maritime security in this area.

The canal extremely narrow—only 1,000 feet wide in some points—which means it is no longer able to handle some of the world’s supertankers plying regional waters. In response, the 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline, was built to provide an alternative.

Bab el-Mandab

This important choke point carries 3.5 million barrels of oil a day and is located south of the Suez and links the Red Sea, Gulf of Aden and the Arabian Sea. The strait, whose name means “Gate of Grief” in Arabic, is located between Yemen, Djibouti and Eritrea in the Horn of Africa. Any disruption to this passage would block tankers from reaching Suez Canal and their Western customers as well block oil passage to the Persian Gulf. While Saudi Aramco’s East-West Crude Oil pipeline could take on 2.5 million barrels of Bab el-Mandab’s daily transported oil, the rest would need to travel around Africa’s Cape of Good Hope.

Like the Suez Canal, Bab el-Mandab, also known as the Mandab Strait, is a highly volatile shipping lane and especially vulnerable to Somali pirates.

In 2011, the International Maritime Bureau reported 37 piracy attacks on ships passing the chokepoint and near the Gulf of Aden. This is decline from the 117 attacks in 2009.

All of the attacks were conducted by Somali pirates, who often launch rocket propelled grenades and fire automatic weapons at the ships before boarding them and taking hostages for ransom.

Turkish Straits

According to the U.S. Energy Information Administration, “increased oil exports from the Caspian Sea region make the Turkish Straits one of the busiest and most dangerous choke points in the world supplying Western and Southern Europe.

The Turkish Straits, the Bosporus Strait and the Dardanelles connect many of the East Asian markets with the European ones. The Bosporus links the Sea of Marmara with the Black Sea, and the Dardanelles passage connects the Sea of Marmara with the Mediterranean, south of Turkey.

The Turkish Straits supply western and southern Europe with oil from the Caspian Sea region. As oil production continues to increase from countries like Azerbaijan and Kazakhstan, the traffic through the Turkish Straits also will rise.

“Only half a mile wide at its narrowest point, the Turkish Straits are one of the world’s most difficult waterways to navigate…” according to the EIA’s most recent World Oil Transit Chokepoints report.  “With 50,000 vessels, including 5,500 oil tankers, passing through the straits annually it is also one of the world’s busiest chokepoints.”

The 2010 Center for Naval Analyses report notes that although piracy is less of a concern in the Turkish straits, its vulnerabilities lie in difficulty of navigation and risk of environmental catastrophe that could block almost 3 billion barrels of oil a day from reaching European and other Western markets. The environmental risks include water pollution from oil spills. For example, in November 2003, a Georgian cargo ship spilled around 500 tons of oil into the canal.

Closure of the Turkish straits is unlikely, but in the event it happened, 100 percent of transited oil could find alternative travel through the CPC Pipeline to the Russian market and the BTC Pipeline reaching European markets.

Panama Canal

The Panama Canal, which is 50 miles long and only 110 feet wide at its narrowest point, is a key trade route that connects the Pacific Ocean with the Caribbean Sea and Atlantic Ocean.  The primary destination for oil being shipped through the canal is the United States. However only 800,000 thousand barrels of oil pass through the canal a day, making it a low risk area for any major disruption.

Despite efforts by the Panama government to expand the capacity of the canal by widening and deepening the canal, almost doubling limit on the maximum size of ships, it is unlikely the expansion will impact oil transportation from the region, according to the 2011 Center for Naval Analayses study.

The IMB has reported no piracy attacks in the straits in recent years.  However, in the event of any closure, transit times for vessels would greatly increase. Vessels would have to reroute by traveling an addition 8,000 miles around the Straits of Magellan, Cape Horn and Drake Passage under the tip of South America, according to the U.S. Energy Information Administration report.

*Correction: The United States Second Fleet of the US Navy was disestablished in September 2011.

The image of President George W. Bush walking hand-in-hand with Saudi Arabia’s Crown Prince Abdullah during a 2005 meeting at Bush’s Crawford Ranch in Texas is emblematic of the power of oil to create alliances among otherwise unlikely partners.

Throughout history, the U.S. government has built close relationships with oil-rich countries like Saudi Arabia, Ecuador, Algeria, Equatorial Guinea and Azerbaijan. In the process, Washington often has overlooked significant policy differences, patterns of corruption and human rights abuses and anti-democratic actions of these governments.

According to many critics, it has done so to ensure U.S access to their vast oil reserves.
Below, we take a look at some of these complex, tangled relationships that the U.S. has fostered around energy issues.

We spent a week in Ecuador to report on the relationship between the smallest member of OPEC and Washington and to explore what big changes in Ecuador’s oil sector– and throughout Latin America– might mean for the future of U.S. energy security.

Ecuador

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On Nov. 28, Ecuador launched an oil licensing round for 13 blocks of oil in the southeast region of the country’s Amazon basin. A sign near the hotel where oil leaders met announces the bidding round as part of a large energy conference. The government of Ecuador has estimated that the land may hold as much as 1.6 billion barrels of oil.

QUITO, Ecuador — With spears pointed at police, tribesmen from Ecuador’s indigenous groups loudly protested outside a hotel here recently, decrying the government’s latest effort to lease their ancestral lands in the Amazon basin to foreign oil companies for exploration and drilling.

Ecuador, the smallest OPEC country, produces 500,000 barrels of oil a day, with some of that exported to the West Coast of the United States. But in recent years, production has stagnated, in part because President Rafael Correa’s anti-American rhetoric has scared off American oil companies that have the technology and financial resources needed to get the oil out of the ground.

As his relationship with the United States and its multinational oil companies has soured in recent years, Correa has increasingly looked to China to take its place and has found an extremely enthusiastic partner. Since 2009, China has provided Ecuador with billions of dollars in loans and financing for infrastructure improvement, such as the 2010 agreement to build the $1.7 billion Coca Codo Sinclair hydroelectric dam to power 75 percent of Ecuador’s energy needs starting in 2015. In exchange, Beijing has secured access to Ecuador’s potentially significant oil supplies, which it needs to fuel its rapid economic growth.

Ecuador expects as much as $1.2 billion in foreign investment in the latest licensing round that caused the protest by indigenous groups. State-owned oil companies in Peru and Colombia have expressed interest in the oil blocks. And the China National Petroleum Corporation’s branch in Ecuador, Andes Petroleum, also has shown interest, according to a Wall Street Journal report.

But China wants more than just oil from Ecuador and the rest of Latin America. In a June 2012 speech delivered to the United Nations Economic Commission for Latin America in Chile, Premier Wen Jiabao said China wants to establish a political and economic partnership with Latin America that is “as strong as the Himalayas and the Andes.”

China is making similar moves around the globe as part of an effort to wean itself off oil from the often-unstable Middle East. But its push into Ecuador and other Latin American countries is of particular concern to some U.S. officials, who fear that it could diminish U.S. influence in a key strategic region in its own backyard, and perhaps someday deprive Americans of an easily accessible supply of oil.

According to State Department cables published by the WikiLeaks organization, Washington has looked on with increasing concern as China focused on Ecuador—and the broader Andean region—as being central to its drive to secure greater oil resources.

In 2006, the U.S. Embassy in Quito noted that China sought to become a “major player” in the Ecuadoran oil industry. Almost overnight, diplomats noted in one cable, “Quito is playing host to a steady inflow of managerial, financial and technical representatives of China’s major and minor oil companies.”

Also, the cable added, “the overseas arms of three major Chinese oil conglomerates [including the China Petroleum Company or Sinopec as well as the Sinochem Corporation]… are present and have ongoing operations in Ecuador.”

In the seven years since, China has sought to cement those oil deals and also to increase its political clout in Ecuador and elsewhere in the region. It has become an important player in the renegotiation of the Quito government’s oil contracts, which increasingly favor state-owned oil companies at the expense of for-profit U.S. multinational corporations that had long done business there, such as Chevron and the Occidental Petroleum Corp. The departure of American investment has created a vacuum for Chinese oil companies to fill.

The Obama administration’s official position is that it is not concerned about Chinese competition in the Latin American markets, including oil.

“We see competition is a healthy thing,” said Heide Bronke Fulton, an official at the U.S. Embassy in Quito. “We believe that U.S. companies will continue to maintain a competitive edge based on the desire for U.S. technology, quality and other factors.”

But others say that, privately, U.S. officials have been concerned that U.S. influence in the region is waning with the exit of these American companies, as well as by Correa’s alliances with the Chinese at a time when he is also pushing away Washington.

Vowing to rid the country of foreign influence in 2009, Correa chose not to renew Ecuador’s 10-year agreement that gave the U.S. use of a military air base in Manta, which was used largely for anti-narcotics efforts in neighboring Colombia. And in April 2011, he expelled U.S. ambassador Heather Hodges after a leaked State Department cable revealed Hodges’ criticism of his government for alleged corruption. The U.S. was without an ambassador to Ecuador for nearly a year. Correa also has beefed up state authority over the oil industry, taking much of the profits and control away from the foreign multinationals.

Taken together, all of these changes could have a significant long-term impact on U.S energy security, according to Roger Noriega, the former assistant secretary of State for western hemisphere affairs.

Ecuador and the Latin America region traditionally accounts for a significant portion of the diversity of U.S oil supply – nearly 20 percent of U.S. imports in 2011. Correa’s oil policies and his decision to embrace China have considerably reduced Ecuador’s output since 2004. As China is strengthening its influence in Ecuador, the United States is losing a natural and convenient energy partner whose potential, experts say, could be further realized by American assistance.

A Changing Tide

While China has showered Correa’s government with attention and money, Latin America “has not been a priority for U.S. foreign policy for many years” because of American preoccupation with the wars in Afghanistan and Iraq, said David Goldwyn, former State Department special envoy and coordinator for international energy affairs, in testimony before the Senate Foreign Relations Committee in 2006.

Others say the U.S. has had little choice, given the Bolivarian Revolution, led by Hugo Chavez, Venezuela’s popular and anti-Western president since 1999, which has brought sweeping socialist reforms to the region. Chavez’s fervent nationalist ideology and denunciation of U.S. influence has spread to other leaders throughout the region.

Ecuador is emblematic of Chavez’s influence. Since 2009, Correa has closely aligned himself with Chavez, similarly using anti-American rhetoric to denounce U.S. influence and appeal to voters, and using social programs and infrastructure improvements built by oil revenues to ensure his popular appeal. Correa was re-elected in February, winning over 50 percent of votes.

Correa’s nationalistic attitude has bled into Ecuador’s energy policies. In 2007, Ecuador announced that the government would receive 99 percent of the oil windfall profits, which occur when the price of oil rises above the price set in the company’s contract. Previously, oil companies shared windfall profits with the government in a 50-50 split. The bigger cut gave Quito a stronger grasp on the energy sector and brought more money into the hands of the government.

