MANAGING DEPENDENCE: AMERICAN-SAUDI OIL RELATIONS.

INTRODUCTION

SOARING OIL PRICES SINCE early 1999 have underscored the United States' vulnerability to imported oil supplies. In response some policymakers in Washington have called for measures to reduce the nation's dependence on foreign countries and achieve a state of "energy independence". This study argues that in a highly inter-dependent global economy a collective energy security should be sought. Instead of energy independence, the United States should consolidate a strategy to manage its growing dependence on foreign oil suppliers, particularly from Saudi Arabia -- the world's largest oil producer and exporter. Two areas of cooperation between Washington and Riyadh are examined: stability of oil prices and the return of American oil companies to the Saudi upstream oil and gas sectors.

MANAGING DEPENDENCE: AMERICAN-SAUDI OIL RELATIONS

On 22 September 2000, President Clinton authorized the release of 30 million barrels of oil from the Strategic Petroleum Reserve (SPR) over 30 days in an attempt to bolster United States oil supplies and to alleviate possible shortages of heating oil during the upcoming winter. This drastic measure can be seen as a response and a reflection of the volatility of global oil market and Washington's vulnerability of the ups and downs of oil supplies and prices. With less than three percent of the world's proven reserve and a share of one quarter of global consumption, the United States is the world's largest oil importer. In 2000, Washington's import of oil was estimated at 10.9 million barrels a day (b/d), representing around 57% of total demand. [1] This heavy dependence on imported oil underscores the significance of foreign supplies in meeting American growing demand for oil. Thus, oil imports have been rising since the early 1980s. This rise reflects the widening gap between declining production and increas ing consumption. While production is projected to decline at an average rate of 0.8% a year between 1998 and 2020, consumption is anticipated to increase by 1.6% during the same time span. [2] Most of the increase in consumption will occur in the transportation sector where demand for petroleum is inelastic. Advances in oil exploration and production technologies are insufficient to offset declining resources. Consequently, the share of petroleum consumption met by net imports will rise to 64% in 2020. [3] This vulnerability to imported supplies can be demonstrated also by the shrinking replacement days from the SPR. In 1985, the reserve's holdings reached 493 million barrels, which would have provided enough crude oil to replace about 115 days' worth of net petroleum imports that year. In 1999, the reserve held 567 million barrels of crude oil. Due to increased rate of imports, however, that amount would replace only 59 days' worth of net imported petroleum. [4]

In addition to Washington's increasing dependence on foreign oil supplies, the United States is the leading player in an inter-dependent global economy. Accordingly, if the U.S. imported not one drop of oil, the interdependence of Western economies is such that a disruption of oil supplies to heavily import-dependent Europe and Japan would have a negative impact on U.S. export earnings, prices and overall production and employment levels. [5] In other words, the globalization of oil markets has made the question of who sells and buys a particular barrel of oil less and less relevant. American and global economic prosperity depends on the steady supplies of petroleum at reasonable prices. A large share of these supplies will come from the Persian Gulf, particularly Saudi Arabia.

With more than one-fourth of the global proven reserves, Saudi Arabia is the world's leading oil producer, exporter and holder of spare production capacity. The kingdom enjoys several advantages. These include abundant resources, location on well-developed export routes, the cheapest production costs in the world [6] and excess capacity, which can meet either a substantive increase in demand or an emergency caused by a major disruption of supplies. Indeed, the Center for Global Energy Studies (CGES) estimates the cost to Saudi Arabia of maintaining its idle capacity at $500 million each year. [7] Given these advantages, the relationship between the world's largest oil exporter (Saudi Arabia) and the world's largest oil importer (the United States) has been of special interest not only for the two sides but for global economic prosperity as well.

For the most part, Saudi-American relations have been built on a longstanding tradition of friendship. At the heart of this friendship is their mutual interest in developing the kingdom's immense oil resources. Unlike other countries in the Middle East, the Saudi oil was developed entirely by American companies. In 1933 Standard Oil of California obtained a concession from the founder of modern-day Saudi Arabia King Abd Al-Aziz Ibn Saud. Commercial production began in 1938, but large-scale production was delayed until the end of the Second World War. In 1944 the California Standard-Texaco operation in Saudi Arabia became known as the Arabian-American Oil Company (ARAMCO). [8] Prior to the Saudi takeover in the mid 1970s, ARAMCO was the largest single American investment in any foreign country. [9] For most of the last half century, Riyadh has advocated the use of oil as a "positive weapon" to build up the military and economic strength of Arab states. [10] However, shortly after the break-up of the Arab-Israeli war in October 1973, Saudi Arabia announced an embargo on oil shipments to the United States for its support to Israel. The embargo was officially lifted few months later. In spite of this short period of disagreement between the two sides, the overall relations between Riyadh and Washington can be characterized as a continuous cooperation. A significant sign of this strategic and economic cooperation between the two countries is the l arge share the kingdom holds in the American oil market as the following table shows.

