By Kevin D. Williamson
Wednesday, July 24, 2019
Is the United States really energy independent? Is Iran?
As the two nations inch toward confrontation, the complexity of those questions
is worth considering.
Iran, like many petro-powers, had long maintained a
one-horse economy based on extraction. Oil and petroleum-related products
account for almost all of its exports — take those away, and you’re down to
fruits and nuts.
Iran has an awesome abundance of oil but for many years did
relatively little to develop its refining capacity, without which crude oil is
not very useful. That is partly the result of Iran’s having a feckless and
corrupt government and partly the result of sanctions that made building new
refineries very difficult. When the expansion of the Persian Gulf Star Refinery
at Bandar Abbas came on line in 2018, that doubled Iran’s domestic refining
capacity and greatly reduced the country’s gasoline imports. The Iranian regime
has declared the country liberated from the need to import gasoline, but it
currently disallows most exports, and the CEO of the state refining company
only a week ago decried the “prohibitive consumption” of gasoline — which is
now at a record level — suggesting that the domestic supply is not quite as
abundant as the ayatollahs would like.
Iran had been rationing gasoline as recently as 2007. The
Iran sanctions act of 2010 poked Iran in the tender spot of its gasoline
imports (about 40 percent of Iranian gasoline consumption at the time), with provisions
that would prohibit most gasoline and other vehicle fuel sales (aviation gas,
etc.) exceeding $5 million in any one-year period along with equipment or
services that would enable the domestic production or import of gasoline. One
of the criticisms of President Obama’s decision to lift sanctions on Iran in
2016 was that doing so might give Iran an opening to build out its refining
capacity, taking away a critical vulnerability.
While Iran has been expanding its refining capacity, the
U.S. oil industry hasn’t exactly been following suit. U.S. refining capacity is
up by about 1 million barrels a day over where it was a decade ago — not
nothing, but not a real dramatic line on the graph, either.
And that creates a potential vulnerability for the United
States.
President Trump has a natural affection for the oil
business. (That is not what we mean by crude and unrefined, Mr.
President!) But in spite of all the chest-thumping you hear from certain
politicians about how the country has become “energy independent,” that is not
really true. The United States imports billions of barrels of crude a year,
about a third of it from OPEC. At the same time, the United States exports a
substantial quantity of the stuff. That’s because most of the refineries in the
United States were built when the country was still obliged to rely very
heavily on imported oil, and so most of them are optimized to handle the “heavy
sour” stuff from abroad rather than the “light sweet” stuff from Texas. It is
not the case that a barrel of oil is a barrel of oil is a barrel of oil. “Every
single molecule from here on out has to be exported,” Cynthia Walker of
Houston-based Occidental Petroleum told the Texas Tribune.
If all cross-border trade in oil and petroleum products
were halted tomorrow, Iran would have some big problems. But so would the
United States, which very likely would end up sitting on a surplus of oil but
suffering shortages of gasoline and other fuels. The Trump administration
deserves credit for encouraging domestic oil production and for pursuing
regulatory reforms to help get government out of the way, but the
reelection-minded president also is dead set on pucker up and kiss the
collective buttocks of the Republican heartland’s politically influential corn
farmers and their ethanol bonanza. In fact, the American Fuel and Petrochemical
Manufacturers association is suing the administration over an ethanol expansion
that oil producers say exceeds the president’s authority to order.
When Hurricane Harvey walloped Houston in 2017, gasoline
pumps were dry in Dallas and points north, hundreds of miles away. The Colonial
pipeline, which carries gasoline and aviation fuel from Houston to New York
City, was shut down, as were several refineries feeding it.
Having oil in the ground isn’t enough. Drilling holes
isn’t enough. The process of turning crude oil into useful products and getting
those products to the people who need them is complicated. They know that in
Tehran. They know that in Houston. Let’s hope they know that in Washington.
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