In 2010, Correa established a new hydrocarbon law that ended the production-sharing contracts with foreign oil companies. The Ecuadoran government, now complete owner of underground oil resources, rents out blocks for exploration and production in service contracts. The state demands an initial payment of 25 percent of gross revenues as a “sovereign margin.”

As a result, companies no longer benefit from increases in the price of oil, said David Mares, of the James A. Baker III Institute for Public Policy at Rice University’s Institute for Public Policy. “Correa essentially eliminated that possibility,” he said.

Correa’s changes to the oil sector came on the heels of similar reforms in Venezuela, the largest crude oil exporter in the Western Hemisphere and one of the biggest oil suppliers to the United States. In 2006, Chavez increased the national oil company PVDSA’s share in oil projects to a minimum 60 percent. By 2009, PVDSA had taken control of all of Venezuela’s oil fields.

These reforms have made Ecuador unattractive to American investors. Many U.S. firms have been discouraged to invest in Ecuador, especially after an Ecuadorean court ordered American oil giant Chevron to pay an $18 billion compensation to native tribesman for allegedly dumping toxic oil waste into Amazon for more than 20 years.

A New Player In The Region

Historically, China had been reluctant to engage with Latin America because it had been considered a U.S.-dominated region, said Eric Farnsworth, vice president of the Americas Society/ Council of Americas and a former State Department official.

But, he said, “They’ve found out that there really is ample room for them to expand their operations and I think that’s what they’ve been doing.”

As a result China has aggressively moved in to Latin America, gaining an economic upper hand and political influence in the region.

China’s economy is expected to surpass the U.S.’s by 2030, according to “Global Trends 2030,” a December 2012 report by the National Intelligence Council. As its economy swells, China is turning to Latin America and Africa to secure future oil resources.

In January 2012, China committed to loan another $1 billion to Ecuador, adding to the billions the government had already borrowed from China, largely in exchange for future oil exports.

“Obviously it has been the government’s priority to work with the Chinese,” said Shamim Kazemi, an economics officer at the U.S. Embassy in Quito. “Part of it is geopolitical reasons and political affinity.”

China’s movement into Ecuador is emblematic of its growing interests throughout the continent. In May, Venezuela’s Congress approved a measure to allow the government to borrow as much as $8 billion from China in exchange for oil. A similar deal has been made in Brazil, where state oil company Petrobras also signed a deal with the Chinese company Sinopec in 2010 to develop the country’s oil reserves.

Latin America is turning to China in large part to become less reliant on the U.S. economy and imports.

The U.S. remains “Ecuador’s largest crude oil customer,” according to the U.S. Energy Information Association, but since China and Ecuador began making loan agreements for oil in 2009, an increasingly large share of Ecuador’s oil is heading to China.

“The Chinese tend not to get involved in local politics,” and are “certainly not trying to reform anyone’s domestic politics or economy,” Farnsworth said. “Because of that they have a different profile in the region than perhaps the US or other countries.”

While U.S. officials such as Bronke Fulton of the U.S. Embassy say “there is room for both” the U.S. and China to tap into Latin America’s energy resources, some argue that China will eventually overcome the U.S. as the major player in the region.

Farnsworth noted that U.S. leverage in the form of financing from the International Monetary Fund and other similar institutions may be waning. He said Latin American countries “may not require loans from those entities” because they “can get the support from financing needs from places like China.”

At the same time, as the Chinese invest in Latin America, they are not leaving behind the same kind of infrastructure and technology that U.S. and other private companies used to, Noriega said, adding that that could lead to further instability in these countries.

“[Ecuador] ha[s] rolled out the red carpet for China to take half their production and not put the kind of investment, infrastructure, on the ground that would help the Ecuadorean people develop the full investment of that sector.”

While some argue that the Chinese are not politically motivated, others point to growing ties between China and Latin America outside of the economic sector that might suggest otherwise.

In November 2010, People’s Daily, China’s Communist Party newspaper, reported that Bingde Chen, a senior People’s Liberation Army of China official, met with Ecuadorean Defense Minister Javier Ponce in Quito. Chen “said China pays great attention to the development of Sino-Ecuadorean military ties and would like to deepen bilateral military cooperation and relations on a mutually beneficial basis.” Chen also traveled to Venezuela and Peru on his trip.

Many experts believe that the growth of shale gas in the North America will allow the U.S. to look inward for energy rather than rely on oil from foreign sources. But, others say the U.S. should not turn away from Latin America as an energy partner. Instead, it should have a much bigger presence in Ecuador and the rest of Latin America.

Meanwhile, Latin America, home to some of the world’s biggest oil suppliers and fastest growing economies, is now a major global power that is increasingly projecting its economic and political power while seeking more and more independence from the United States, according to Farnsworth.

China, realizing the shifting the tides, wants Latin America countries to be strong allies. In his speech, Premier Wen said China wanted the total bilateral trade to exceed $400 billion in the next five years.

China’s investment in the region pays off handsomely, according to Paulina Durango, a Quito lawyer representing Ecuador in negotiations of infrastructure projects with China.

“I see how Ecuador is looking to China,” she said. “China is having a gate opened not only in Ecuador but in Latin America.”

U.S. officials and Ecuadorean scholars say China’s presence has changed the game and the United States needs a different approach to re-engage the region. Yet, the State Department doesn’t really have a comprehensive policy to do that, Noriega said.

Farnsworth said more cooperation in the energy sector is the key to a new strategy because the United States offers knowledge and understanding of the energy market that is crucial to the hemisphere’s future.

“We have taken it (Latin America) for granted for far too long,” he said. “I’d like to contend for the region. I’d like to fight for it.”

Saudi Arabia

In 2005, President George W. Bush walks hand-in-hand with Saudi Arabia’s Crown Prince Abdullah bin Abdulaziz at Bush’s ranch in Crawford, Texas. The image has become a symbol of the exceptionally close bond between the two countries created because of oil. Source: The White House

Aboard the U.S.S Quincy cruiser on Feb 14, 1945, President Franklin D. Roosevelt ensured King Abdul Aziz that the U.S. would militarily protect Saudi Arabia in return for access to its oil, and the “special relationship” between the two countries was born.

Now, 67 years later, oil continues to bind the U.S. to Saudi Arabia, despite underlying tensions regarding terrorist financing in the Middle East kingdom and fundamental differences in policies between the two countries on everything from crackdowns on democratic practices to the treatment of women.

Saudi Arabia, home to one-fifth of the world’s proven energy reserves, was the second largest supplier of oil to the U.S. in 2011. The U.S. imported 1.2 million barrels of oil a day from Saudi Arabia that year and has been increasing its dependence on the country’s oil supplies since 2008, according to the U.S. Energy Information Administration.

Throughout history, Saudi Arabia’s vast energy reserves have given the monarchy a unique role and exceptional leverage over the U.S. government and its policies.

Prince Bandar bin Sultan, Saudi ambassador to the United States from 1983 to 2005, was known to conduct bilateral diplomacy in the White House with the president and his top advisers, said Lee Wolosky, former director of transnational threats on the National Security Council. Bandar’s privileged relationship with U.S. government officials was “unlike any other relationship with any other country,” Wolosky said.

The problem has been that the close bond based on oil has placed restraints on other issues in the bilateral alliance between the U.S and Saudi Arabia, he said.

“You are really restrained in your ability to have a hawkish policy in other areas, like terrorist finance to give you an example, if you are dependent on the Saudis for oil,” Wolosky said.

Critics, including some in Congress, have long argued that only when the U.S. reduces its dependence on Saudi oil can it truly be free to push for substantive reforms in the oil rich monarchy.

“If we are serious about energy independence, then we can finally be serious about confronting the role of Saudi Arabia in financing and providing ideological support for al-Qaida and other terrorist groups,” said Sen. John Kerry, D-Mass, during his bid for president in 2004.

Complexities underlying bond between the U.S. and Saudi Arabia were thrust into the spotlight in 2001 when it was reported that 15 of the 19 of the hijackers in the Sept. 11 terrorist attacks were Saudis.

“Fund-raisers and facilitators throughout Saudi Arabia and the Gulf raised money for al-Qaida from witting and unwitting donors and divert funds from Islamic charities and mosques,” according to the 9/11 Commission. Yet, the commission “found no evidence that the Saudi government as an institution or individual senior officials knowingly support or supported al Qaeda.”

Since 2004, the Saudi monarchy itself has been a target for al-Qaida attacks. The Riyadh government has cooperated with the U.S. in making some reforms to combat global terrorism, but privately, U.S. officials have continued to complain that the royal family hasn’t cracked down on terror financing and that it is still rampant in the country.

In a 2009 cable leaked to Wikileaks, Secretary of State Hillary Clinton wrote, “While the Kingdom of Saudi Arabia takes seriously the threat of terrorism within Saudi Arabia, it has been an ongoing challenge to persuade Saudi officials to treat terrorist financing emanating from Saudi Arabia as a strategic priority.”

The leaked State Department cables also reveal the Saudi government’s sensitivities to criticism by the U.S. government.

In 2010, the U.S. Travel Services Administration placed Saudi Arabia on a list of countries whose departing travelers require extra screening after the attempted 2009 Christmas Day bombing on a flight from Amsterdam to Detroit.

In response, Saudi Deputy Foreign Minister for Multilateral Relations Prince Turki bin Mohammed said, “he was very disappointed by the designation of Saudi Arabia as a country of interest, which makes Saudi Arabia feel and look like a ‘black sheep,’” according to the cable.

The cracks in the seemingly unbreakable oil bond extend beyond the issue of terrorist financing. In a cable to Secretary Clinton prior to a visit to Saudi Arabia in February 2010, Ambassador James Smith pointed to “the status of women, religious freedom and human rights” as “ongoing concerns” for U.S. officials.

As the Arab Spring spread across the Middle East in 2011, the Saudi monarchy responded by introducing new laws criminalizing freedom of expression and assembly, according to Human Rights Watch. Seeking to suppress public condemnation of the government, the monarchy also increased censorship of the media.

In Saudi Arabia, Islamic customs require that women have male guardians, who decide whether they are allowed to travel, study or work, according to Human Rights Watch. Similarly, women are not allowed to drive or vote.

Yet, “the US failed to publicly criticize Saudi human rights violations or its role in putting down pro-democracy protests in neighboring Bahrain,” the human rights organization said. “U.S. President Barack Obama failed to mention Saudi Arabia in a major speech on the Arab uprisings and continued to pursue a $60 billion arms sale to Saudi Arabia, the biggest-ever US arms sale.”

Algeria

Secretary of State Hillary Clinton greets President Abdelaziz Bouteflika during an October 2012 visit to Algeria. The U.S. continues to foster close relations with Algeria despite its record of corruption and human rights abuses. Source: U.S. Embassy Algeria

Algeria exports nearly 2 million barrels of oil a day, with about 25 percent of it going to the United States, the first country to invest in the North African nation’s hydrocarbon sector after a 2005 liberalization law allowed foreign investments.

