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Egypt, Ethanol and Armchair Punditry Part II – From the Suez to the Strait of Hormuz

February 9, 2011

           

The uprising by the Egyptian people is truly historic.  As events unfold, we are witness to the kind of grassroots political movement that will forever transform the Middle East.  A peaceful resolution that brings a measure of real democracy to the people may help to stabilize a region long known for unrest.  Failure to address the situation may fuel greater turmoil inside the country and such turmoil may become contagious throughout the rest of the Middle East.  We have already seen some evidence of that in nations like Israel and Jordan. The root cause of the unrest and violence in Egypt has been analyzed to death by cable talk shows.  As I noted in my previous post, many of those analyses identify and discuss legitimate reasons for the angst on display in Egypt.  For others, however, the situation is little more than the latest opportunity to grind the proverbial axe and perpetuate myths that should have been put to bed long ago.  While it is critical to understand the root causes of the Egyptian riots, it is equally important to look forward and begin to implement the kind of policies that will reduce the potential for similar events in the future to impact  the United States and our economy. A lot has been made of Egypt's geographic position with respect to the flow of goods out of the Middle East.  The Suez Canal is a vital artery to global trade, including supplying much of Western Europe and North America with crude oil.  In 2010, nearly 2 million barrels of oil and refined products flowed through the Suez daily – almost 5% of the seaborne petroleum trade. While important, the Suez is the not the choke point that is most problematic in the region.  Indeed, the Strait of Hormuz separating the Persian Gulf from the Gulf of Oman is the world's lifeline to the largest supplies of crude oil – and critically important to the United States.  According to Energy Information Administration (EIA) data, "[f]lows through the Strait in 2009 [were] roughly 33 percent of all seaborne traded oil."  Oil passing through the Strait represented 17% of all the oil traded in the world in 2009. In November 2010, the U.S. alone imported more than 50 million barrels of oil from four nations bordering the Persian Gulf – Iraq, Kuwait, Saudi Arabia and the United Arab Emirates.  These countries supplied approximately 15% of all the oil the U.S. imported in all of 2009. Most Americans, including those on Capitol Hill, are acutely aware of the importance of this region of the world to our way of life.  We rely heavily on imports of oil from the Middle East to power our economy and provide the lifestyle to which most Americans are accustomed.  That is why the unrest in Egypt should provide still more impetus for thoughtful, forward-looking energy policy that makes America more self-reliant.  The good news is we don't have to start from scratch. Important federal policies such as tax incentives and the federal Renewable Fuel Standard have established a growing and evolving American renewable fuels industry that is today meeting 10% of the nation's gasoline demand.  As a soon-to-be-released economic analysis of the American ethanol industry will show, the use of ethanol in 2010 displaced the gasoline refined from more than 440 million barrels of imported oil.  That amount is more than the estimated total imports from Saudi Arabia in 2010 alone.  While this does not mean we can declare our energy independence (a misnomer by the way), it does mean that the U.S. is beginning the long journey to energy self-reliance.  We are now firmly on a path to a day when events like those taking place in Egypt are viewed with a sympathetic eye toward the cause of democracy and not through the cynical lens of oil economics. Now is an opportunity for America to redouble its efforts to develop domestic energy industries.  We can and must build upon the policies we have in place, reform them if we must, but move forward recognizing that we will need all the energy technologies our imaginations can invent to meet the challenges of the 21st century and beyond.