Oil dependent economies are vulnerable at all times, but especially during wartime in the Mideast | From energy dominance to energy vulnerability

Gasoline prices here have gone up about 25% since the start of the War with Iran.  And Salt Lake has five refineries refining oil produced in Utah, Wyoming and near by states.

It's hardly news that oil is a worldwide commodity, and even though it is produced and refined all over, world prices are set in Europe and the US and factor in supply risk.

The War ("Why Escalation Favors Iran," Foreign Affairs).  From the article:

The strikes that have killed Iran’s leadership demonstrated tactical mastery. Tactical mastery, however, is not strategy. Iran’s retaliation—geographically broad, economically disruptive, and politically calibrated—aims to reshape the conflict’s structure. By widening the theater and prolonging the war, Tehran is shifting the contest from a battle of military capabilities to one of political endurance.

As in Vietnam, the United States may win most engagements. As in Serbia, it may ultimately prevail after sustained pressure. But in both cases, the decisive arena was not the initial shock of airpower. It was the politics of an expanding war.

The decisive phase of this war began not with the first strike but with the regional crisis that followed—air defenses activated across multiple capitals, airports suspended, markets jolted, and alliance politics strained. Whether this conflict is merely a contained episode or it becomes a prolonged strategic setback for the United States will depend not on the next volley of missiles but on whether Washington recognizes the enemy’s unfolding strategy—and responds with one of equal clarity.

Energy independence as a form of dependence.  Even though the US is now the largest producer of oil in the world, under the Trump Administration it has promulgated policy that prioritizes fossil fuels and diminishes renewable energy sources  ("Trump Returns to Gasoline as Fuel of Choice for Cars, Gutting Biden’s Climate Policy," New York Times, "The owners want to close this Colorado coal plant. The Trump administration says no," NPR).

The Administration is also all in on nuclear energy, which isn't a fossil fuel per se, but is an extremely expensive form of energy, not once a plant is open, but the cost of building fission facilities has bankrupted many firms over the years.

Even though renewable sources diversify the energy mix and reduce system vulnerability ("Trump order halts offshore wind projects for at least 90 days," PBS, "Trump administration quietly canceled the nation’s largest solar project," CNN, "Wind and solar power frozen out of Trump permitting push," Reuters)  For example, electric vehicles are much less dependent on oil as the base fuel for electricity generation.

The Administration calls this "Energy Dominance" but "Energy Dominance" can just as easily be robust and include non fossil fuels as part of the mix ("Energy Dominance or Renewable Resilience?," German Marshall Fund, "Power up! Why the US needs every energy source to stay dominant," ING Bank, "Donald Trump’s call for ‘energy dominance’ is likely to run into real-world limits," AP, "How Trump’s ‘Energy Dominance’ Agenda Is Dominating You With Dirty Energy," The Contrarian).

Plus US nominal control of oil in Venezuela and Canada ("Trump Now Has His Very Own Oil Empire," Bloomberg).

Let’s do the math. Start with the oil production of the US and add Canada. Then include Venezuela and the rest of Latin America, from Mexico to Argentina and everywhere else in between: Brazil, Guyana, Colombia. Like it or not, all of them are living under the “Donroe Doctrine” — an increasingly belligerent Washington’s sphere of influence over the Americas. Together they account for nearly 40% of the world’s oil output.

... Having de facto control of the Western Hemisphere’s petroleum wealth is a geopolitical game changer. For decades, US military adventurism was constrained by the impact of any war on energy costs. Today the White House has primacy over oil-producing allies and adversaries alike — whether it’s Saudi Arabia or Iran, Nigeria or Russia.

The US and China and global preeminence: Does it come down to energy policy?.  Another way to think of this is as looking forward versus looking backwards, a classic example of Alexander Gerschenkron's thesis that over time newer economies have an advantage in being able to invest in new technologies without incurring huge stranded costs.

China still buys a lot of oil, and they use coal powered electricity because of large domestic supplies.  But the focus on EVs is just one of China's green energy policies ("China, the climate superpower," "China, Energy and Climate: The Time has Come," special package, The Economist, "How China came to dominate the world in renewable energy," Washington Post).

As a slogan, “energy dominance” evokes images of the United States towering over the rest of the world, with prodigious production, as what Trump calls “a global energy superpower.” But the truth of energy dominance has nothing to do with empowering folks at home.

The administration has been rigging the game in favor of dirty energy — and giving fossil-fuel producers a license to dominate American consumers. In the process, Trump is boxing U.S. households out of cleaner alternatives and leaving Americans with less choice, higher energy bills, and an overheating climate.