The Obama administration is building stronger economic ties with Algeria by encouraging U.S. companies to do business in the country under the National Export Initiative, which seeks to double U.S exports globally by the end of 2014. Algeria, holding the 14^th largest oil reserve worldwide, is already an active market for U.S investors, who dominate the country’s oil and gas sector.

However, corruption is a serious problem in the OPEC member country and the U.S. government is well aware of it.  A 2010 State Department cable obtained and published by Wikileaks said former Minister of Energy and Mines Chakib Khelil was responsible for the widespread “culture of corruption” in the state oil company Sonatrach, whose senior executives were investigated for corruption by Algerian authorities in the same year.

The investigation led to the removal of the Sonatrach’s chief of executive, Mohamed Meziane, and a dozen senior officials. The cable alleged that Reda Hemche, Khelil’s protégé and Sonatrach’s former chief of staff, was responsible for the corruption deals that shook the country’s oil sector.

Algeria also has a poor human rights record. It strictly restricts the freedom of assembly, discriminates against women, carries out torture and arbitrary killings and, during the Iraq war, was one of the largest suppliers of anti-coalition fighters, according to a 2012 report by the Congressional Research Service.

Despite these problems, the U.S. government is fostering closer ties with Algeria. The country, in addition to the oil deals, is also in a position to provide crucial assistance to U.S. regional counterterrorism activities because of its strategic location and influence, especially as the Obama administration steps up efforts to fight groups with ties to al-Qaida in North Africa after Secretary of State Clinton linked them to the Benghazi attack that killed U.S. ambassador Christopher Stevens.

The U.S. has tried to balance appreciation for Algeria’s contributions to counterterrorism with calls for political reform while expressing support for the Algerian government led by President Abdelaziz Bouteflika. In 2011, Bouteflika lifted a 19-year state of emergency that authorities said helped them combat Islamist extremists, but that critics said was used to repress political opponents.

The ban was lifted after Algeria faced waves of social protests similar to those that toppled regimes in Egypt and Tunisia in the so-called Arab Spring. Clinton called for greater political freedom in Algeria when she visited the region in 2011.

In his Senate confirmation hearing in 2011, U.S. Ambassador to Algeria Henry Ensher said he would prioritize outreach to the country’s people while deepening counterterrorism cooperation and economic ties. Algeria receives foreign aid assistance under the State Department’s Middle East Partnership Initiative, which was designed to help citizens in the Middle East and North Africa build more “pluralistc, participatory and prosperous” societies. 

In March 2011, a U.S.-Algerian counterterrorism contact group was launched to share intelligence information, and Algeria receives U.S. assistance to strengthen its capacity to fight al-Qaida in the Islamic Maghreb, the regional affiliate of the terror network.

Equatorial Guinea

Secretary of State Condoleezza Rice greets Equatorial Guinea’s President Obiang Nguema Mbasogo in April 2006 at the White House. Rice tells Obiang,”You are a good friend and we welcome you,’’ despite well-documented entrenched corruption issues and serious human rights abuses in Equatorial Guinea. Source: State Department

American oil companies have invested almost $14 billion in the Republic of Equatorial Guinea since the 1995 discovery of the Zafiro oil field off the shores of this once isolated and impoverished West African country. They are now responsible for nearly all of its oil production.

Equatorial Guinea has become the third largest oil producer in sub-Saharan Africa and an important energy ally of the United States. According to the U.S. Energy Information Administration, the United States was the top destination for Equatorial Guinean oil in 2010, accounting for 29 percent of total exports.

The country is also strategically located in the Gulf of Guinea. The U.S. imports 12 percent of its oil from African oil producers in the region, according to U.S. Ambassador to Equatorial Guinea Mark L. Asquino.

A 2009 State Department cable obtained and published by Wikileaks said that U.S. energy strategy would have a “gaping hole” if it ignored Equatorial Guinea, whose light, sweet crude oil is highly prized in international markets.

But Equatorial Guinea has been plagued by official corruption ever since the sudden flush of oil wealth. The country’s lawlessness exacerbated the problem. President Teodoro Obiang Nguema Mbasogo, who has ruled Equatorial Guinea for almost 40 years, and his family have amassed billions of dollars while the majority of Equatorial Guineans live on less than $2 a day.

The corruption problems attracted widespread attention when the U.S. Justice Department alleged that Obiang’s son, Teodoro Nguema Obiang, had been laundering money in America. Prosecutors went to court in 2011 to seize $70 million of his assets, which included a $30 million Malibu mansion and $2 million in Michael Jackson memorabilia. Seven years earlier, a Senate investigation exposed the Obiangs’ secret accounts at Riggs Bank in Washington, which paid $16 million in fines for failing to report suspicious activities in the scandal that involved both the former Chilean Dictator Augusto Pinochet and President Obiang.

In August 2012, French police seized a five-story Paris pied-a-terre and 11 luxury cars belonging to the 43-year-old son following a corruption investigation involving President Obiang.

The State Department has tried to paint a rosier picture of the elder Obiang. Other 2009 cables said that Equatorial Guinea is “no worse than many of America’s energy allies” and that hundreds of millions of dollars are going into social spending in the country. According to Ambassador Asquino’s 2012 statement to the Senate Foreign Relations Committee, the government is considering applying to be a candidate for the Britain’s Extractive Industries Transparency Initiative again after it failed to meet the requirements in the first application. The anti-corruption Program, which makes countries eligible for foreign aid, was announced in 2002 by then-British Prime Minister Tony Blair at the World Summit on Sustainable Development.

Equatorial Guinea is also notorious for its poor human rights record. Torture at prisons is systematically carried out despite laws forbidding it. A 2011 State Department human rights report said that the government was “intolerant” of critical views and maintained a “monopoly” over political life.

But the United States has been cautious in forcing Equatorial Guinea to tackle its problems; critics say that is to avoid potential fallout with the country’s leaders. The Obama administration is encouraging an evolving fiscal transparency instead of calling for the kind of immediate changes that the Wikileaks cable said could place the state in turmoil.

“Do we want to see the country continue to evolve in positive ways from the very primitive state in which it found itself after independence? Or would we prefer a revolution that brings sudden, uncertain change and unpredictability?” one State Department cable asked. “The former is clearly the path the country is on, and the latter has potentially dire consequences for our interests, most notably our energy security.”

The cable went on to say that Equatorial Guinea was reaching out for U.S assistance and called for a more appropriate guiding narrative for the relationship with this country.

“EG’s hand is not clenched in a fist,” it said. “It is reaching out for our assistance. Our own history has taught us that aiding those who ask for help can heal historical wounds and promote integration. This is a story we must tell again.”

Azerbaijan

Secretary of State Hillary Clinton talks to Azerbaijan’s President Ilham Aliyev at the presidential residence in Baku during a July 2012 trip. While in Azerbaijan, Clinton attended an oil and gas conference and pushed Aliyev to carry out human rights reforms, which have also long been a source of U.S. concern. Source: State Department

Since Azerbaijan gained independence after the fall of the Soviet Union in 1991, the U.S. relationship with the largest country in the Caucasus has revolved around its vast energy reserves. In 1997, Azerbaijan President Heydar Alyev made his first official trip to the U.S. to meet with President Bill Clinton and to sign production agreements with four major US companies: Chevron, Exxon, Mobil and Amoco.

With an estimated 7 billion barrels of proven oil reserves today, Azerbaijan remains a close partner on energy issues with the U.S., despite significant documented human rights abuses and corruption accusations against the government. In 2003, Aliyev was succeeded by his son, Ilham.

U.S. imports of crude oil from Azerbaijan began to increase significantly in 2002, peaking in 2009 at 75,000 barrels per day, according to the U.S. Energy Information Administration. While exports from Azerbaijan have decreased since 2009, the country remains a crucial supplier of oil to the U.S. The United States imported 7.78 million barrels of oil from Azerbaijan between January and August 2012.

Understanding the vast potential of the Caspian region’s oil reserves, the U.S. exerted its influence in the early 1990s to ensure that Russia would not control the energy resources of the region’s newly independent countries, including Azerbaijan, Kazakhstan and Uzbekistan.

The U.S. believed that “those that are blessed with energy resources ought to have an opportunity to produce and export them without having to obey Moscow’s dictate,” said Cory Welt, associate director of international relations at the Institute for European, Russian and Eurasian Studies at George Washington University.

Today, U.S. interest in Azerbaijan also lies in the country’s unique position to ensure European energy security by diversifying the oil and natural gas market for Europeans, who previously relied heavily on Russia.

“We want to assist Europe in its quest for energy security,” said Richard Morningstar, then- special envoy for European Energy before a House Foreign Affairs Committee in June 2011. “We have an interest in an economically strong Europe…so our aim is to encourage the development of a balanced and diverse energy strategy with multiple energy sources and multiple routes to market—a competitive, efficient market which offers the best prices for consumers.”

Yet, the oil-rich authoritarian government has long been criticized for human rights abuses and anti-democratic practices. Aliyev has placed significant restrictions on the freedom of speech and freedom of assembly of his people, Welt said. “You can get locked up for saying negative things about the government and people do.”

But, in 2006, Matthew Bryza, then deputy assistant secretary of state for Europe and Eurasian affairs and later ambassador of Azerbaijan, told NPR, “We don’t see Ilham Aliyev as a dictator. We see him as a leader of a country with an emerging democracy that has a long way to go.”

The human rights situation in Azerbaijan has recently worsened, according to Human Rights Watch’s 2012 World Report and U.S. State Department cables released by Wikileaks.

“Azerbaijan’s already poor democracy and human rights record is worsening, with media freedom deteriorating and a general disregard for freedoms of assembly and speech,” wrote Robert Gaverick, a former political-economic section officer at the U.S. Embassy in the capital of Baku, in a 2010 cable.

The cable stressed the need to promote democratic reforms in the country to protect U.S. interests. “Azerbaijan continues to be a strategically important country for the United States, particularly in terms of security cooperation and energy resources,” Gaverick wrote. “These developments, in our view, threaten the long-term stability of the country, and eventually could put other areas of cooperation at risk.”

Also, the vast oil revenues and lack of transparency has fueled corruption in the government. In 2012, Azerbaijan received one of the lowest Corruption Perception Indexes by Transparency International, ranking 139 out of 183 countries.

Despite these concerns, the U.S. continues to cultivate its relationship with Azerbaijan around energy issues. Secretary of State Hillary Clinton traveled to Azerbaijan in July 2012 and one of her primary stops was at the Caspian International Oil & Gas Exhibition, which was organized by a British and an Azerbaijani oil company.

A report from the exhibition, where experts discussed the country’s energy sector and leaders courted foreign investment., concluded that both President Barack Obama and British Prime Minister David Cameron “sent greetings and dignitaries” and “emphasized Azerbaijan’s key role in creating new energy corridors and the need to develop a closer relationship between Azerbaijan and their respective countries.”

During her visit, Clinton also stressed the need for further democratic reforms in the country so thatr the two countries can remain close partners in the future.

