How America's Enduring Oil Demand Sets Us Up for Middle East Trouble
I’m trying not to add to the noise and hope you’ll see this post as more about one faint signal amid the fog of an unfolding war.
Over and over and over again over the decades, Bill McKibben and others have made the point that cutting reliance on oil can create a less perilous world. (See McKibben’s recent post at the end of this dispatch.) I first did so in that 1991 op-ed I wrote titled “What if All The Oil Burned Away?”
(Boy does that article reverberate after the American and Israeli assault on Iran ignited terrifying infernos at refineries and storage facilities in Tehran.)
It’s one thing for journalists or campaigners focused on climate change and fossil fuel pollution to make this point. What’s more notable to me now is that The Wall Street Journal has an article by Carol Ryan and Jinjoo Lee centering on the issue — in particular noting how much more dependent the United States remains on petroleum than peer countries. Here’s an excerpt (highlights are mine):
[T]he global economy needs around half as much crude as it did a few decades ago to generate $1,000 of economic activity. Cars are more efficient, alternative fuels are available and economies have shifted toward services, which aren’t as energy intensive as manufacturing.
But the U.S. economy is still more reliant on oil than others: U.S. oil intensity is twice as high as the European Union and 40% higher than China’s, according to Rosemary Kelanic, director of the Middle East Program at think tank Defense Priorities. This is largely because the U.S. doesn’t have much public transportation or electric-vehicle adoption.
The story does note the economic flip side — that pricier oil means more profits from America’s ample oil (and natural gas) exports:
America’s oil production has ballooned, so the economic lift from rising energy prices will be sizable. Since 2010, U.S. liquids production has increased by more than Saudi Arabia’s entire output. However, the sector’s windfall may not be enough to offset the drag on other parts of the economy.
And, as Roger Pielke Jr. notes in a running series on “the shrinking economic weight of energy,” the “gasoline expenditure intensity peaked at 5.1% of GDP in 1980 — meaning that about $1 out of every $20 of spending in the overall U.S. economy went to paying for gasoline. By 2024 had fallen to ~1.5%, a 70% decline in the economic burden of gasoline spending.” Here’s his graphic:
The political intensity of pump shock
But I’ll wager that the background cash inflow from U.S. oil exports and low “gasoline expenditure intensity” won’t blunt the political intensity as average folks refill their cars and trucks in the weeks ahead.
The soaring price of diesel will hit truckers particularly hard. I made the point this way on X/Twitter.
And, ultimately, the prospects for a renewal of inflation way beyond the mobility sector are substantial, according to a heap of wonks. That’s because oil and gas underpin a vast array of products and services.
I’m setting up a Sustain What webcast with Gaurab Chakrabarti, the CEO of Solugen, a Texas-based company that, among other things, synthesizes a host of important compounds from non-fossil feedstocks. Here’s one of the points he made on X over the weekend:
The Strait of Hormuz has been closed for 8 days. Everyone thinks this is about oil. This is about what oil becomes. 92% of the world's sulfur comes from refining oil and gas. Close the Strait of Hormuz and you don't just lose 20 million barrels of crude per day. You lose the feedstock for sulfuric acid, the single most produced chemical on Earth. Sulfuric acid is how we extract copper. It's how we extract cobalt. Without it, you can't make transformers, EV batteries, or the substrates inside every data center on the planet. One chemical, made from one feedstock, shipped through one chokepoint. The cascade goes further: Qatar ships 30% of Taiwan's liquefied natural gas through Hormuz. Taiwan has 11 days of reserves left. TSMC, the company that makes 90% of the world's advanced chips, draws 8.9% of Taiwan's total electricity. No gas, no power, no chips. Then food. 33% of the world's nitrogen fertilizer feedstock moves through the Strait. Half of all humans alive today exist because of synthetic nitrogen. Sulfur, semiconductors, food. That makes three supply chains, one 21-nautical-mile chokepoint, and zero domestic alternatives at scale.
Of course this could all be resolved in a hurry if supertanker captains and their corporate bosses were to heed Fox News host Brian Kilmeade’s plea about the Strait of Hormuz this morning: “[I]f you want to make sure this ends with complete Iran capitulation, show some guts and go through that Strait."
I think he should stick to piloting golf carts.
And here’s Bill McKibben:
