ETHICS OF DEVELOPMENT

ETHICS OF DEVELOPMENT

IN A GLOBAL ENVIRONMENT

Winter 2003

Stanford University

Decreasing the West’s

Dependence On

Middle Eastern Oil

Josiane Gabel

SUID: 4754156

I have followed the Honor Code.

Western Dependency

In this paper, my definition of “the West” may differ from the usual grouping of countries under that designation. I include the United States, Western Europe, and Japan. I have made this grouping for several reasons. First, these states are some of the largest market forces of the world, with the highest economic status. Second, they are top importers of oil, mostly from Middle Eastern states. Of the top eight oil importers in the world, all but 2 of them are “Western” nations. In decreasing order of net imports, they are: the U.S., Japan, Germany, France, Italy, and Spain (the other two main importers are South Korea and China). Third, these countries have the most to lose from their excessive dependence on Middle Eastern oil and price fluctuations.

Of these countries, my focus throughout this paper will largely be on the United States. Here, since September 11 and the “war on terrorism” began, increased interest in the countries of the Persian Gulf has renewed concerns over the security of oil supplies. These concerns have been accentuated since a strike in Venezuela disrupted supply, and the threat of a war in Iraq raised the question of our country’s dependence on imports to satisfy our huge demand for oil. The U.S. consumes over ¼ of the oil produced worldwide.[1] In January 2002, U.S. oil demand was about 18.5 million barrels per day, the equivalent of about 777 million gallons of oil. Of the 18.5 million barrels consumed, only 5.9 million had been produced domestically, the rest being imported.[2] The U.S., as a member of the International Energy Agency, is required to hold stocks of oil equal to at least 90 days of its net imports.[3] This capacity includes the U.S. Strategic Petroleum Reserve, which currently holds approximately 570 million barrels of oil – enough to cover the loss of all imports for 54 days. These figures show the extent and time-frame of our dependence on imports.

It is important to note that the Middle East does not have a monopoly over world oil production. The world’s oil supply comes from a wide variety of sources, with the Middle East producing 29% of the total, followed by North America (accounting for 20%) and the remaining 51% fairly evenly distributed throughout the world.[4] However, the Middle East holds its power over oil supplies from the fact that it is home to the largest OPEC producers. The Organization of Petroleum Exporting Countries (OPEC) accounts for almost 40% of world production. Member countries include: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Not counting Indonesia, these members' net exports averaged 85% of total oil production in 2001.[5] Some of the other major producers of oil have seen their production decline, such as the U.S., which is producing about 6 million barrels/year, down from 8-9 million in 1986. The former USSR, once the world’s largest producer, saw its production plummet in 1992, declining more than 30% relative to its 1988 production.[6]

The future portends that the Middle East will strengthen its domination of the world oil market. According to January 2002 estimates, 80% of proven world crude oil reserves are located in OPEC member countries – a far higher concentration than current oil production. Here is a distribution of some of the largest oil reserves worldwide:

World Crude Oil Reserves, as of January 1, 2002:[7]

North & South America: US: 22.4 billion barrels, Mexico: 26.9 billion, Venezuela: 77.7 billion

Western Europe: Norway: 9.4 billion, United Kingdom: 4.9 billion

Eastern Europe: Russia: 48.6 billion

Middle East: Iraq: 112.5 billion, Saudi Arabia: 261.8 billion, United Arab Emirates: 97.8 billion

Africa: Lybia: 29.5 billion, Nigeria: 24 billion

Asia: China: 24 billion

It is worth noting Saudi Arabia’s more than 250 billion barrels of proven crude oil reserves, compared to the United States’ less than 25 billion. The U.S.’s Energy Information Administration warns that, “because non-OPEC countries' smaller reserves are being depleted more rapidly than OPEC reserves, their overall reserves-to-production ratio – an indicator of how long proven reserves would last at current production rates – is much lower (about 15 years for non-OPEC and 80 years for OPEC). This implies increased OPEC production as a proportion of world production over the long term.”[8] Thus, the West as a whole is largely dependent on oil production by the Middle East, and will continue to be dependent as long as its oil demand remains high and the Middle East holds the vast majority of reserves.

The Stakes of Dependence

The stakes of the Western world’s dependency on the Middle East are high. The Middle East is a volatile region, where local and regional conflicts can disrupt oil production. Additionally, Arab states in the Middle East are often hostile to the Western world’s culture and politics. Such instability means that the price and supply of oil to the West can often be the cause of uncertainty and concern.

OPEC member states together yield power over the oil market because of common characteristics that set them apart from non-OPEC producers. Their oil industries are mostly nationalized, allowing their political establishments to decide on production increases or decreases. Thus, OPEC manages a large part of the world oil supply, and therefore, the organization can also manage oil prices. Since member states tend to rely heavily on their revenues from oil, they affect prices in ways that meet their economic and/or polical goals.[9] Non-OPEC countries, on the other hand, have private oil sectors (the most important exception being Mexico) that react to market forces and price expectations without governments being able to exert control over production levels. As a result of these important differences, consumers would turn to OPEC rather than to private companies to make up for losses in the case of a severe disruption of world oil production.[10]

Unfortunately, this reliance on Middle Eastern states and our vulnerability to their fluctuations in production and prices can have grave consequences. For their economic security, it is crucial that Western states strengthen their ability to respond to disruptions of oil supplies. Our economic and political interests are at stake whenever OPEC countries make decisions concerning supply and prices. Moreover, the conflict-prone region always threatens to disrupt the oil market should political instability provoke an oil crisis, with effects that would strike the rest of the world. The current U.S. National Energy Policy states: “A significant disruption in world oil supplies could adversely affect our economy and our ability to promote key foreign and economic policy objectives…” Thus, there is an economic as well as a political dimension to our links with the Middle East.

There is an additional stake in this dependence. Virtually all major Western importers of oil have at some time compromised their nation’s ideals for the sake of maintaining diplomatic relations with oil suppliers. This is more or less visible, and it has always been understood as an inevitable fact. Today, however, the U.S.’s attitude toward the Middle East shows with shocking clarity how much economic interests can distort foreign policy. The U.S. must consider the ethical dimension of its dependence on trade with the Middle East. Under the guise of enhancing our national energy security, we have strong ties with states against which we should have virulent criticism. Indeed, if we were unconcerned with oil, our relations with Saudi Arabia, Yemen, and the United Arab Emirates would surely not be the same. Yemen and the UAE are known to violate human rights and to have harbored terrorists. Saudi Arabia presents a particularly provocative case, since it is known to be the country of origin of 15 of the 19 hijackers on 9/11, and of Osama Bin Laden himself.

Our ties with these countries present significant ethical questions, since we could potentially be at war with countries that, instead, we support for the sake of commerce. The U.S. National Energy Policy talks of the importance of our diplomatic relations with these states and the importance of “shared security commitments” as well as “broadening our shared commercial and strategic interests.” Emphasizing our ties with countries that have tarnished records, while waging a “war on terrorism” that stands for freedom and human rights, seems hypocritical at best. The National Energy Policy is even explicit about its consideration of oil interests when deciding on sanctions. It states: “Sanctions should be periodically reviewed to ensure their continued effectiveness and to minimize their costs on U.S. citizens and interests… Energy security should be one of the factors considered in such a review.”[11]

The ethical questions posed here become even more important to address when war and peace are at stake, as is the case today. There is no doubt that the United States and its Western allies would not have attacked Iraq in 1991, in response to its invasion of Kuwait, if the latter had not been an important supplier of oil. Similarly, it is unlikely that the current U.S. administration would be so concerned with Iraq today if Iraq did not have some of the world’s largest crude oil reserves.

I have tried to show why it is so important for the West to decrease its dependency on Middle Eastern sources of oil. The reasons are clear, and few in the West would deny that more independence would be safer economically and politically. However, the options available to the West to decrease this dependency are more problematic. In the next section, I address basic ways in which declines in oil dependency and consumption can be achieved.

Decreasing the West’s Dependence on the Middle East

Much thought, money, and diplomatic effort is invested in the hope of diversifying sources of oil supplies. Fortunately, there is good potential for non-OPEC production to rise in coming years. Production in Canada, the U.S., and Mexico is expected to grow, as well as in Latin America and the Caribbean. North and South American production has the advantage for the U.S. of proximity and close ties throughout the area. Other regions of the world also present strong potential. Notable increases in oil production in the Former Soviet Union have shown hopeful signs in recent years. Russia was once the world's largest oil producer, until production collapsed in 1992. It has since rebounded, and the country could be in a position in the future to regain its status as the leading global producer.[12] Offshore exploration in the Caspian Sea could also endow Kazakhstan and Azerbaijan with significant reserves that could be more easibly exported as transport routes are developed.[13] Offshore exploration is also expected to increase in the Atlantic Basin, from Canada to Brazil to West Africa, and to continue in the North Sea, which remains a critical element of the diversity of our oil supplies.

Diplomatic initiatives in the interest of oil are increasingly obvious between the U.S. and African states. Indeed, West Africa is expected to be one of the fastest-growing sources of oil for the American market.[14] Nigeria, which is already sub-Saharan Africa's largest oil producer, is setting ambitious targets for itself to significantly increase output. The U.S. has been trying to apply pressure on Nigeria to leave OPEC, in order to reep benefits from this greater level of production. Angola is sub-Saharan Africa's second-largest producer behind Nigeria. Its oil production began to rise in late 2001, and is projected to keep growing thanks to offshore development. In fact, it is thought to have the potential to double its exports over the next ten years.[15]

               These are hopeful developments that could prove crucial to the United States and to the West in their efforts to decrease dependence on the Middle East. However, considering the vastly superior capacity and proven oil reserves in the Middle East, displacing trade can not be a lone solution. The current administration, mindful of shifting oil supplies away from the Middle East in this time of political instability, has made an important goal of increasing domestic oil production. Our National Energy Policy is unambiguous: “The first step toward a sound international energy policy is to use our own capability to produce, process, and transport the energy resources we need in an efficient and environmentally friendly manner.”[16] Unfortunately, there is a fundamental tension between two parts of this statement. First, the environmental effects of drilling in areas coveted by the Bush administration, in particular the Arctic National Wildlife Refuge in Alaska, has caused an uproar because of the devastation inflicted on pristine and valuable wildlife in a 1.5-million-acre refuge. Second, the energy resources extracted here would last no more than six months at current consumption rates.

This paper argues that increasing domestic production, thereby endangering natural habitat without satisfactory output, is not the right solution to the issue in question. The next section of this paper brings up a very different kind of solution, which nevertheless faces equally, if not more, obstinate barriers: decreasing our consumption of oil as a source of energy.

Lowering Consumption of Oil

Lowering Americans’ consumption of oil seems a daunting task. Industries and individuals who rely on traditional energy supplies, and are accustomed to a lifestyle that consumes a lot of oil, will put up major barriers to many of the strategies attempting to lower oil demand. Yet there would be substantial economic, political, and environmental benefits if we increased energy efficiency and used more renewable sources of energy. This worthwhile goal requires massive investment in research and development of new technologies, followed by efforts to implement them in everyday life.

Transportation has been responsible for nearly all of the increase in oil consumption in the West over the past twenty years, and will continue to be the main factor of growth in the next two decades. The U.S. faces a particular hurdle that is not as high in other Western countries: a lifestyle that values the freedom associated with personal vehicles, and appreciates large cars with very high fuel consumption – SUVs, the infamous “gas guzzlers”. According to a recent editorial in the New York Times, if we merely required SUVs to meet the same fuel economy standards as ordinary cars, we would save one million barrels of oil a day – more than the Arctic National Refuge could produce at peak volume. However, reluctance to implement this type of policy, despite knowledge of the facts, shows that the U.S. attitude generally does not take into account the detrimental externalities of individual freedoms, such as driving unnecessarily large cars.