Two conclusions can be drawn from the above table. First, in recent years the United States has sought to diversify its oil supplies by increasing imports from nearby producers such as Canada, Venezuela and Mexico. At the same time, fast growing Asian economies have become a main target for Saudi oil exports. Still both Washington and Riyadh have managed to maintain a significant Saudi share in the American oil market. Second, the dramatic rise in Saudi oil exports in the early 1990s reflects the kingdom's unique strategic and economic leverage. In response to the Persian Gulf War and the removal of the Iraqi and Kuwaiti oil from the international market, Saudi Arabia was able, in a short period of time, to utilize its abundant spare production capacity. The kingdom is the only oil producer with such capability (i.e., to restore balance in supply and demand in the global oil market under emergency circumstances).

In spite of the longstanding American-Saudi cooperation in oil policies and the kingdom's strategic significance in global energy market, some policymakers in Washington have occasionally expressed dissatisfaction with some Saudi practices and U.S. responses. The reservations have mainly focused on two issues. First, in times of high oil prices Saudi Arabia has been accused of taking part in an "international price-fixing conspiracy" by cutting back output. [11] Accordingly, in March 2000. the United States House of Representatives passed a bill urging the administration to cut off aid and military sales to members of the Organization of Petroleum Exporting Countries (OPEC). [12] Similarly, in July 2000, the U.S. Senate antitrust subcommittee approved a bill enabling antitrust regulators to sue OPEC for fixing prices and setting production levels for crude oil. [13] Second, for several decades officials from different administrations and members in the Congress have introduced proposals to reduce U.S. depend ence on imported oil. Faced with rising demand for foreign oil, President Eisenhower instituted mandatory import quotas in 1959 to limit oil imports to roughly 12% of total consumption. [14] Shortly after Saudi Arabia and other Arab oil producing countries imposed oil embargo on the United States in late 1973 President Nixon called for a crash program, called "Project Independence", to make the U.S. independent of foreign energy sources by 1980. Under Ford administration the Congress enacted the Energy Policy and Conservation Act [15] and the president came out in favor of an increased reliance on coal, electricity and nuclear power in order to reduce the nation's dependence on oil. President Carter viewed the energy crisis as a national emergency that was the "moral equivalent of war." [16] The Carter administration's program called for reduced overall energy consumption and support for synthetic fuels development. More recently, Senator Frank Murkowski (R-AK) introduced a bill called National Energy Securit y Act of 2000 that aims at decreasing U.S. dependence on foreign oil sources to 50% by the year 2010 through enhancing the use of renewable energy resources, conserving energy resources, improving energy efficiencies and increasing domestic energy supplies. [17]

The fact that in 2000 more than 50% of U.S. oil needs come from imported oil suggests that these proposals and efforts to reduce the nation's vulnerability to and dependence on foreign oil have not succeeded. Indeed, this study questions the validity of this approach -- an individual oil consuming country trying to become self-sufficient and reduce its engagement in the global energy market. Instead, the paper argues that energy security is a shared issue for producers and consumers or as the former Saudi Oil Minister, Ahmad Zaki Yamani, described it a "system of interlocking economic interests". [18] The task, therefore, should not be to engage in a senseless debate over energy "independence" but to find ways of managing dependence. The following two sections examine the joint U.S. and Saudi efforts to manage two significant aspects of oil policy -- prices and exploration and development (E & D).

