Egypt and the Gas Pump
Samuelson, Robert J., Newsweek
Byline: Robert J. Samuelson
Do revolutions mean higher oil prices?
Never underestimate Americans' capacity for denial. The upheaval in Egypt reminds us of lessons that, despite decades of warnings, we have consistently sidestepped: the United States and the rest of the world will depend on oil for the indefinite future, global oil markets remain hostage to political crises that cannot be predicted or controlled, and we have not taken the prudent steps that would reduce--though not eliminate--our vulnerability to catastrophic oil interruptions.
Just what Egypt's crisis will do to oil markets is, as yet, unclear. Driven by cold weather and strong demand from developing countries, oil prices were already increasing before Egyptians took to the streets. After averaging about $2.80 a gallon for most of last year, U.S. gasoline prices pierced the $3 barrier in December. Prices rose further on the turmoil, but the gains could be short-lived. Egypt produces only about 700,000 barrels a day. That's not much compared with global demand of nearly 90 million barrels daily (mbd). If all of Egypt's production halted, it could be replaced because the world now has about 4 mbd of surplus capacity elsewhere.
A greater risk involves oil shipments. The Suez Canal and the Sumed (for Suez-Mediterranean) pipeline together now move about 3 mbd between Asia and Europe. If these supplies were blocked, prices would almost certainly rise. But, again, accommodations would be made. Tankers would be rerouted; shipments via other pipelines would increase.
The real flash point would occur if a cascade of political turmoil cut production from major suppliers: Saudi Arabia (present output: 8.5 mbd), Kuwait (2.3 mbd), Iran (3.7 mbd), Iraq (2.4 mbd), or Algeria (1.3 mbd). This danger will remain no matter how the present crisis ends.
What can we do? Well, two things: decrease oil consumption, preferably by a stiffer gasoline tax, and in-crease production, preferably by less hostile regulation. The Obama administration isn't doing either. Instead, it's touting a goal of 1 million plug-in electric hybrids by 2015. …