Trump’s energy rhetoric familiar but reality different
Washington - Donald Trump will not be the first US president to pledge to usher in energy independence for the United States at the expense of oil producers such as Saudi Arabia. Nor, if history is any guide, will he be the last.
All one need do is look back 43 years to president Richard Nixon, who, in 1973, announced Project Independence, the first national energy programme with the aim of bringing about US energy self-sufficiency.
Nixon’s announcement occurred one month after the October war and three weeks after Arab oil producers — all members of the Organisation of the Petroleum Exporting Countries (OPEC) — declared an embargo against countries supporting Israel in the conflict, helping create the first energy crisis of the 1970s.
The goal of Project Independence was for the United States to gain energy self-sufficiency by 1980. Virtually every American president since Nixon has claimed to have the answer to solving US dependence on oil imports but each has fallen far short of attaining that goal.
Current US reliance on oil imports is lower — at about 24% as of 2015 — than in 1973 (35%) or from the peak in mid-2000s (around 60%). Part of the steep drop in import dependency is the result of the recent shale oil revolution.
In March, Trump said in an interview that the United States “desperately needed” crude from the Arab Gulf a few years ago but now is on the verge of achieving energy independence thanks to the development of shale resources in places in the United States that “we never thought had oil”. Despite the boom in domestic shale oil production, the United States imports about 7 million barrels per day (bpd) of oil.
In a speech titled An America First Energy Plan delivered in North Dakota last April, Trump extolled the untapped oil and natural gas assets in the United States that, when developed, would allow the country “to become and stay totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests”, Trump said.
He also said that “we will work with our Gulf allies to develop a positive energy relationship as part of our anti-terrorism strategy”.
Trump had put Saudi Arabia on notice during the presidential campaign, however, by suggesting that, under his presidency, the United States would be prepared to stop importing oil from the kingdom if Riyadh did not contribute ground troops to fighting the Islamic State. He has also insisted that the United States was not being financially compensated for the military protection Washington has long provided many countries, including the kingdom and claimed that “without us, Saudi Arabia wouldn’t exist for very long”.
The Saudi government was obviously displeased with the suggestion of a potential US ban on Saudi oil, let alone the contention that Riyadh had been enjoying a free ride of US military protection. The day after Trump won the US presidential election, Saudi Oil Minister Khalid al-Falih diplomatically said in an interview that “at his heart, President-elect Trump will see the benefits [of Saudi oil imports] and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy.”
Falih added: “The US continues to be a very important part of a global industry that is interconnected, that is dealing with a fungible commodity which is crude oil.”
Riyadh has no choice but to take a wait-and-see approach towards the Trump oil ban threat. The mercurial president-elect has already walked back on several of his most strident campaign declarations since winning the election.
Trump’s rhetoric targeting Saudi Arabia can be chalked up to his trying to win votes with oil industry workers and catering to US independent oil producers who strongly supported his campaign and helped advise him on his energy policy. That policy currently favours lifting the moratorium on energy development on federal lands, removing “unwarranted restrictions” on new drilling technologies and reinvigorating the US coal industry.
Should Trump follow through with his threat to ban Saudi crude imports, which he could do through an executive order, there would be obvious consequences: Saudi Arabia provides the US market with 1.1 million-1.3 million bpd of oil, which is a sizeable enough volume that it would have to be made up for by imports from several other foreign producers that may also end up on Trump’s hit list. The Saudis would have little problem finding buyers elsewhere for its redirected barrels.
Another wrinkle in Trump’s threat to ban Saudi oil is that state oil firm Saudi Aramco has a healthy US downstream presence, including being the sole ownership of the 603,000 bpd Port Arthur, Texas, refinery after a joint venture breakup with Royal Dutch/Shell. The Port Arthur plant is the biggest producer of gasoline, diesel and other refined products in the United States. Should Saudi oil be banned from being processed at the refinery, the kingdom could retaliate by halting all production at the facility, causing a huge disruption in critical supplies that would reverberate throughout the United States.
Trump will have to consider these and other consequences before turning campaign rhetoric into policy actions.