VOLATILITY OF OIL PRICES

A close examination of the international oil market over the last three decades, and particularly in the last few years, suggests three constant characteristics that shaped and guided the dramatic changes the industry has experienced. First, since the early 1970s oil prices have been highly volatile. In the last thirty years the price of a barrel of oil has fluctuated from a low of $9 to a high of $40. This volatility has contributed to political and economic instability in both consuming and producing countries. Second, for a long time, the major players in the oil industry -- producers, consumers and the companies -- have perceived their interests as mutually exclusive. The gains of one side were seen as the losses of the others. Ali Al-Naimi, the Saudi Minister of Petroleum and Mineral Resources, describes this approach,

In the period up to the early seventies, the international oil majors managed the market and set the price at the optimum level from their perspective. Unfortunately, that level was too low for the producing governments to generate adequate revenues for development. Then OPEC took control and managed the market at relatively higher prices until the mid-eighties. These higher prices, along with other factors, resulted in declining demand and increasing supply. The new market environment since then is so complex that it necessitates finding new tools to point it in the desired direction. [19]

Third, in addition to economic factors, oil markets have always been influenced by political forces. Put differently, the prices of oil do not merely reflect an equilibrium between supply and demand. Rather, they are equally determined by political developments in both producing and consuming countries. Thus, the global oil market has been rightly described as "guided laissez-faire." [20] A close examination of changes in oil prices would illustrate these three characters.

Shortly after oil was discovered in 1859 prices averaged $1.00 to $2.00 per barrel for almost a whole century (1860-1960), barring a few exceptions. [21] These extremely low prices had a twofold impact on the world economy. First, they contributed to the post Second World War economic recovery in the West, particularly in Europe and Japan. Their economies, then based on domestic coal resources, were transformed at every level so that petroleum would provide a larger share of basic fuel and energy needs. Unlike the United States, Europe and Japan (with very limited oil resources) had to depend almost totally on imported supplies, mainly from the Persian Gulf region. Second, these stable prices, at low level, spurred global oil consumption. The world's industries, transportation, commerce and household became dependent on oil as a major source of energy. Thus, between 1960 and 1972, world consumption of oil increased by one and one-half times, or on average by 7% a year. [22]

The 1973 Arab-Israeli War, however, drastically altered the dynamics of the oil industry. In the aftermath of this war, Saudi Arabia, in cooperation with other Arab producing countries, decided to sharply cut its production in an attempt to use oil as a political weapon. It was this cutback in production, not the embargo (against the U.S. and few other industrial countries), that produced the shortages felt for several months in the global market and led to dramatic rise in prices (the so-called first oil-prices shock). In response, Henry Kissinger, then United States Secretary of State, led Western efforts to create an international forum, the International Energy Agency (IEA), to coordinate the policies of consuming countries. This newly-established organization demanded that its members store substantial amounts of oil as a precaution against future shortages. In line with this recommendation, the Strategic Petroleum Reserve was officially established in December 1975, when then-President Ford signed the Energy Policy and Conservation Act.

This confrontation-like atmosphere between Washington and Riyadh had gradually subsided in the closing years of the 1970s and the early 1980s due to political instability in the Gulf region -- the Iranian revolution (1979) and the Iran-Iraq War (1980-88). These two developments consolidated the Saudi claims that the kingdom was the most reliable oil supplier. In a move to assert its dominance of the oil market and OPEC, Riyadh decided in mid 1980s to substantially increase its production to regain and maintain a large proportion of the global oil market. This Saudi policy resulted in a dramatic cut in oil prices that lasted till the Iraqi invasion of Kuwait and the subsequent Gulf War in the early 1990s. The kingdom's response to this crisis -- increase production to make up for the Iraqi and Kuwaiti outputs -- contributed to the stability of oil prices and helped to avert a significant shortage. Thus, for the first half of the 1990s, oil prices were in the range of $15 to $20 per barrel.

As a leader in OPEC's production quota decisions, Saudi Arabia was a critically important player behind the oil price collapse of late 1997 through early 1999 and also in the spectacular rebound since then. Several factors, many of which were unexpected, came together in late 1997 and early 1998 to drive oil prices to levels not experienced by the petroleum industry since the 1970s. These include the severe economic crisis in Asia, the unusually warm weather in North America and Europe, the sustained and large increase in the United Nations authorized Iraqi oil exports and OPEC's decision, initiated by Saudi Arabia, to increase production in late 1997. The combination of these events resulted in too much supply and too little demand. In response, the deep and prolonged falls in crude prices resulted in an average price of $13.11 a barrel, almost a third down on the 1997 price and the lowest, in real terms, since before the first oil shock of 1973. [23] This prompted oil producers to take serious measures to re-instate an equilibrium between supply and demand. Thus, OPEC members, led by Saudi Arabia, in conjunction with other oil producers (such as Mexico, Russia and Norway) sought to impress the market with three production cuts. The first one was in March 1998 but did not produce the desired effect. The second attempt, in June 1998, was equally unsuccessful. Finally large production cuts were endorsed in March 1999. The largest commitment to reduce production came from Saudi Arabia, which said it would cut back 585,000 b/d or 7% of its daily output of 8 million b/d. [24] Since then, oil prices have significantly recovered.