Worse, by hobbling America’s green-energy industries, the administration is destroying jobs, even as it clears a path for China to dominate the next generation of energy production.

... A study out of Princeton University finds that Trump’s signature “Beautiful Bill” will reduce capital investment in our electrical system and clean fuels by half a trillion dollars over the next decade. It will also slash future solar capacity by about 140 gigawatts and wind capacity by about 160 gigawatts. (The Hoover Dam, by comparison, has a capacity of about 2 gigawatts.)

Plus the effect on jobs ("‘Deeply demoralizing’: how Trump derailed coal country’s clean-energy revival," Guardian).

Ethanol and other bad decisions.  Granted the US has some dumb policies.  One is the support of ethanol production as a feedstock for gasoline.  Unlike in Brazil, where the feedstock is used up sugar cane, here we spend money growing corn to convert to ethanol.  

Ethanol has less energy compared to gasoline.  So we're dedicating farmland to gasoline, which has a negative cost benefit.

And EVs primarily powered by coal and natural gas are less sustainable than those pow ered by renewables.

Ending EV tax credits forces the US automobile industry to double down on gasoline powered cars, while China and increasing Europe are shifting to EVs in substantive ways.  (Part of the concern in Europe is getting cleaner air--many of their cars are diesel, and comparatively high when it comes to polluting).

The Strait of Hormuz is extremely vulnerable.  While only 20% of the oil produced in the Mideast passes through the Strait, 80% goes to Asia, and 100% of Liquid Natural Gas to Europe, airplane fuels too.  Also 33% of fertilizers ("American farmers dealt new blow as Trump's Iran war escalates," Newsweek), and of course other goods.

That increases vulnerability across the globe, separate from the impact on the US economy, which isn't just on the cost of gasoline, but on farming, the transport of goods, the production of chemicals and other products, etc. ("Saudi Arabia Starts Oil Cuts as It Races to Reroute Exports" Bloomberg).

The lessons from the 1970s oil shock.  During the Israeli-Arab War and later in the decade, Middle Eastern Countries significantly raised the cost of gasoline, and took control of production and sale from the multinational oil companies.

I have often written that the US mobility paradigm is pretty much homogeneous in that it decidedly supports automobility and provides dribbles of support to other modes.  

By contrast, Germany, a leading car manufacturer (but not much of an oil producer), has a heterogenous policy.  It supports cars to the max, especially with its no speed limit autobahns, but recognizes cities are best served by transit, supports regional rail service despite its love of autobahns, and walking and biking--the Federal Biking Plan for the county is one of the best.

I contrast Denmark and Netherlands to the US in terms of response.  Not producing oil, and not having much of a car industry, Denmark and the Netherlands recognized that shifting to an automobile centric mobility paradigm made them vulnerable to cuts in supplies.  

An analogous example is how in the US, gasoline supplies are often interrupted during extreme weather events, leading to long lines and disruption in all sorts of activities, because people seemingly lack alternative ways to travel ("Oil dependence | The US as a Petro-state and gasoholic | and war").

Being poor before WW2 and for awhile after, the countries had been more walking (compact cities, no sprawl), biking and transit oriented.  They were giving this up in favor of the automobile as their economies became more successful.

Amsterdam.  Bike parking, lots of bikes, and transit in the background.

Not only cuts in supply but a significant raise in prices made their countries extremely vulnerable.  So they shifted away from the car and back to transit and biking in the development and transportation policies and practices.  

Unlike the US, which says transit and biking is okay, but primarily invests in automobility, they made their policies congruent with the new paradigm, for example significantly increasing gas taxes and car registration fees.  

Of course, the countries like others in Europe also refocused attention on energy efficiency in all elements of their economy.

The US: Still vulnerable to oil shocks.  By contrast, while the US did adopt some energy efficiency mechanisms, including mpg standards for cars, mostly the US focused on maintaining access to oil supplies.  

That meant refocusing military resources on the Mideast ("There are two winners in Iran. Neither one is America," Washington Post) and creating the Strategic Oil Reserve which bought and stored oil for use, holding it for sale when prices get "too high."  

A Permian Basin oil pumping station.

And increased production, which was was boosted on steroids in the late 1990s with the invention of fracking ("The economic benefits of fracking," Brookings, "How Has Fracking Changed Our Future?," National Geographic).  

Note that fracking has major environmental effects, the use of water, contamination of the aquifer, and air quality.

Article.  Another side of dependence.

But it didn't make the US less vulnerable to the fissures in the supply chain, not so much with access to oil, but in all the other ways an oil dependent economy experiences higher costs as increased oil costs make their way through the supply chain of various goods.