European countries do not face the same scale of oil consumption, as a result of a lifestyle that sees the absurdity in purchasing more fuel than strictly necessary. European states have imposed extremely high taxes on fuel, providing incentives to use public transportation and buy cars with good gas mileage. Japan has also resorted to effective methods of decreasing fuel consumption. The Japanese dominate the market of hybrid cars, which achieve remarkable fuel efficiency (40 or more miles per gallon) by combining a gas engine and electric motor. The Japanese are threatening to flood the U.S. market with its hybrids, showing that there is potential demand for more fuel-efficient cars if they are brought into the market in attractive models and at reasonable prices.

Numerous technologies have been researched and tried throughout the West, with varying results. Electric/battery operated cars were widely tested, but found not to be a feasible alternative. The recharging process proved to be long, inconvenient, and simply shifted the oil consumption, pollution and costs to electric plants. Cars running on solar energy were also given attention, but presented the obvious problem of intermittency: solar energy is not reliable to produce the amount of energy desired at the time desired, because of outside factors that can not be controlled, such as foggy days and night-time. A more feasible option, especially invested in by the Europeans, is ethanol fuel, which has the great benefit of shifting part of our demand from oil to living plants. Ethanol is a mature technology, and deserves to be further invested in and improved.

Currently, our attention is fixed with tremendous optimism on the potential presented by hydrogen-powered cars. Indeed, on the face of it, the technology is extremely attractive. There are no emissions by the car, since the only biproducts of the chemical reaction between hydrogen and oxygen are heat and pure water vapor.[17] President Bush has glowingly endorsed the fuel cell technology, and pledged to double government spending on research in the next five years (an offer of $1.7 billion). However, despite the attention that hydrogen technology is receiving, what is not being said is that this technology will not reduce oil consumption. Indeed, the creation of hydrogen fuel requires as much energy as regular cars. Therefore, the technology is just displacing emissions. Moreover, rates of efficiency are low: the efficiency of converting petroleum to electricity is about 35%, the efficiency of converting electricity to hydrogen is only about 30%, and in the car there is again about 30% efficiency of converting hydrogen to power. Thus, the technology is not efficient and presents no potential of lowering fuel consumption. Furthermore, the huge cost of this technology will be prohibitive for years to come, and the issue of safety of hydrogen would have to be addressed. Thus, significant technological and economic hurdles remain.

In political terms, the obstacle is presented by large industrial sectors that benefit from President Bush’s policies: the defense industry receives money that is invested in research on hydrogen (probably Lockheed Martin); the steel industry benefits from the popularity of SUVs; the petroleum industry benefits from high demand for oil. These industries are powerful lobbies that will not let the administration make significant cuts. So far, the administration is responding: One of President Bush's proposed tax cuts, as part of his economic stimulus plan, would raise from $25,000 to $75,000 the amount small business owners – including doctors, lawyers and financial advisers – can get in tax cuts when buying an SUV for business purposes. As a result, businesses choosing between a car and an SUV have a greater incentive to choose an SUV, since ordinary cars are not eligible for this deduction.[18]

Thus, there are many complicated barriers to making cleaner technology available. However, today’s global political climate makes clear that this is the time to face our dependence on oil imports. These imports are going to keep coming from the Middle East – a region whose oil production fluctuations leave us at the mercy of their political instability. It is time to invest in feasible alternatives and renewable sources of energy, but also to take into account that lifestyles can affect national security.

[1] National Energy Policy, www.whitehouse.gov, p.8-3

[2] Gibson Consulting, http://www.gravmag.com/oil.html, accessed 2/6/03.

[4] Energy Information Administration, U.S. Department of Energy, http://www.eia.doe.gov/emeu/cabs/nonopec.html, accessed 3/11/03.

[7] Oil and Gas Journal, quoted in Energy Information Administration/ International Energy Annual 2001, p.111

[17] California Fuel Cell Partnership, http://www.cafcp.org/whatis.html, accessed 2/26/03.

[18] Jeff Plungis, “SUV Tax Break May Reach $75,000” (The Detroit News, January 20, 2003)