The sharp drop in oil prices of late 1997 to early 1999 has been followed by a sharp rise. Realizing that high prices for a prolonged period of time would hurt their industry, OPEC's members decided to increase their production by 1.45 million b/d in early 2000. [25] Their goal is to engineer a "soft landing". Furthermore, they created a mechanism to stabilize the market called a "price band". According to this arrangement if the OPEC "basket" price [26] exceeds $28 per barrel each day for 20 consecutive trading days, OPEC production, excluding Iraq, will be increased by 500,000 b/d. Similarly, if the average price falls below $22 per barrel each day for 10 consecutive trading days, production will be decreased by the same amount (500,000 b/d). [27] The United States endorsed this move to establish a price band. According to the U.S. Secretary of Energy Bill Richardson, "The price band will be helpful for both OPEC and the U.S. [28]" The market, however, was not impressed and prices remained high. Consequent ly, Saudi Arabia announced plans to increase production by 500,000 b/d in July 2000. [29] Al-Naimi stated that "We have sought, and will continue in any way we can, to bring prices down to the target level of $25 a barrel". [30] Still, oil prices did not decline. Faced with growing international pressure to drive down stubbornly high oil prices, OPEC decided to increase its crude production by 800,000 b/d effective October 1, 2000. Finally, at the OPEC Summit in Caracas, Venezuela (held in late September 2000) Saudi Arabia's Crown Prince Abdullah bin Abd al-Aziz al-Saud confirmed that "The kingdom is willing and ready to offer the amount necessary to stabilize the world oil market." [31]

Four reasons contributed to the spike of oil prices since early 1999. First, the price collapse of late 1997-early 1999 led to a large number of well closures in non-OPEC countries, including the United States. It also tended to stimulate oil demand and to reduce investment in new oil exploration and production. Second, oil producers' (OPEC and non-OPEC members) decisions to cutback production in 1998/99 resulted in substantial decrease in supply. Third, the high levels of OPEC compliance with its quota agreements kept production at a low level. Compliance rates were estimated to have been as high as 80 to 90% in 1999. [32] Fourth, the rebounding Asian economies and the surging U.S. economy contributed to strong world oil demand.

This dramatic fluctuation of oil prices over the last several decades has had a mixed impact on both the United States and Saudi Arabia. High prices, for a prolonged period of time, contribute to inflation, slow economic growth and large trade deficit. For instance, as a result of the sharp increase in oil prices in 1999 U.S. oil imports jumped from $17 billion in 1998 to $67 billion in 1999." [33] At the same time, energy intensity, measured as energy use per dollar of gross domestic product (GDP) has declined since 1970, particularly when energy prices have increased rapidly. Between 1970 and 1986, energy intensity declined at an average rate of 2.2% a year, but with smaller price increases (1986 to 1998), energy declines moderated to an average of 1.0% a year. [34] Put differently, during periods of low energy prices the rate of improvement slows due to the reduced financial incentive for investment to conserve energy.

Similarly, high oil prices have a mixed impact on Saudi Arabia. Due to the soaring prices since March 1999, the kingdom's oil export revenues jumped from $38.3 billions in 1999 to $67.3 billions in 2000, an increase of 76%. [35] Thus, for the first time since the early 1980s the Saudi budget will have a current account surplus instead of deficit. This surplus has reduced pressure on the Saudi government to make hard political choices (like cutting popular state subsidies for food and fuel). On the other hand, high prices have potential long-term disadvantages. These include the development of alternative or competing energy sources, which could undermine the importance of petroleum and investment exploration and development outside Saudi Arabia, which means the shrinking of the kingdom's market share. Finally, excessively high prices could have a negative impact on the world economy, which in turn weakens demand for oil. [36]

