Half of the world's oil transits through the Strait of Hormuz in the Persian Gulf are protected by two multi-billion dollar US Navy carrier battle groups and an array of other military infrastructure, material and personnel in the region that has the purpose of protecting US energy access. The world rides our coattails getting their oil compliments of our security expense. China, Japan, Korea, India and a host of other economic competitors bear little/no cost of global oil security. This is a huge competitive advantage to them economically.
During the campaign, Mitt Romney wanted to label China a currency manipulator. They are certainly an energy security mooch. They all come to expect that because the US Navy has aircraft carriers that will do the job. Most Americans and our leaders in Washington seem not to give it a second thought that they are subsidizing our trade partners through our Pentagon spending. I think that everyone getting oil from the Mid-East ought to pay the US a surcharge to reimburse US taxpayers for the cost of the security they are providing. It is not just money but the lives of Americans at risk. This to me is the primary reason why the US needs to become energy independent.
I have been stating that within just a few years that the Western hemisphere could be independent of Mid-East oil, in fact totally self-sufficient in oil and gas supply inside North and South America. Shale oil, fracking for oil and natural gas, Canadian tar sands development, North Dakota's Balkan fields, Brazilian under-water salt flats, the displacement of oil use with natural gas and biofuel development can make us totally independent of Mid-East oil in just a few years.
In fact, the International Energy Agency says that the US could overtake Saudi Arabia in oil production by 2020. New discoveries and new technology is unlocking heretofore unexpected domestic and hemispheric energy reserves that were not anticipated just a few years ago. Very shortly the US would have no reason for its own domestic oil security to have its Navy protecting oil transiting on the other side of the globe as none of it would be coming here. In fact, some see the US becoming an energy exporter. If China or Japan and others are concerned over Mid-East oil they should be the ones paying their Navy to protect it at their expense or replacing the US Navy in that task as we withdraw as our strategic interest ends there.
While I have been making this argument for some time that we were being taken advantage of, footing the bill for protecting everybody else's oil in the Mid-East, putting our Navy and servicemen at risk, I have not heard that theme expressed elsewhere in the economic or political discussion or other media sources until this week in an op-ed in the WSJ. Currently China gets 50 percent of its oil from the Persian Gulf; the US gets 20 percent.
Within a decade the IEA says that US oil imports will fall 50 percent and we would need nothing from the Persian Gulf. The WSJ put the cost to US taxpayers of providing the US 5th Fleet to protect the Mid-East sea lanes at between $60-80 billion each year. The US imports 10 million barrels of oil/ day, 3.65 billion barrels annually, from all sources. So there is a $16.50-$21.92 barrel cost if the military cost is attributed to all US oil imports.
In other words Mid-East oil is cost prohibitive. We cannot afford that oil. The small subsidy, now taken away, for biofuel was a pittance compared to what foreign Mid-East oil is really costing us. I have always noted that no F-16 fighter wing is required to fly an air-cap above mid-west US ethanol plants. Whatever problems that the Keystone pipeline was going to cause are minimal compared to the cost of importing Mid-East oil. We can be oil independent and save tens of billions in military budget outlays now going to defend our oil supply lines to the Mid-East.
A 2010 DTN/Progressive Farmer study comparing oil and ethanol subsidies found oil subsides ranging from .96 cents to $2.01 gallon compared to $1.24 gallon in ethanol subsidies.
The ethanol industry has since lost the blenders credit while oil subsidies continue intact. The oil subsidies did not include the cost of the US Navy securing the sea lanes in the mid-east. The US cannot afford not to achieve oil independence.
The great news is that we can now see our path to achieve that independence. The economic and political consequence of not needing Mid-East oil in the country's favor is enormous. The trade advantage held by China and others of letting the US protect their oil at no charge has to end. US oil independence is the fastest and best way to end it. Biofuel plays a substantive role in achieving that.
Now it is more than just me saying so.
David Kruse is president of CommStock Investments,Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage.