How America's foes have us "over a barrel" — of oil

WASHINGTON —

If Iran succeeds in building nuclear weapons, it will be paid for in part by American drivers.

With oil prices and global oil consumption at near-record levels, the radical Islamist government in Tehran is raking in more than $68.4 billion a year in oil revenues, helping it finance its nuclear program and underwrite terrorist operations against American soldiers in Iraq and elsewhere across the Middle East.

And with global oil markets sucked dry of excess by growing consumption worldwide, even a small disruption in the flow of oil would drive prices through the roof and stagger the world's economies.

The United States does not buy oil directly from Iran. But the disappearance of Iran's 2.5 million barrels per day from the world's oil markets would be felt acutely in the United States, probably costing 1 million jobs, according to Orde Kittrie, a former State Department official who teaches economics and international law at Arizona State University.

"America's enemies literally have us over a barrel," he says.

America's unchecked appetite for oil is seriously jeopardizing U.S. security, despite the billions of dollars the U.S. spends to safeguard steady access to cheap oil.

Americans spend $1 billion every weekday on imported oil. Many of those dollars are used to frustrate critical U.S. diplomatic goals, underwrite terrorist organizations and finance jihadist movements in the Middle East and southern Asia.

America's demand for oil makes it rely on such U.S. antagonists as Venezuela's Hugo Chavez and leaves the U.S. economy vulnerable to terrorist attacks on oil facilities — such as have recently occurred in Nigeria and Saudi Arabia — that disrupt supply and send prices skyward.

"These countries know we need their oil, and that reduces our influence, our ability to keep the peace in some areas," Bush said in a speech to the Renewable Fuels Association on Tuesday. "And so energy supply is a matter of national security. It's also a matter of economic security."

With intensifying international demand for oil — especially in China and India — Americans have little choice about where their oil comes from. Galloping increases in global consumption are running ahead of conventional production. So far, the gap is being filled with more costly oil production from shale and coal, for instance.

The tight oil markets have little excess to absorb even temporary disruptions in supply, petroleum experts say. Though the United States currently has a near-record inventory of crude oil on hand, that's a mere three-day supply.

In a recent study of oil markets at Stanford University, experts concluded there is an 80 percent chance of a significant oil shock within a decade, spreading recession and unemployment across the nation. A prolonged disruption of the West's oil supplies is a key goal of al-Qaida, according to manifestos from Sept. 11 mastermind Osama bin Laden. Just two months ago, al-Qaida terrorists struck at the world's largest oil-processing facility at Abqaiq, Saudi Arabia.

The attack failed, but "Saudi oil production remains extremely vulnerable to sabotage," said Simon Henderson of the Washington Institute for Near East Policy, a nonprofit think tank.

Even a minor attack could have major impact. Massive oil tankers, which navigate narrow channels like the Persian Gulf's Strait of Hormuz and the Strait of Malacca on the main shipping route between the Indian and Pacific oceans "are vulnerable to small, fast boats," Henderson said. "Any serious damage would send panic around the world even if the physical disruption to supplies is small."

Experts say that within the context of what Americans really pay for oil, significant new investments in alternatives begin to make sense.

One recent study by the National Defense Council Foundation, a nonprofit think tank in Alexandria, Va., estimated that Americans pay $8.36 per gallon, far more than the actual pump price of gasoline, for such indirect costs as maintaining a military capability to keep oil flowing from the Persian Gulf and the opportunity costs of sending money to foreign suppliers rather than spending it at home.

The United States maintains a naval fleet in the Persian Gulf for oil security and has based troops there since the 1980s, a major presence cited by bin Laden as evidence of the United States' "crusade" against Islam.

The war in Iraq is often justified by U.S. officials as necessary for stability in the region. This year the war will cost $9.8 billion a month, according to the Congressional Research Service.

"These hidden costs are an enormous economic drain on the economy," said Milt Copulos, president of the National Defense Council Foundation.

But given some government help, ethanol production in the United States has a bright future, say experts like former CIA Director James Woolsey.

Woolsey, who tools around Washington in a hybrid gas-electric Toyota Prius, says using cellulosic ethanol made from cheap plains grasses rather than corn could bring the cost of driving down to 50 or 60 cents a gallon.

Other steps might include a tax on gasoline to dampen consumption, or a dramatic increase in fuel efficiency standards for American automakers.