On the other side, in spite of the obvious savings U.S. consumers make on cheap fuels, low oil prices have a devastating impact on the domestic oil industry. The collapse of oil prices from late 1997 to the early 1999 underscored the vulnerability of oil exploration and development operations in the United States. During this period approximately 51,400 jobs in oil industry were lost, [37] 200,000 wells had been abandoned, [38] proven reserves fell 7% -- the largest percentage decline in over 50 years [39] and crude production for 2000 represents the lowest annual U.S. crude oil output since 1950. [40] In other words, low oil prices are not complete blessings to the American economy. Similarly, low oil prices have their own advantages and disadvantages for the Saudi economy. On the positive side, low prices can deter development of alternative energy sources and reduce investment in exploration and development of oil resources outside the kingdom. Indeed, the low price environment of 1998 and early 1999 did slow the pace of development in some prospective production areas, especially in the Caspian Basin region. [41] Meanwhile, despite attempts to diversify its economy, Saudi Arabia remains heavily dependent on oil revenues, which represent a significant proportion of total export earnings, state revenues and the overall GDP. Thus, it costs the Saudi budget an estimated $2.7 billion in lost revenue for every one dollar drop in the oil price. [42] Not surprisingly, in 1999 Saudi Arabia adopted an austerity budget, which included spending cuts of almost 16%. [43]

To sum up, the dramatic changes in oil prices over the last three decades have contributed to the destabilization of the global economy and have had positive and negative impacts on the economic and political environment in both the United States and Saudi Arabia. For the last several years, the two sides seem to have concluded that stable prices at reasonable level would benefit both of them. The recent decision by the United States to use 30 million barrels of the SPR to reduce prices and the Saudi endorsement of this step may signal growing understanding of the need for a coordinating policy to stabilize prices and the overall global oil market. Recently, both Washington and Riyadh have started negotiations in another important area -- exploration and development.

EXPLORATION AND DEVELOPMENT

Saudi Arabia contains 263.5 billion barrels of proven oil reserves (more than one-fourth of the world total) and up to 1 trillion of ultimately recoverable oil." The kingdom's proven gas reserves are estimated at 204.5 trillion cubic feet (Tcf), ranking fifth in the world (after Russia, Iran, Qatar and the United Arab Emirates). [45] No wonder, the opening of the kingdom's upstream oil sector would be the grand prize for international oil companies. In 1975, Riyadh ended concessions run by Chevron, Mobil, Texaco and Exxon and nationalized its oil industry. This step was similar to actions taken by many other oil producers. Indeed, during the 1970s virtually all of the oil resources outside of North America passed from international petroleum companies to the governments of oil producers. [46] Each government created its own national oil and gas companies. Since then foreign investors were only allowed to participate in downstream operations such as refining and were awarded minor concessions in the Neutral Z one (shared by Kuwait and Saudi Arabia).

The kingdom's adherence to this state-control policy, however, came into question in September 1998 when Crown Prince Abdullah met in Washington, D.C. with senior executives from several American oil companies. [47] The Crown Prince asked the executives to submit directly to him recommendations and suggestions about the role their companies could play in the exploration and development of both existing and new oil and gas fields. Four months later, the companies submitted proposals and the Saudi government formed a ministerial committee chaired by Foreign Minister, Prince Saud Al-Faisal and Oil Minister Al-Naimi to study these proposals. In early 2000 a Supreme Council for Petroleum and Mineral Affairs was established and given the power to make final decisions regarding future cooperation with foreign companies. [48] During the preliminary negotiations, short-listed companies proposed to invest up to $100 billions. [49] They were told that their bids will be assessed on a number of points including their fi nancial positions, technical capability to carry out the projects and the extent to which they will provide training and job opportunities to Saudi citizens. [50]

This apparent change in the official Saudi stand regarding foreign investment participation in the kingdom's energy industry can be explained by at least four reasons. First, over the last two decades the Saudi gross domestic product (GDP) growth rate averaged only 0.2%. As a result, per capita annual income in 1996 was only $6,900, compared with some $19,000 in 1980 at the height of the oil boom. [51] Saudi Arabia needs foreign investment to stimulate its economy. Second, the very high population growth rate over the last three decades has further complicated the economic situation. Economic performance has failed to keep pace with the increase in population. The Saudi economy is not able to generate enough jobs for the thousands of young job-seekers entering the labor market. Every year more than 100,000 Saudis enter the workforce, yet the non-oil private sector is only creating enough jobs to absorb about one in three job-seekers. [52] Foreign investment in the energy sector will substantially improve the prospects for employment for hundreds of thousands of young Saudis. Third, increasingly Saudi Arabia's share of global energy market is facing a strong competition from other producers (including the Caspian Basin, offshore West Africa and the deep water Gulf of Mexico). Over the last several years these regions have attracted substantial financial and technological resources from the international oil companies (IOCs). The Saudis prefer that these resources be invested in their country. Bluntly, a barrel of oil that is developed in the kingdom by IOCs, is a barrel which is not developed in the other areas. Fourth, American investment in Saudi Arabia would further strengthen ties with the United States. These ties have proven valuable for the kingdom's security. [53]

In spite of all these incentives to invite the IOCs back to the kingdom's energy sector, some official reservations have been voiced on the extent and magnitude of foreign involvement in the Saudi economy. The core of this opposition is that the kingdom has no urgent need for any outside investment in exploration and development operations. It already has about three million b/d of spare production capacity, the largest in the world. The Saudi Oil Minister Al-Naimi outlined his country's stand on this issue, "In philosophy and principle, Saudi Arabia is not against foreign investment in crude oil production and exploration. What we need is integrated projects where each link of the chain adds value. These projects could involve petrochemicals, electricity and water desalination. [54]

Though details of the new projects are still negotiated, the broad parameters for investment in oil and gas sectors can be identified. First, the whole initiative of inviting IOCs back to the kingdom's energy industry should be seen as a part of wider efforts to reform the country's economy. For the last few years, top Saudi officials have talked about privatization as a "strategic choice" for their country. In mid 2000, the Saudi government improved the atmosphere for the discussion with IOCs by ratifying a new investment law. Under the new law, tax holidays are abolished in favor of sweeping reductions in tax on profits payable by foreign entities, bringing them nearer to levels that apply to local companies. Wholly owned foreign businesses will have the right to own land, sponsor their own employees and benefit from concessionary loans previously available only to Saudi companies. [55] Second, Riyadh has made it clear that Saudi Aramco, the state oil group, will remain responsible for the upstream product ion elements of any new investment projects. Third, IOCs involvement in Saudi projects will be restricted to the downstream in both oil and gas sectors. Fourth, Saudi government prefers that IOCs invest in the so-called "satellite projects", which generally revolve around various combinations of power generation, water desalinization and petrochemicals. Fifth, gas is far less developed than oil. Increasing gas production is a priority for the Saudi government. This additional production can be used as a feedstock for the country's industrial establishments and as a replacement for direct oil burning. Using gas instead of oil domestically will help free up additional crude oil for export. Sixth, American firms are expected to reap the largest share of the new deals. This will show Washington how much Riyadh values their special relationship. [36]

CONCLUSION

Few countries can rival the mutual strategic and economic interests the United States and Saudi Arabia share. At stake is the stability of the global energy market and world prosperity. Officials in Washington and Riyadh have long understood the importance of their cooperation. More than half a century ago, President Roosevelt wrote, "The defense of Saudi Arabia is vital to the defense of the United States." [57] Years later, President Eisenhower stated, "Should a crisis arise threatening to cut the Western world from Middle East oil, we would have to use force." [58] More than two decades later, another President, Bush, sent American troops to protect Saudi Arabia and its oil resources. The occasional criticism of Saudi Arabia in Washington is understood, given the frustration many Americans feel about the rising oil prices. The rhetoric in Washington regarding achieving a state of energy independence should remain as it is -- rhetoric. Instead, this study argues, there is a need to consolidate and deepen th e importance of collective energy security. This includes both consumers and producers. All projections made by the United States Department of Energy point out to increasing dependence on imported oil. Energy independence is a fantasy. No country can afford it in an increasingly interdependent global economy. Instead, United States, the largest oil importer needs to articulate how it will manage its dependence on foreign oil supplies. Saudi Arabia is at the heart of this American energy strategy. Officials in both Washington and Riyadh agree on the need to stabilize oil prices around $25 per barrel. The potential return of American oil companies to the Saudi upstream energy sector provides another important area of cooperation

Gawdat Bahgat is Director of the Center for Middle East Studies, Indiana University of Pennsylvania, Indiana, Pennsylvania.

ENDNOTES

(1.) Energy Information Administration (EIA), Country Profile: United States of America, October 2000, on line at www.eia.doe.gov.

