Is America Prepared for a Saudi Oil Crisis?

Mike Brownfield

April 10, 2012

Think fueling up your car at $4 a gallon is rough? How would you feel about paying more than $6.50? Add on top of that massive job losses and a drastic drop in U.S. economic productivity, and you’ll get the picture of what life in America would be like if oil stopped flowing from Saudi Arabia.

It’s a scenario that’s not entirely out of the realm of possibility. Over the past year, the world has watched the Arab Spring spread across the Middle East, toppling regimes in Tunisia, Egypt and Libya. Were massive social upheaval to strike Saudi Arabia, the conditions could be ripe for the country’s oil spigot to be shut off to the Western world.

Heritage Foundation scholars devised a hypothetical scenario of what such an uprising would look like, the consequences the world would suffer, and steps the United States could take to avert an economic catastrophe. But because of America’s dependence on foreign sources of oil, pain cannot be entirely avoided. In the Heritage hypothetical, reformers in Saudi Arabia would begin to voice their calls for genuine democracy, transparent government, equal rights for women, and greater political, social and personal freedoms. Their messages would begin in social networks like Facebook and Twitter, and they would grow into grassroots uprisings on the streets. Shi’a and Sunni religious radicals would join in, the crowds of protesters would swell, and ultimately Saudi forces would clamp down, firing on the peaceful protesters in order to quell the uprising. And this is where all hell would break loose.

Watching from afar, Americans would learn of protesters seizing oil fields and attacking infrastructure. Fighting would damage key energy facilities, Iran would stoke the conflict by providing Saudi Shi’ites with money, arms, propaganda support and training, and ultimately the Saudi dynasty would collapse as a new Islamist regime rises to power. Wahhabi clerics and elements connected to al-Qaeda in the Arabian Peninsula would seize power and expel all non-Muslim foreign workers. With the loss of skilled workers, all Saudi oil production would cease — along with oil exports.

And here is where the damage to America would begin. Even with tapping the Strategic Petroleum Reserve (SPR), the United States couldn’t compensate for the loss of oil. (And it would be worse off if the SPR were prematurely released for political purposes).

Gasoline prices would jump to more than $6.50 a gallon at current market levels, petroleum prices would climb from $100 to more than $220 per barrel, more than 1.5 million jobs would be lost, and by the time energy markets recover, America would lose $450 billion in GDP.

In the event of an economic crisis like this, Heritage experts write that the free market is the best instrument to ride out the storm, and that government’s task is be prepared to support that effort rather than to jump in and try to tell markets what to do. Here at home, the government should tap the SPR while also permitting the development of North American natural resources — that means opening up lands in the Arctic National Wildlife Refuge and offshore in the Pacific, Atlantic and the Eastern Gulf of Mexico. In addition, the government should allow the construction of infrastructure like the Keystone XL pipeline to deliver petroleum to suppliers. And since these resources take years to develop, Heritage’s experts recommend that the U.S. government begin to pursue these policies today so that America can be prepared to absorb a disruption of its energy supply.

There are other measures, too, that the United States should take. The military must stand ready to ensure that trade through international waters — such as the Strait of Hormuz — can continue. On a diplomatic front, the United States should lead international efforts to mitigate the crisis and work to ensure that allies and friends don’t strike separate deals with other resource-rich countries, such as Iran and Russia. Their demands, in return, would be contrary to U.S. interests.

Heritage’s experts warn that, “A crisis in Saudi Arabia would have drastic implications for the United States, its economy, and the whole world.” There are steps the U.S. government can take today to help America become less dependent on foreign sources of oil. And in the event of a crisis in which the oil stops flowing from overseas, Washington must prepare for domestic and international efforts to soften the blow to the American people.

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