“We, as we always do, urge the government to respect their citizens’ right to express views peacefully, to release those who have been detained for doing so in print or on the streets or for defending human rights,” she said during remarks with Azerbaijani Foreign Minister Elman Mammadyarov.

Domestic oil supply comes from refinery production and imports. Reductions in U.S. fuel supply – which could result from a hurricane shutting down several major Gulf Coast refineries and pipelines for a few days – could tighten supply and cause prices to increase and remain high. In September 2008, Hurricanes Ike and Gustav shut down several Gulf Coast refineries as well as a major gasoline pipeline that supplies products to the U.S. Northeast. That particular supply disruption caused prices at the pump to spike for several weeks, even as world crude prices were declining.

Oil is traded on a global market, and prices are determined by supply and demand. As a result, and as the U.S. Congressional Budget Office points out in a 2012 report, “even if the United States increased production and became a net exporter of oil, U.S. consumers would still be exposed to gasoline prices that rose and fell in response to disruptions around the world.”

U.S. Vulnerabilities

The following facilities represent some the most important oil and petroleum infrastructure in the United States. The vulnerability of these systems depends on several factors, including location, capacity and redundancy.

Port of Houston
Newington, Va., Storage Facility
Louisiana Offshore Oil Port
Cushing, Okla.
Port of Miami
Port Everglades

Colonial Pipeline
Plantation Pipeline
Trans-Alaska Pipeline

Major U.S. Refineries

From Port (to Pipeline) to Pump: How Safe is U.S. Oil?

Nearly eight years ago, the U.S. government identified 15 scenarios in which hypothetical incidents were capable of threatening the nation’s economy and power supply.

One of those scenarios was the possibility of a large hurricane hitting a major metropolitan area such as New York City and causing catastrophic damage including knocking out power to millions, said homeland security expert David McIntyre.

“Although the threat was laid out at the federal level, state and local leaders did nothing to prepare for it,” he said.

The hypothetical became real on October 29 when Hurricane Sandy slammed into New York and New Jersey, idling nearly 70 percent of the East Coast’s oil refining capability, flooding entire neighborhoods and causing more than 100 deaths.

In a December hearing before the Senate Committee on Commerce, Science and Transportation, Patrick Foye, executive director of The Port Authority of New York and New Jersey, testified that the storm will likely cost the region tens of billions of dollars in damages.

Many experts say they believe future storms could be even more damaging. “That’s my concern for petroleum critical infrastructure,” said McIntyre, a former director of the Integrative Center for Homeland Security at Texas A&M. “What low probability but high consequence events are out there, and have we been properly preparing for them?”

Deciding which events to spend money planning for requires setting priorities, and the U.S. government hasn’t done a great job of that, said Todd Keil, former undersecretary of the Department of Homeland Security’s Office of Infrastructure Protection. “Identifying the risk and where you put your resources is the biggest challenge.”

The Department of Homeland Security has a classified list of facilities it has identified as “national critical infrastructure” based on two criteria – economic impact and potential fatalities, Keil said. The energy sector is among the 18 sectors reviewed.

Although the list is classified, some experts have suggested what types of high-priority infrastructure may be considered for it.

“If I had to pinpoint something I’d look to refineries,” said Adm. James Loy, former deputy secretary of the Department of Homeland Security. Refineries convert crude oil into usable petroleum products such as gasoline and jet fuel.

Pipelines play a critical role as well, and may be harder to secure and protect, said Paul Rosenzweig, former deputy assistant secretary for policy in the Department of Homeland Security. “If you have an oil refinery, you can put up fences, hire guards and do a pretty decent job of getting yourself together on that,” Rosenzweig said. “If you have a 2,000-mile pipeline from Canada to Texas, you simply cannot protect the entire pipeline.”

The Colonial Pipeline, for example, spans more than 5,000 miles from Houston, Texas to Linden, N.J., and delivers more than 2 million barrels per day of gasoline, diesel fuel and home heating oil from the Gulf Coast to the Northeast. The Colonial Pipeline also delivers jet fuel to major airports, including Atlanta International, Dulles International and Reagan National Airport in Washington.

Natural Disasters

Energy experts say natural disasters pose the greatest risk to energy infrastructure, in large part because most of the nation’s critical petroleum infrastructure is concentrated in and around the Gulf of Mexico.

“The real greatest vulnerability is the rather unsexy natural disaster and accident stream,” Rosenzweig said. “That probably outweighs the terrorist threat, either through physical attack or cyber, by a significant degree.”

Houston alone contains many major refineries that together account for approximately 30 percent of the nation’s refining capacity, Rep. Michael McCaul, R-Texas, said in a 2011 House Homeland Security Committee hearing. Houston’s 25-mile ship channel and surrounding area receives almost 25 percent of all U.S. oil imports.

“If catastrophe struck the port, there is little spare capacity to import and refine crude oil anywhere else in the country,” McCaul said in the statement prepared for the hearing.

Elsewhere in the Gulf of Mexico, hurricanes pose a threat to such critical facilities as the Louisiana Offshore Oil Port, a terminal approximately 18 miles south of the Louisiana Coast. The LOOP is the single largest point of entry for oil tankers carrying crude oil to the United States, and it is the only platform in the nation capable of accommodating oil supertankers.

“The Houston Ship Channel is significant. The Colonial Pipeline is significant. The LOOP is significant,” Keil said. “There would be a significant impact should something happen to any of those.” The impact could range from short-term supply disruptions and price spikes to longer term shortages, depending on the severity of the incident.

When Hurricane Katrina hit the Gulf in 2005, it caused a 95 percent reduction in daily Gulf oil production, according to the U.S. Energy Information Administration. The storm closed refineries, disrupted crude oil and petroleum imports and caused oil prices to skyrocket. And experts say it may get worse before it gets better.

“Most if not all of the predictions are for more storms and for more severe storms,” Loy said. “It is a quite serious matter for both the industry and the people who respond to such events.”

Cyber Threats

National security experts cite cyber safety as another significant – and rapidly growing – concern with respect to the energy sector. “Unfortunately, most of our infrastructure today is in one way or another connected to the Internet,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank. “Once you have access to the Internet, you basically are open to everything that the Internet brings.”

Thomas Cellucci, a former commercialization officer who managed public-private partnerships at the Department of Homeland Security, also emphasized the growing cyber threat. “That’s the biggie,” Cellucci said. “Cyber attacks are really something that ‘govvies’ worry about, and they should.”

Increasingly, refineries and pipelines run on computer-controlled systems called supervisory control and data acquisition – or SCADA – systems. Designed to increase efficiency, the systems also create vulnerabilities.

“The attacks that are most likely to cause real civilian harm are attacks on the industrial control systems,” said Stewart Baker, former assistant secretary for policy at the Department of Homeland Security. “Not the Windows networks, but the industrial systems that are built on software increasingly and that make pipelines work, refineries work.”

Targeting industrial systems is on the rise. In July 2012, a security company discovered the Stuxnet virus. Many speculate that the sophisticated virus was state-sponsored—either by the United States, Israel or both—and designed to infiltrate and undermine Iran’s uranium enrichment facility.

One month later, state-owned Saudi Arabian Oil Co., better known as Saudi Aramco, reported that a virus called Shamoon infiltrated the company’s computers. “More than 30,000 computers that it infected were rendered useless and had to be replaced,” said Secretary of Defense Leon Panetta in an October 2012 speech. “It virtually destroyed 30,000 computers.”

There is no evidence that the U.S. has encountered such an attack on domestic oil infrastructure, Baker said, but the likelihood increases as the tools required to execute an attack get easier to use. “My biggest worry about this is that every year, the kind of damage that can be done by a handful of people grows.”

Baker said he’s also concerned there isn’t enough preparation for mitigating these threats. A lot of the attention has focused on making systems harder to hack, he said, which is really about putting up defenses, and not about what happens if those defenses fail.

Terrorist Attacks

The energy sector, along with the transportation and banking and finance sectors, is one of the most likely to be targeted by terrorists, Keil said. “These three things together I think are very, very primary targets – from an operational perspective and from an ideological perspective.”

In 2006, a group of al-Qaida terrorists launched a well-planned, but unsuccessful attack against the Abqaiq processing facility, one of Saudi Arabia’s most crucial oil facilities. Two days after the attack, according to a report released by the Jamestown Foundation, al-Qaida affiliated cleric Sheikh Abd-al-Aziz bin Rashid al-Anzi published the terrorist group’s religious justification for attacking oil infrastructure called “The Religious Rule on Targeting Oil Interests.” In it, he wrote: “Targeting oil interests is lawful economic Jihad. Economic Jihad in this era is the best method to hurt the infidels.”

Former al-Qaida leader Osama bin Laden also urged his followers to attack the oil industry as a way of striking at the center of gravity of the U.S. and its allies.

Keil said the terrorist threat to energy infrastructure is particularly worrisome when it comes to cyber. “What we were seeing is that [the terrorists] up to this point were using the cyber arena more as a tool rather than a weapon,” Keil said. “But that’s just around the corner. I think we’re probably on the cliff of the established terrorist groups using cyber as a weapon.”

But identifying and prioritizing cyber threats and other infrastructure risks does not mean the U.S. is prepared to deal with such risks, Keil said.

“There was a lot of assessment and risk identification work being done,” he said, “but there were no metrics to determine if actual steps were being taken … we had no idea if anything was being done or not.”

The Department of Homeland Security started developing a way to assess progress a few years ago, Keil said. Current Department of Homeland Security officials declined to comment.

But homeland security veteran McIntyre said it’s still unclear how the federal government prepares for threats, a reality he said is particularly troubling when considering low-likelihood, high-impact scenarios.

To McIntyre, that means an incident on par with shutting down refineries, simultaneously attacking three different parts of a major pipeline, or preventing heating fuel from reaching parts of the Northeast U.S. for a prolonged period of time.

“But unless somebody has some sort of public oversight, we don’t know if that’s been considered,” McIntyre said. “That’s why I think the legislative branch needs to be sure they’re providing oversight on critical infrastructure issues.”

History

History of the Strategic Petroleum Reserve

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The United States is the largest consumer of crude oil and petroleum products. The origin of the Strategic Petroleum Reserve is the Arab oil embargo that halted exports to the U.S. during the 1973 Arab-Israeli War. As a result, fuel shortages caused economic disruptions in the U.S. economy. U.S. Department of Energy

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How It Works

The Strategic Petroleum Reserve is a U.S. government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. The caverns have a capacity of 727 million barrels and store emergency supplies of crude oil owned by the U.S. government.

• Bryan Mound holds 254 million barrels in 20 caverns
• Big Hill holds 170.1 million barrels in 14 caverns
• West Hackberry holds 228.2 million barrels in 22 caverns
• Bayou Choctaw holds 73.2 million barrels in 6 caverns

America’s Strategic Reserve of Oil

In case of an emergency disruption to its oil supply, the U.S. has the largest stockpile of government-owned emergency crude oil in the world, which would provide about 82 days of import protection for Americans. But how does the Strategic Petroleum Reserve work?