(2.) EIA, Annual Energy Outlook 2000, Washington D.C: United States Government Printing Office (USGPO), December 1999, p. 5.

(3.) Ibid, p. 5.

(4.) EIA, Energy in the United States: A Brief History and Current Trends, October 2000, on line at www.eia.doe.gov.

(5.) William C. Ramsay, "Oil in the 1990s: The Gulf Dominant," in Phebe Marr and William Lewis, eds.), Riding the Tiger, Boulder: CO: Westview Press, 1993, p. 56.

(6.) Production costs in Saudi Arabia are less than $1.5 per barrel.

(7.) Ahmed Zaki Yamani, "OPEC Should Take Long-term Approach to Balancing Oil Supply-Demand Equation," Oil and Gas Journal, Vol. 97, No. 38, 20 September 1999, p.24.

(8.) Edward. W. Chester, United States Oil Policy and Diplomacy, London: Greenwood Press, 1983, p.239.

(9.) Seth P. Tillman, The United States in the Middle East, Bloomington: Indiana University Press, 1982, p.79.

(10.) Joe Stork, Middle East Oil and the Energy Crisis, New York: Monthly Review Press, 1975, p.211.

(11.) In early 2000, Representatives Dana Rohrabacher (R-CA) and Benjamin A. Gilman (R-NY) adopted this view. See Eric Schmitt, "In Congress, Scorn for U.S. Oil Diplomacy," New York Times, 2 March 2000, p. C12.

(12.) Tom Doggestt, "House Approves Bill to Pressure OPEC," Reuters, 22 March 2000.

(13.) Middle East Economic Survey, "U.S. Senate Subcommittee Approves Bill to Sue OPEC," Vol. 43, No. 31, 30 July 2000, on line at www.mees.com.

(14.) David A. Deese and Joseph S. Nye, Energy and Security, Cambridge, MA: Ballinger Publishing Company 1981, p.392.

(15.) This act authorized the establishment of the Strategic Petroleum Reserve.

(16.) Tillman, The United States in the Middle East, p.77.

(17.) The text of this bill can be found at the Senator's website at www.senate.gov/[sim]murkowski/ energy/summary.html.

(18.) Ahmad Zaki Yamani, "Perspective and Retrospective: Oil Yesterday, Today and Tomorrow," Middle East Economic Survey, Vol.41, No.49, 7 December 1998, on line at www.mees.com.

(19.) Ali Al-Naimi, "Future World Oil Outlook," Middle East Economic Survey, Vol.41, No. 44, 2 November 1998, on line at www.mees.com.

(20.) David A. Deese and Joseph S. Nye, Energy and Security, Cambridge, MA: Ballinger Publishing Company, 1981, p.7.

(21.) Bakhtiari S., "The Price of Crude Oil," OPEC Review, Vol.23, No.1, March 1999, p.1.

(22.) Fried E. and Trezise P., Oil Security: Retrospect and Prospect, Washington D.C: The Brookings Institution, 1993, p.5.

(23.) Petroleum Economist, "BP Amoco Sees New Shift in World Energy Developments," Vol.66, No.7, July 1999, p.33.

(24.) Middle East Monitor, "OPEC Ministers Approve Huge 1.7 Million b/d Production Cuts," Vol.29, No.3, March 1999, p.22.

(25.) Patrick Crow, "OPEC to Boost Production, Correct Market," Oil and Gas Journal, Vol.98, No.14, 3 April 2000, p.26.

(26.) OPEC basket price is a weighted average of Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arabian Light, Dubai, Venezuela's Tia Juana and Mexico's Isthmus.

(27.) Ian Seymour and Walid Khadduri, "OPEC Production Increase Package Looks Reasonably Solid Despite Market Skepticism," Middle East Economic Survey, Vol.53 No.25, 19 June 2000, on line at www.mees.com.

(28.) Timothy Gardner, "U.S. and OPEC 'Friends' after Vienna-Richardson," Reuters, 31 March 2000.

(29.) Neela Banerjee, "Saudi Arabia to Raise Oil Production 500,000 barrels a Day," New York Times, 4 July 2000, p.1.

(30.) William Drozdiak, "Saudis Set to boost Output of Oil," Washington Post, 4 July 2000, p.1.

(31.) Larry Rohter, "OPEC's Unity is Undercut by the Saudis," New York Times, 29 September 2000, p.1.

