Was that just Donald Trump’s trademark bluster on display when he told the New York Times (paywall) that he would “probably” be willing to cut off US oil imports from Saudi Arabia until the Saudis sent in ground troops against ISIS? Or is it feasible that the US would suddenly stop buying crude from its second-biggest foreign supplier?
Well, as Trump himself points out, the idea isn’t as crazy as it once seemed. For starters, the US is producing a lot more oil than it used to, thanks to all the shale drilling that’s going on now. As Trump notes:
“You know, we needed, we needed oil desperately years ago. Today, because – again, because of the new technologies, and because of places that we never thought had oil, and they do have oil, and there’s a glut on the market, there’s a tremendous glut on the market, I mean you have ships out at sea that are loaded up and they don’t even know where to go dump it. But we don’t have that same pressure anymore, at all.”
And indeed, the sharp increase in domestic production has led the US to import a lot less oil than it used to.
But when the US does import, it’s looking first to Canada.
In fact, between the first quarter of 2014 and the beginning of 2015, the Saudi share of crude oil imports was cut in half, following years of gains.
No surprise, when one of the world’s energy consumers begins weaning itself off of foreign crude, it upsets the market. It certainly upset Saudi Arabia, which in turn use its OPEC stature to keep up production and battle US producers for market share. The decision to keep the spigot open sent oil prices crashing, and they’ve yet to fully recover.
So is Trump right? Can the US go ahead and finish the job that shale oil started? After all, America is far less dependent on crude imports than it was just a few years ago. Surely there’s not much harm in cutting those imports by another 15%.
Never mind that Saudi Arabia’s state-owned oil company controls the largest oil refinery in the US. Saudi Aramco’s recently acquired Motiva facility in Port Arthur, Texas, can process up to 600,000 barrels of crude a day—but that’s not even 4% of overall US refinery capacity.
However, assuming that a president Trump could somehow marshall the political capital to impose an embargo on Saudi crude, the possible costs would go far beyond that of oil. For example, how comfortable would the US be if Saudi Arabia were to retaliate by dumping its unknown but certainly sizable Treasury debt holdings or cutting off a lucrative market for US weapons manufacturers? And could Washington ever get comfortable depriving a key ally in the Middle East of a major export market for the product that provides almost all of its government revenue—before the OPEC leader’s fledgling economic reforms can fully soak up a generation of educated, newly underemployed young men (paywall)?
The answer there is probably not.