Where is it stored?
U.S. emergency crude oil is stored thousands of feet underground in salt caverns, some of them extending a mile beneath the earth’s surface. There are four locations in the Gulf region: Bryan Mound in Brazoria County, TX; Big Hill in Jefferson County, TX; West Hackberry in Cameron Parish, LA; and Bayou Choctaw in Iberville Parish, LA.
Why salt caverns?
They were deemed a more secure, affordable and long-lasting means of storage than above ground tanks. Salt caverns have been used for storage for many years by the petrochemical industry, so the U.S. government acquired previously created salt caverns to store crude oil when they created the SPR.
Why crude oil?
Crude oil is cheaper to acquire, store and transport than refined products. It also doesn’t degrade over time.
Administrative costs?
It costs about $3.50 per barrel stored per year, considerably lower than in Europe and Asia. The U.S. has invested $23.3 billion to build and maintain the SPR, according to government estimates.

How It Is Stored

Salt caverns are carved out of underground salt domes by a process called “solution mining.” The process involves drilling a well into a salt formation, then injecting massive amounts of water. The water dissolves the salt. The dissolved salt becomes brine and is piped offshore into the Gulf of Mexico. Oil is then pumped into the caverns.

In the event of a drawdown, water is pumped into the bottom of the cavern. Since oil floats on water, the oil will rise to the surface. The oil can be quickly withdrawn and distributed quickly to nearby refineries, pipelines and tankers in the Gulf Coast.

The oil reserve inventory was 694.9 million barrels as of Nov. 30, 2012

What is the difference between sweet and sour crude oil?

The difference is the crude’s sulfur content. Sweet grades have less than 0.5 percent sulfur, whereas sour crude has a higher level. The SPR holds both sweet and sour crude, and they are contained in caverns designed as either sweet or sour.

Why is there more sour than sweet oil?
The ratio was determined to meet the needs of the U.S. refining industry. Nearly all refiners can process sweet crude oil; the same is not true for sour crude.

Which is more requested?
Sweet crude is mostly requested during times of emergency because of its value to refiners to produce transportation fuels.

• Two major types of crude oil: “Sweet” and “Sour” grades
• Maximum drawdown capability: 4.4 million barrels per day
• Time for oil to enter the market: 13 days from presidential decision
• Average price paid for oil in the reserve: $29.76 per barrel

Process of Emergency Oil Drawdown

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Controversy

Created as a buffer against energy supply disruptions that affect our national security, the Strategic Petroleum Reserve has caused much controversy over the years. Some critics have raised questions about its operations and oversight, including when and how the SPR should be used. Some argue that it should only be tapped during a full-scale national emergency, while others say it should also be used occasionally as a means to alleviate high domestic oil and gasoline prices.

Alvin Alm, the former director of the Harvard Energy Security Program described this controversy in his book, “Oil Shock: Policy Response and Implementation”: “Although almost all energy experts and politicians agree that a Strategic Petroleum Reserve is desirable, serious disagreement exists on the purpose of the reserve and how it should be managed. Some view it as a tool of military and foreign policy, only to be used during periods of dire national security threats. The majority of political leaders and interested citizens view the Reserve as a source of fuel to prevent physical shortages.”

There are a lot of other arguments about the SPR too, including whether it’s even needed, and why taxpayers are footing the bill.

Jerry Taylor, a senior fellow at the Cato Institute, co-authored a 2005 report that included that passage from Alm’s book. He and co-author Peter Van Doren also wrote that, “The Strategic Petroleum Reserve has been almost uniformly embraced by politicians and energy economists as one of the best means to protect the nation against oil supply shocks.’’

But, they added, “This study finds little evidence for the proposition that government inventories are necessary to protect the country against supply disruptions. Absent concrete market failures, government intervention in oil markets is unlikely to enhance economic welfare.’’

In an interview, Taylor said the government has misused the reserve, “The history of SPR management is a good example of the inventory being used based on political calculus, not by economic calculus.” He said “politicians are in the business of maximizing political capital” so they will manage the SPR in a way that will get the most political support, unlike private inventory holders that are primarily interested in maximizing profit. This may not be done out of concern for the consumer, but it will have a positive effect on them because private inventory holders will deliver products to the market when they are desired at the time, said Taylor.

And finally, Taylor and Van Doren concluded in their study, the SPR had cost taxpayers at least $41.2 billion by 2004, even though it had only been tapped three times, “and in each of those instances, the releases were too modest and, with the exception of the 2005 release related to Hurricane Katrina, too late to produce significant benefits. Accordingly, the costs associated with the SPR have been larger than the benefits thus far.’’

Others have been far more supportive of the SPR, and say it is a critically important aspect of U.S. energy security.

But even some supporters have concerns.

John Shages, a former deputy assistant Energy secretary for the Strategic Petroleum Reserve, argues that the SPR hasn’t been used to its full potential. “I think the single biggest problem is that the people don’t understand how powerful this thing can be in its actual usage,” in context of balancing out erratic oil price fluctuations, Shages said in an interview.

“Both the law and policy makers have treated the Strategic Petroleum Reserve as an emergency response of last resort. The legal requirement for a Presidential finding to authorization sales is close in concept to a declaration of war. This is unfortunate. If this tremendously powerful tool were more frequently used in response to economic and energy problems our economy and energy security would be tremendously enhanced,” said Shages, now with Strategic Petroleum Consulting LLC.

Amy Jaffe, an energy expert and co-author of “Oil, Dollars, Debt and Crises: The Global Curse of Black Gold,” wrote in Foreign Policy on Aug. 2012 that the U.S. has been “surprisingly reluctant to release SPR during times of crises, preferring instead to let Saudi Arabia handle the problem by simply increasing its production.” For years, the U.S. has relied on Middle Eastern producers to pre-release oil in anticipation of times of war.

There is also confusion and debate over who, exactly, is in charge, thanks to what some critics say is a lack of a comprehensive policy. The President has the primary authority to decide when to use the SPR, according to the Energy Policy and Conservation Act. It authorizes the President to use the SPR in the event of a “severe energy supply disruption” or when the U.S. is required to meet the obligations of the International Energy Agency.

But a Rand Corporation report from 2009 also concluded that U.S. policies governing the use of the Reserve are confusing and ambiguous, therefore reducing its effectiveness.

The Rand report said, the absence of a publicly stated policy on when the SPR will be used “has the potential to trigger panic hoarding if market participants fear a major supply disruption, bringing on the very conditions that SPR use is supposed to ameliorate.”

The report concluded that such secrecy may be necessary. “Policy makers have been reluctant to spell out in advance what would trigger SPR use, since, under current law, this would mean defining in advance what constitutes a national emergency related to oil supply disruptions and what responses would be taken.”

In a 2009 hearing before the U.S. Senate Committee on Energy and Natural Resources, Sen. Lisa Murkowski (R-AK) was critical of the ambiguity. “We don’t have a policy, a stated policy, as to when the SPR, when there should be a drawdown. As I say, according to this report it creates that same level of uncertainty that we’re looking to ameliorate.” She urged the Obama administration to review the issue.

McKie Campbell, the Republican staff director for the Senate Committee on Energy and Natural Resources who works closely with Sen. Murkowski, said the committee doesn’t have specific recommendations as of now, but there is a “fair chance” that the SPR will be discussed this upcoming session of Congress.

According to a Government Accountability Office report from 2006, the current legislation allows broad presidential discretion and provides only general guidance for the SPR’s use, making use of the SPR a matter of judgment by the President.

“It should be clarified to essentially put more power into the hands of the President, to do it based on circumstances of the time rather than trying to find the situations under which it should be used,” Shages said, referring to the current Energy Policy and Conservation Act. Trying to define specifically what an emergency of a national scope could be difficult. “I think everybody should have realized is now that all these years later, there are events that you can’t foresee for which you could appropriate to use the Strategic Petroleum Reserve,” Shages said.

Also, the Government Accountability Office report said that “the SPR is an extremely valuable asset, and releasing oil from the reserve during oil supply disruptions could greatly reduce the damage to the U.S. economy.” Since oil plays a critical role in the U.S., price increases in products made from crude oil, such as gasoline diesel, home heating oil, and petrochemicals and even fertilizer, can cause serious financial hardship for consumers, thus reducing economic activity. Past studies have shown that oil price shocks in economic damage to the U.S., according to this report.

The Strategic Petroleum Reserve was created to be a buffer; it’s not meant to be a substitute for crude oil in a case of a severe energy supply disruption, said Rep. Glenn Anderson (R-WA). “It can’t prevent the shock that will come. It’s just meant to soften the blow,” Anderson said.

With oil as the largest primary source of energy in the U.S., the Energy Information Administration projects that transportation will comprise an even larger part of the nation’s oil use in the future, about 72 percent in 2030. According to recent EIA data, the U.S.’s transportation petroleum use is 67 percent of total U.S. petroleum use, and about 93 percent of energy used for U.S. transportation comes from oil. The Strategic Petroleum Reserve will still be relevant for many years to come as oil continues to be the defining transportation energy fuel, Anderson said.

“We have no viable substitute for oil and gasoline in terms of transportation at all.” Anderson said. “We’re trying to work on natural gas and batteries, but those have not developed to a scale that they even remotely come close to replacing oil as the primary fuel.”

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Community Impact

While the neighbors who live near the Strategic Petroleum Reserve in Plaquemine, La. have heard about the site, many of them aren’t exactly sure what goes on beyond those heavily guarded gates.

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Secrecy

Welcome to Bayou Choctaw

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The Bayou Choctaw Reserve sign sits at the end of a short Louisiana highway in Plaquemine, La. Christina Choi/MNSJI

Plaquemine, La. — The Department of Energy states that the Strategic Petroleum Reserve is part of the agency’s critical infrastructure and serves as the nation’s first line of defense against an interruption in petroleum supplies and as a national defense fuel reserve. In 2005, the DOE inspector general concluded that “any disruption in the ability of the SPR to provide emergency crude oil may have an adverse impact on the nation’s economy and security.”

The Energy Department is required to ensure that there is adequate security to extract the oil and supply it to commercial pipelines. It is not responsible for security of pipelines beyond the SPR site boundaries.

Each SPR site has a security force managed by Pinkerton Government Services, a subcontractor to the Energy Department’s primary SPR managing contractor, DM Petroleum Operations Co.

Security is extremely tight at all of the Reserve sites. “You have to surpass systems of detection, all sorts of fencing, multi-barrier fencing. You have live individuals who are armed and trained,” said John Shages, a former DOE deputy assistant secretary for the Strategic Petroleum Reserve. The Security Police Officers are “former military, and they go through the same kind of screening that we would put them through if we were hiring for a federal position.’’ The security force at each of the sites also undergoes performance tests involving simulated explosives and helicopters.