(32.) EIA, International Energy Outlook 2000, Washington D.C: USGPO, 2000, p.7.

(33.) EIA, OPEC Revenues Fact Sheet, March 2000, on line at www.eia.doe.gov.

(34.) EIA, Annual Energy Outlook 2000, Washington D.C: USGPO, 2000, p.4.

(35.) EIA, OPEC Revenues: Country Details, October 2000, on line at www.eia.doe.gov.

(36.) Middle East Economic Survey, "Saudi Warning of Further Export Hike Trims $2/B Off Crude Prices," Vol. 43, No.28, 10 July 2000, on line at www.mees.com

(37.) Oil and Gas Journal, "Editorial: Oil Prices and Layoffs," Vol.97, No.13, 29 March 1999, p.13.

(38.) Energy Economist, "Gunning for Oil Imports: The U.S. Congress Rides Again," No.211, May 1999, p.3.

(39.) Oil and Gas Journal, "U.S. Crude Reserves Plunged 7% in 1998," Vol.98, No.1, 3 January 2000, p.32.

(40.) EIA, Country Profile: United States of America, October 2000, on line at www.eia.doe.gov.

(41.) EIA, International Energy Outlook 2000, Washington D.C.: USGPO, 2000, p.4.

(42.) Energy Economist, "Saudi Arabia: Abdullah's Tough Choices," No.198, April 1998, p.3.

(43.) EIA, OPEC Revenues Fact Sheet, March 2000, on line at www.eia.doe.gov.

(44.) EIA, Country Profile: Saudi Arabia, January 2000, on line at www.eia.doe.gov.

(45.) Ibid.

(46.) Edward L. Morse, "A New Political Economy of Oil?" Journal of International Affairs, Vol.53, No.1, Fall 1999, p.4.

(47.) These are: Chevron, Exxon, Mobil, Texaco, Arco, Conoco and Phillips Petroleum.

(48.) Robin Allen and Robert Corzine, "Saudi Arabia: New Council to Push Energy Reform," Financial Times, 25 January 2000, on line at www.ft.com.

(49.) The list comprises of Shell, Phillips, Chevron, Exxon/Mobil, Texaco, Conoco, Enron/Oxy, BP Amoco, Eni, Marathon and TotalFinaElf.

(50.) Middle East Economic Survey, "Negotiations for Saudi Natural Gas Initiative to Start in Second Half 2000," Vol.43, No.19, 8 May 2000, on line at www.mees.com.

(51.) Gary Sick, "The Coming Crisis in the Persian Gulf," The Washington Quarterly, Vol.21, No.2, Spring 1998, p.203.

(52.) James Gavin, "The Walls Come Down," Middle East Economic Digest, Vol.44, No.20, 19 May 2000, p.4.

(53.) Nathaniel Kern, "Oil Prices and Foreign Investment in Saudi Arabia," Middle East Economic Survey, Vol.42, No.14, 5 April 1999, on line at www.mees.com.

(54.) Ali Al-Namini, "Saudi Oil Policy Combines Stability with Strength, Looks for Diversity," Oil and Gas Journal, Vol.98, No.3, 17 January 2000, p.18.

(55.) Robin Allen, "Saudi Arabia Woos Investors," Financial Times, 1 June 2000, on line at www.ft.com.

(56.) David B. Ottaway, "U.S. Oil CEOs and Saudis to Meet," Washington Post, 13 April 2000, p. E1.

(57.) George W. Stocking, Middle East Oil: A Study in Political and Economic Controversy, Nashville, TN: Vanderbilt University Press, 1970, p.97.

(58.) Edward W. Chester, United States Oil Policy and Diplomacy, London: Greenwood Press, 1983, p.29.

Table I Saudi Arabia's Oil Export to the United States in the
1990-2000
(Million Barrels per Day)
Year  Total U.S. Import  Imports from S.  Percentage
1990              7.161            1.339       18.69
1991              6.626            1.797       27.12
1992              6.938            1.720       24.79
1993              7.618            1.414       18.56
1994              8.058            1.402       17.40
1995              7.886            1.344       17.04
1996              8.498            1.363       16.03
1997              9.158            1.406       15.35
1998              9.764            1.491       15.27
1999              9.912            1.477       14.90
2000             10.900            1.490       13.66
Source: Energy Information Administration, International Petroleum
Monthly, Washington D.C.: United States Government Printing Office,
September 2000, p.49.