I experienced how strict the security was when I visited the Bayou Choctaw site, at the end of a Louisiana highway, in November. It was a heavily guarded fortress. As I walked around the perimeter, there were guards wearing gray Strategic Petroleum Reserve Police Officer uniforms, with bulletproof vests and guns, patrolling in white SUVs. I accidentally took a few steps onto the Reserve property, and they immediately took down my driver’s license information and the license plate number from my rental car.

The use of private contractors for SPR security is not anything new and has “just worked out well in history,” said Shages, who is now the president of Strategic Petroleum Consulting LLC.

The SPR crude oil is stored in deep underground salt domes that minimize access to the oil by potential adversaries, according to SPR officials quoted in the inspector general’s report. The report also noted that the loss of SPR assets, the crude oil, “does not pose grave danger to the public sufficient to warrant the use of deadly force as even a catastrophic event at SPR would have limited effect outside the boundaries of a SPR site.” In addition, the report said there was no feasible way for an opponent to steal sufficient quantities of oil to significantly endanger the public or environment.

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International Energy Agency

Since 1974, the United States and 27 other nations have become members of the International Energy Agency. The founding treaty called the International Energy Program (I.E.P. Agreement) obliged all member countries to maintain reserves of oil or petroleum products equaling 90 days of net imports and to release these reserves and reduce demand during oil supply disruptions. The agreement also created solidarity between the members, which means that if one or several member countries are confronted with a sudden supply disruption, all member countries would take collective action by making oil available from their reserves and reducing demand. For example, during the shutdown of Libyan oil exports in 2011, 28 member countries agreed to make 60 million barrels available to the oil market from the emergency stockpiles of eight larger IEA countries.

IEA member nations fulfill this obligation in various ways; some countries require that private companies hold reserves, others, like the United States, have created government reserves, and some countries hold a combination of the two. Some IEA countries hold refined products in addition to crude oil reserves while the U.S. holds only crude oil. In November 2012, the U.S. Strategic Petroleum Reserve contained 694.9 million barrels, equal to about 82 days of estimated fuel consumption. In addition to government reserves, private industry inventory of crude oil and petroleum products varies over time, but recent U.S. Energy Information Agency data shows that industry stocks increase the days of U.S. protection to 171 days. Thus, at the current level of oil demand, the SPR combined with private industry holdings contains enough oil and petroleum products to exceed the United States’ 90-day reserve requirement.

The 28 member countries of the International Energy Agency are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, The Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic (Slovakia), Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.

There is a striking overlap between the world’s sources of energy and the world’s sources of instability.

- Sen. John Kerry, Testimony before the Senate Committee on Foreign Relations, 2009

Many of the countries the U.S. depends on for oil and petroleum products have corrupt governments at varying levels, crime problems and face civil unrest. Whether initiated al-Quida in Iraq, militant groups in Nigeria or armed rebels along the Columbia-Venezuela and also the Columbia-Ecuador border, attacks on the oil and gas industry can cripple and cause major economic damage.

The United States spends a tremendous amount of time and money to secure our oil and counter the threats that disseminate throughout the global supply chain.

Top exporters to the U.S.

A look at some of the major threats to the U.S. oil supply today:

High risk Medium risk Low risk

The U.S. receives nearly 60 percent of its oil and petroleum imports via tanker, according to a 2011 report from the American Petroleum Institute. Many of the tankers arriving in U.S. ports carry crude oil and petroleum from Mexico, Saudi Arabia, Venezuela and Nigeria. Threats to production in these crucial supplier countries – whether from natural disaster, crime, or terrorist or cyber attacks – threaten both the global supply chain and the Unites States’ access to oil.

Introduction

U.S. oil firms are always forging new oil frontiers to increase the availability of oil supply. From the giant Kashagan field in the northern part of the Caspian Sea to the pre-salt zones deep  below the sea surface offshore Brazil, they are combating all kinds of complicated natural environments to get the oil out. With oil prices often at more than $100 a barrel, companies are willing to take risks in uncharted territories.

The U.S. government has launched different programs to improve the investment climate for those future big suppliers. For example, the State Department’s Energy Governance and Capacity Initiative provides foreign aid to help countries build a better fiscal system. David Goldwyn, former international coordinator of energy affairs, said that countries were much more likely to take American advice when they were not enriched with oil money and by helping them, the U.S. government also gained some “diplomatic capital.”

“When things eventually go wrong in the country as they almost always do at some point,” he said. “then the U.S government has some leverage, frankly, to hold that government accountable because it played an significant role in getting them to be the competitive producer in the first place.”

U.S. oil companies are not the only ones operating in these emerging producing countries. Their oil potential has lured companies from all over the world, such as China. Chinese national oil companies, fueled by growing domestic demand, have been actively courting the governments of those new producers for exploration and production contracts. According to former State Department officials, their presence is not a threat to U.S. energy security interests yet because it is still modest in many countries. But the way Chinese national oil companies operate has posed a challenge to U.S. good governance goals.

China is famous for its so called no-strings-attached approach. It doesn’t ask for changes in how these countries manage their oil revenue as a conditionality of its loans and aids. Instead, it wants secure oil supply as payments. Critics say this approach has strengthened the power of many oppressive regimes.

“There is much greater confidence in oil supplies than in 2008,” said Daniel Yergin, Pulitzer Prize winning author and chairman of IHS Cambridge Energy Research Associates, in a 2012 testimony before the U.S. Senate Energy Committee on Energy and Natural Resources. “East Africa is emerging as a major new oil and gas play. Ghana is joining the ranks of exporters. Major new discoveries have been found off the coast of French Guyana in Latin America.”

The shale oil boom in the U.S. has pushed production up almost 20 percent since 2008. In Canada, with the development of the oil sands, production has nearly tripled since the beginning of the 21st century. “Today the output from the oil sands – 1.7 million barrels per day – is greater than Libya was producing before its civil war,” Yergin testified.

Scientists and energy scholars are working to solve this efficiency problem, but until they do, the widespread adoption of alternative energy sources is not realistic. One alternative energy source that has the capacity to replace oil and coal is nuclear energy. Nuclear energy is efficient, cost-effective and abundant. However, there is social and political resistance to nuclear energy in America.

Advances in technology over the past decade have opened up vast quantities of untapped oil and gas reserves, from increasing Canadian oil reserves by 170 billion barrels to radically shifting the global energy landscape by finding better ways to extract natural gas. Technology is a major determinant of where and how the world will attain its energy, now and in the future. Here, we profile a major research effort to develop more advanced fossil fuel technologies in a unique partnership between leading U.S. national laboratories and one of the world’s biggest oil companies.

Background
Current methods to extract oil from the ground include three phases of recovery. In primary recovery, when a well is first drilled into the ground, the natural pressure difference between the subsurface and the surface drives the oil out of the well to the surface. You may have seen video of black oil gushing out of the ground; this is primary recovery. However, once the pressure difference evens out, the oil will not gush out any more. At this point, extraction enters the secondary phase. In secondary recovery, water is injected into the ground from an adjacent well to push the oil out to the surface at the production well. The process is not efficient, though; the water may travel through holes in the rocks where there is no oil, resulting in low amounts of oil driven out. At the end of these two methods, approximately one-third of the oil in the reservoir has been extracted.

At this point, engineers inject chemicals and surfactants into the ground to try to wash out the oil in the tertiary recovery phase. A surfactant is a compound that binds with both oil and water – an example is detergent. But the chemicals that are used pose environmental and cost issues.

Research on Microbes
Scientists at EBI explore the use of microbes to extract oil in environmentally friendly and efficient ways. Microbes – tiny organisms that include bacteria – exist in abundance everywhere on Earth, including below ground. There is a vast variety of microbial species, and each species has unique abilities to produce useful compounds or carry out key tasks. The scientists at EBI are working to channel the special abilities of microbes to enhance oil recovery.

Plugging Rock Pores
Microbes below ground can be stimulated to produce solid compounds that plug up unwanted rock pores. With the help of microbes, secondary recovery can be made more efficient as the water is channeled to the oil instead of through empty pores.

Lightening the Load
Heavy oil does not flow well. Microbes can be used to break the heavy oil into lighter parts, improving its viscosity, or resistance to flow.

Producing Surfactants

Microbes can produce surfactants to help the oil and water mix. Instead of injecting foreign chemicals and surfactants into the ground, native microbes can produce similar surfactants naturally.

Biosouring
A problem with oil production, especially where seawater is involved, is souring. The injection of seawater into an oil well induces the production of hydrogen sulfide, which is a toxic and corrosive compound. Microbes can be used to reduce the sulfur in the oil and combat souring.

Could this be the next big thing?
Natural gas hydraulic fracturing, or fracking, revolutionized the energy landscape in the U.S. and around the globe in the last decade. Fracking has been around for at least half a century, but recent advances in technology made the process economical, thus enabling the widespread adoption of the technique. Similarly, microbially enhanced oil recovery has been around for about 75 years. EBI scientists expect to move some aspects of their research to the field in the next few years. Perhaps the use of microbes will be the next game-changer in the energy industry.

Asia’s growing appetite for oil

Asia’s fast-track economic growth, driven primarily by the region’s leading emerging economies like China and India, is creating a massive surge in demand for the energy needed to fuel the expansion, especially oil. A recent report released by the National Bureau of Asian Research called Asia the “ground zero” for growth in global energy and commodity markets, indicating that the region will account for more than 85 percent of the increase in demand for oil over the next 20 years.

China, India, Japan, South Korea and other Asian countries are still heavily dependent on oil imports from the Persian Gulf and will remain so for decades. At the same time, the United States is becoming less dependent on oil from the Middle East as a result of the increasing its domestic drilling capacity. Many energy and security experts warn this “eastward shift’” will alter the global balance of power as China and other Asian nations compete with the U.S. for influence and access to oil. China’s surging demand, in particular, has brought it into conflict with other countries as it seeks short- and long-term supplies of oil, often in unstable and developing nations.

A landmark report released on Dec. 9, 2012 by the U.S. Office of the Director of National Intelligence warns that China’s quest for oil and other sources of energy will be one of the key “new sources of friction in a resource constrained world’’ in the coming decades.

“China is building up its naval power and developing land-bound energy transportation routes to diversify its access to energy,’’ increasing the potential for disputes, according to the report, titled “Global Trends 2030: Alternative Worlds.’’

Oil, gas and conflicts of interests in the South China Sea

The Philippines and its neighboring countries rely on the U.S. military to ensure maritime peace and stability in the South China Sea. Above: USNS Charles Drew, a U.S. Navy ammunition ship, parked at Subic Bay, Philippines on Nov. 26, 2012.

The South China Sea, stretching from the Strait of Malacca to the Strait of Taiwan, has become a flashpoint in this conflict because of the vast supplies of oil and natural gas it contains. Since the 1970s, countries in the area such as China, Vietnam, Malaysia, Taiwan and the Philippines claim part or all of the water and the islands and resources they contain, prompting disputes over borders and access to the oil. In recent years, the area has become even more of a geopolitical flash point, as Vietnam and the Philippines accuse China of unfairly expanding into the area by imposing unilateral fishing bans, arresting Vietnamese and Filipino fishermen and increasing coastal patrols in the region.

Meanwhile, China’s People’s Liberation Army Navy is also developing anti-ship missiles and modernizing its South Sea Fleet. On July 24, 2012, the Beijing government established a military garrison in Hainan Province to oversee the intensely disputed oil-and-gas-rich Paracel and Spratly Islands. Last November, China issued its new passport, which showed almost the entire South China Sea as being within its territorial boundaries. The passport also indicated that Taiwan, another claimant in the South China Sea, is part of China’s territory. Tension also exists in the East China Sea where the dispute over the ownership of Diaoyu/Senkaku Islands between China and Japan has been escalating since August, resulting in the rise of nationalism in both countries even as they elected new top leaders in recent months. China, after repeatedly sending surveillance aircraft into the disputed airspace and drawing quick responses from the Japanese air force, finally flew its own J-10 jet fighters into the airspace over the East China Sea on Jan. 10. Neither side fired a shot, but the friction renewed speculation over China’s tougher stance on foreign policy.

The U.S. Energy Information Administration agency estimates that as Asia’s demand for oil continues to rise rapidly, conflicts caused by ownership disputes in the South China Sea will escalate as all countries in the region try to gain an upper hand in securing energy to fuel their future growth. That, in turn, has drawn the attention of the United States, which is building up its military force in the region to ensure the freedom of navigation and to prevent an escalation of ongoing conflicts. However, according to the “Global Trends 2030” report, tensions—particularly within China—will likely grow over the US role in the region. “Chinese strategists worry that China’s dependence on the US for sea lane security will be a strategic vulnerability for China in a future conflict, such as over Taiwan, where the US might impose an oil embargo,” the report said.

The U.S. “Rebalances’’ Its Military: The New Shift To The East

The United States has increasingly been drawn into the escalating conflict over the South China Sea, even as it is trying to stay out of it.

In fall 2011, the Obama administration announced a major strategic effort known as the “pivot” or “rebalancing” to Asia.

“For the United States, this reflects a broader shift. After a decade in which we fought two wars that cost us dearly, in blood and treasure, the United States is turning our attention to the vast potential of the Asia Pacific region,” said President Barack Obama in an address to the Australian Parliament in November 2011.

The administration will prioritize the Asia Pacific region in its foreign and economic policies, and intensify its military role there. For the Pentagon, the rebalance can be measured by the increased deployment of Navy ships to the Pacific Command’s area of responsibility from elsewhere in the world, including six aircraft carriers and an increased number of cruisers, destroyers and submarines. The rebalance also means the development of new capabilities to contain China’s anti-ship missiles, strengthened regional partnerships and alliances, an increase in the number and size of joint military exercises in the Pacific, and more U.S. Navy visits to the regional ports.

Obama emphasized that the United States will play a larger, long-term role in shaping the region in the future. “As the world’s fastest-growing region — and home to more than half the global economy — the Asia Pacific is critical to achieving my highest priority, and that’s creating jobs and opportunity for the American people.” Obama said. In a speech delivered at the Shangri-La Security Dialogue last June, Defense Secretary Leon Panetta said America’s fate is “inexorably linked” with the Asia Pacific region, leading to “more than six decades of U.S. military presence and partnership.”

“We take on this role not as a distant power, but as part of the Pacific family of nations,” said Panetta, “Our goal is to work closely with all of the nations of this region to confront common challenges and to promote peace, prosperity, and security for all nations in the Asia-Pacific region.”

The strategic shift comes as the Pentagon draws down the troops in Iraq and Afghanistan, and plans to incrementally deploy 60 percent of the naval ships to the Pacific by 2020, a shift of from the current 50 percent. The Pentagon also has announced new Marine rotational deployments to Australia, new littoral combat ship deployments to Singapore and the possibility of new military-to-military cooperation with the Philippines. With possible reductions in overall U.S. defense spending looming, Obama has publicly assured allies in the region that the U.S. military presence in Asia will only be strengthened. Panetta and other senior U.S. officials, however, have been careful to say that the U.S. will not take sides in the South China Sea disputes.

“We do not take a position on competing territorial claims over land features and have no territorial ambitions in the South China Sea; however, we believe the nations of the region should work collaboratively and diplomatically to resolve disputes without coercion, without intimidation, without threats, and without the use of force,’’ said State Department spokesman Patrick Ventrell said in a release on Aug. 3, 2012.

Panetta and senior military officials say the shift in military deployments is not meant to confront or contain China’s growth but rather to protect the free flow of commerce and shipping. They have not threatened the possible use of U.S. force to prevent the escalation of ongoing conflicts. Instead, Washington is encouraging regional countries to develop a universal code of conduct and respect international laws.

What The Shift Means For the U.S. – And The World

Some high-level U.S. officials, including State Secretary Hillary Clinton, have described the strategic shift as a “pivot’’ to Asia, while Panetta and others stress that it is rather a “rebalance,” a carefully worded distinction meant to assure Middle East allies that Washington will not abandon its commitments to the Persian Gulf. According to a Congressional Research Report titled, “Pivot to the Pacific? The Obama Administration’s “Rebalancing” Toward Asia,” the fundamental goal underpinning the shift is to “devote more effort to influencing the development of the Asia-Pacific’s norms and rules, particularly as China emerges as an ever-more influential regional power.” The report by the independent research arm of Congress said that instead of a sudden turn of focus, the shift is “a continuation and expansion of policies already undertaken by previous administrations, as well as earlier in President Obama’s term.”

According to the CRS report, the most dramatic shifts are in the military. The rebalance aims to expand the U.S. presence in the southwestern Pacific and make it “more flexible, more distributed and politically sustainable.” The Obama administration has announced new deployments or rotations of troops and equipment to Australia and Singapore, as well as the increased number of Navy ships deployed forwardly to rest of Western Pacific.

The Navy’s Pacific Fleet Commander, Adm. Samuel J. Locklear III, described the shift as more than just an increase of ship deployment to the region.

“The rebalance has been and it continues to be about strengthening relationships, adjusting our military posture and presence, employing new concepts, capabilities and capacities to ensure that we continue to effectively and efficiently contribute to the stability and security of the Asia Pacific as we protect U.S. national interest.” Locklear said in remarks last December at the Pentagon.

Details about the shift are contained in a Pentagon-commissioned report by the Center for Strategic and Independent Studies (CSIS), titled “US Force Posture Strategy in the Asia Pacific Region: An Independent Assessment.’’

Among the key points: “Consolidating US bases, troops and military assets in Japan and South Korea; building up US forces on Guam and Northern Mariana Islands, strategically located in the Western Pacific; stationing in Singapore littoral combat ships—relatively small, fast, flexible warships capable of intelligence gathering, special operations and landing troops with armored vehicles; and making greater use of Australian naval and air bases and positioning 2,500 Marines in the northern city of Darwin.”

The Pentagon’s latest Defense Strategic Guidance report, in January 2012, said the U.S. is also trying to strengthen its military to military relationships in the region. It is considering establishing a joint military center in Thailand to increase cooperation and respond to regional natural disasters, and re-opening old naval and air bases in Vietnam and the Philippines for greater access for ship and aircraft repair and resupply. U.S. officials say the increased U.S. military presence will boost security capacity of key “partner states” through more flexible security assistance mechanisms and through cooperative counter-terrorism, counter-drug, and counter-insurgency operations.

Despite talks over the potential conflicts with China in the Pacific, Locklear and other Navy officials said the U.S. and Chinese militaries have a responsibility to maintain a good dialogue and a good relationship, stressing the rebalance is “based on a strategy of collaboration and cooperation, not containment, and that the United States is a Pacific power that will remain a Pacific power.” Xi Jinping, China’s newly appointed president, said during his visit to the U.S. in February 2012 that “the Pacific is large enough to host the two powers.”

The longtime local resident hopes the ships will bring a return to “good jobs, good pay, great work ethics and business opportunities everywhere.”

But he and other residents also hope the bulked-up American naval presence will ensure peace in the hotly South China Sea with its rich energy resources.

The steady increase in U.S. Navy ship visits accompanied by joint military exercises hosted in the area signal a major shift in resources as the United States winds down wars in Iraq and Afghanistan and aims to secure its national security interests in the Pacific.

In Subic Bay, on the west coast of the Philippines’ largest island, the U.S. military is trying to protect a vast store of largely untapped energy reserves from being monopolized by China or any other country. National security and energy experts say that though the South China Sea is not a significant energy exporting region fore the U.S., it has vital strategic importance for America’s energy security, especially the freedom of energy shipping routes.

Tensions in the South China Sea

The South China Sea is the site of frequent territorial disputes as nations battle for the oil and gas resources hidden beneath its calm waters.

Backed by a stronger military and a more confident regime, CNOOC – China’s third largest national oil company – is aggressively claiming exploration rights in the South China Sea, some of which are also claimed by neighboring countries.

According to a report from the RAND Corporation, China’s recent assertiveness in the South China Seas pose a potential military threat to the U.S. and its allies, who have a big stake in maintaining open sea lanes to receive a continuous flow of oil from the Persian Gulf.

Asia’s rapid economic growth, driven primarily by the region’s leading emerging economies like India and China, is creating a surge in demand for energy resources. A report released by the National Bureau of Asian Research in September called Asia “ground zero” for growth in global energy and commodity markets, indicating that the region will account for more than 85 percent of the world’s increase in demand for oil over the next 20 years.

Almost all claimants of the South China Sea depend heavily on imported oil due to lack of domestic production capacity, and the unstable oil-producing regimes in the Persian Gulf have forced them to look elsewhere for future supplies.

The South China Sea, stretching from the Strait of Malacca to the Strait of Taiwan, is a perfect alternative. Energy experts in the region say it contains rich hydrocarbons, especially oil and natural gas. While natural gas may be the most abundant resource in the South China Sea, the oil reserves are estimated as high as 213 billion barrels, equivalent of about 80 percent of those of the Saudi Arabia.

Countries in the region such as China, Vietnam and the Philippines are competitively bidding for exploration rights, but most of their national oil companies lack necessary drilling capacities to reach the deep-sea reserves.

But where there is opportunity, there is also conflict. Ever since the 1970s, when oil and gas reserves were first discovered, the South China Sea has been a simmering point of contention. And in recent years, it has erupted into a full-fledged conflict.

Neighboring countries including China, Vietnam and the Philippines have laid claim to these waters and their resources. Within the area, the Spratly and Paracel islands are among the most disputed spots, leading to major armed clashes in recent decades that show no signs of stopping. The U.S. Energy Information Administration estimates that as Asia’s demand for oil continues to rise rapidly, these conflicts will intensify.

The conflicts provide a complicated challenge to the United States, a Pacific power for 70 years. While many allies and partners are relying on the U.S. to protect their rights to explore the oil and gas, America also has an interest in maintaining regional stability and freedom of navigation without directly antagonizing China. Complicating matters are the facts that there is no collective code of conduct and that China claims the entire South China Sea based on its historic records.

Meanwhile China is increasing its military spending, modernizing its Navy and acquiring advanced maritime capabilities. In recent years, China has developed new strategies including plans to expand its naval presence to the Indian Ocean, an area where U.S. Navy currently dominates.

Historically, China’s military priority has been defending territorial rights with a special focus on Taiwan. However, the Pentagon said its investment in platforms such as nuclear-powered submarines and its first aircraft carrier suggest China seeking to support additional military missions beyond its borders.

America’s Pivot to the Pacific, and a potential Dragon-Eagle fight

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Blessed by its sheltered harbor and proximity to major shipping routes, the Philippine’s Subic Bay is key to regional economic activities and energy security. David Kashi/MNSJI

In his trip to Australia in November 2011, President Barack Obama announced a major new security initiative aimed at shifting the focus of U.S. attention—military and otherwise—to the Asia-Pacific region.

“As we end today’s wars, I have directed my national security team to make our presence and mission in the Asia Pacific a top priority,” Obama said in a speech before the Australian parliament.

“The United States will play a larger and long-term role in shaping this region (Asia-Pacific) and its future.”

The so-called “Asia pivot’” aims to promote U.S. interests by helping to shape the norms and rules among regional players so no single country poses a threat to the stability and freedom of navigation, and to ensure that international laws are respected and that no country is under the coercion of another, said Thomas Donilon, Obama’s national security adviser, in a speech at the Center for Strategic and International Studies on Nov. 15, 2012.

Defense Secretary Leon Panetta said 60 percent of U.S. naval assets will be based in the Pacific by 2020 – a historic high. That includes a net increase of one aircraft carrier, four destroyers, three Zumwalt destroyers, 10t littoral combat ships and two submarines. That, Panetta said at last June’s Shangri-La Dialogue in Singapore, “will provide our forces with freedom of maneuver in areas in which our access and freedom of action may be threatened.”

Already, the Pentagon has announced new Marine rotational deployments to Australia, new littoral combat ships, and the possibility of closer military cooperation with the Philippines.

“I think our interest is purely driven by our economic security,” said retired Marine Corps Lt. Gen. Richard Zilmer, “and we must have a strong economy in order to have a strong national security posture.” Zilmer said the “Asia Pivot” can help by securing regional sea lanes for oil and commerce.

Freedom of navigation in the Western Pacific is also a big concern for China. According to the Pentagon, in 2010 more than 80 percent of China’s oil imports transited the South China Sea and the Strait of Malacca.

“The sheer volume of oil and liquefied natural gas imports to China from the Middle East will make strategic sea lines of communication increasingly important to Beijing,” the Pentagon said in its annual report to Congress in 2011.

With China already importing 60 percent of its oil and gas and predicted to import almost 75 percent by 2030, Liu Feng, a research fellow at China’s National Institute for South China Sea Studies, said access to reserves in the South China Sea is crucial in fueling the country’s rapid growth in the next 50 years.

“America thinks that with its intervention, the current power imbalance between China and the rest can be resolved,” Liu said, “Instead, it will only make the situation worse.”

Although the U.S. has downplayed potential conflicts with China in the region, many see a rivalry inevitable between the world’s only superpower and an emerging power. Some analysts and military officials in Beijing call the shifting American military posture a clear threat to China’s internal affairs and territorial sovereignty.

“China now faces a whole pack of aggressive neighbors headed by Vietnam and the Philippines and also a set of menacing challengers headed by the United States, forming their encirclement (a military term describing a situation when a force is surrounded by enemies) from outside the region,” wrote Xu Zhirong, a deputy chief captain with China Marine Surveillance, in the June-2012 edition of China Eye, a publication of the Hong Kong-based China Energy Fund Committee.

“And, such a band of eager lackeys is exactly what the U.S. needs for its strategic return to Asia,” he wrote.

An increase in U.S. military activities

Vizcocho, a local newspaper publisher who used to work for the U.S. Navy, said that he has seen lots of military activity around the Freeport Zone and nearby air station across the harbor lately, and that the tempo is picking up fast.

Subic Bay has been a major strategic site for U.S. Navy’s logistical support and repair facilities since World War II, but the base was forced to close in 1992 due to rising Philippine nationalism and the eruption of the nearby Mt. Pinatubo volcano. The Subic Bay Freeport Zone, a massive hub of $8.8 billion in foreign investments, more than 90,000 jobs and some 1,500 businesses now is a key regional gateway.

Located in the Western Pacific near important water crossroad Strait of Malacca, Subic Bay usually serves as the place for U.S. logistics ships to repair and refuel. When U.S. aircraft carriers move between bases on the U.S. West Coast, and the Persian Gulf, they sometimes visit Subic Bay or nearby Manila Bay, which has larger capacity.

On Oct. 5, 2012, thousands of sailors and U.S. marines aboard amphibious assault ship USS Bonhomme Richard arrived in Subic Bay just days before the annual U.S.-Philippines amphibious landing exercise, in which U.S. and Philippine marines had a combined training with the Armed Forces of the Philippines focusing on humanitarian assistance and natural disaster response drills.

Three weeks later, the Nimitz-class aircraft carrier USS George Washington visited Manila Bay for a five-day goodwill visit.. On Nov. 26, the Charles Drew pulled into Subic Bay for a two-day stop.

Future: rotational places, not permanent bases

American forces are indeed coming back, but in a different fashion this time. In the future, the Pentagon will add rotation deployments to Asia Pacific instead of having long-tern installations. Both Air Force and Navy are looking at increased presence in northern Australia, while the Marine Corps is planning to deploy 2,500 troops on a rotational training basis. Pentagon officials say, in the future, U.S. may use Subic Bay for port visits instead of long-term bases.

U.S. Chief of Naval Operations Adm. Jonathan Greenert explained last November at an event in Washington DC, the Navy will have rotational deployments to the Asia-Pacific region, rather than permanent bases. The U.S. is in talks with allies and partners that will allow US forces to access places in the region so it can continue to operate there and remain a Pacific power.

“Additional bases in the Pacific are not being sought by the U.S., but the Philippines has offered increased port visits to Subic Bay,” said Bernard Cole, a retired U.S. Navy captain who teaches at the National War College. Cole expected more Navy visits and the possible establishment of a repair facility manned by civilians.
U.S. officials are now in talks with Philippine defense and diplomatic officials to increase the frequency of joint military exercises, ship and aircraft visits and other types of cooperation. Panetta’s visit to the naval and air base at Cam Ranh Bay in Vietnam in early June opened the talks about allowing the U.S. Navy to reuse the country’s deep-water port.

Local voice: U.S. comeback is necessary

Twenty years ago, as a result of surging nationalism, lawmakers in the Philippines Senate voted to terminate the lease on U.S. military bases in the country.

Today, many see the U.S. rebalance to the region as a positive move. For local Filipinos in Subic Bay, the comeback of U.S. and its military presence means more economic opportunities.

But more importantly, it brings a sense of security.

“It’s only right to maintain a balance of power,” said Edgar G. Geniza, president of Mondriaan Aura College in the Freeport Zone. “The U.S. presence will remind big countries to go slow and not forget about the responsibilities to their fellows.”

“Personally, I think it’s better for us. We feel a little more secure when Americans are around,” Geniza added. “We realize we are not as strong as some other powers in the region. In terms of our Air Force, we have more air than force.”

Added Renato De Castro, an international studies professor at De La Salle University in Manila, “We are faced with what we perceive as China growing more powerful, more assertive, [so] we simply have no choice but to rely on the offshore balancing role of the United States. This is a situation that we don’t like, but have to do, simply because we are faced with an emergent and certainly confident great power.”

Olongapo City Mayor James “Bong” Gordon, a strong supporter of more U.S. military presence, has been to countries like Singapore and Guam to lobby for stronger regional alliances with the U.S. He linked the region’s economic security to national security.

“We want a secured region,” said Gordon, “To secure the region, we want to host our military allies. We need the U.S. military to be the deterrent for the Southeast Asia region, and to patrol the waters. The Philippines cannot do it alone.”

- There is no such thing as absolute energy security, due to the globalized nature of the energy market and the complexity of energy geopolitics. With oil a globally traded commodity, unrest and disruption anywhere in the world has the potential to impact oil prices and supply everywhere.

- Nor is complete energy independence particularly desirable. Though presidents and politicians have long touted energy independence as a holy grail of sorts, in reality energy independence would make the United States an island and vulnerable to the threats that such isolation brings. It would also make the U.S. less of a leader around the world, affecting trade relationships with other countries and lessening U.S. influence and sway in those regions.

- The U.S. military has used force or the threat of force to protect its energy interests around the world, primarily in the Middle East, for more than five decades, safeguarding foreign oil sources and the sea lanes through which they pass. Oil has remained a vital U.S. national security interest, shaping America’s foreign policy toward many countries and regions.

- More than half of the world’s oil is transported by sea, making maritime security one the most crucial factors of energy security. Before getting to U.S. consumers and industry, oil leaves ports and harbors around the world and passes through global choke points – narrow sea lanes that are often highly vulnerable to disruption. Throughout history, the world’s largest choke points have been the target of attacks, including piracy, robbery, and mining by hostile nations. These vulnerabilities continue today, and in some cases are on the increase.

- Protecting oil tankers passing through the Strait of Hormuz, a key choke point, is extremely expensive. By some estimates, the United States has spent as much as $8 trillion on maintaining its military presence in the Persian Gulf in recent decades. But with greater domestic energy supply and Obama’s ‘pivot to Asia’ policy, America is reassessing its role in the region.

- The balance of power is shifting to the East. With burgeoning economies driving Asia to lead the world in net oil imports, emerging countries such as India and China are changing the global political landscape in the postmillennial era.

- The U.S. builds close relationships with oil-rich countries to help secure our energy supply, but it can also turn a blind eye to corruption, human rights abuses and other problems in those countries that can also undermine global security. Many argue that only if the U.S. becomes less dependent on foreign sources of oil can it firmly and effectively promote reforms in many of these oil-rich countries.

- The U.S. may be overlooking what people call its natural partner in energy security — Latin America. The region, home to many of the world’s biggest oil suppliers such as Venezuela, is close and much more stable than the Middle East. Several other nations there, such as Brazil, are on the cusp of becoming major producers. But because of the so-called U.S. disengagement in the region, Americans are losing opportunities in terms of energy security cooperation with Latin American countries, especially South American countries. This has potential negative long-term implications for U.S. energy security.

- In terms of technology, the U.S. has benefited greatly from the development of economical hydraulic fracturing and technologies to recover previously inaccessible heavy oil. Ongoing research and development of new technologies, such as the use of microbes to enhance oil recovery, is certain to greatly affect our future energy supply and help increase energy security.