Lethal Trajectories - Michael Conley [89]
Other Nations:
Non-OPEC oil-exporting nations such as Russia and Brazil will be in a favorable position, but virtually all OECD countries will fare poorly. India, with its growing industrial base, will be particularly hard-hit. Japan, still struggling to recover from nuclear energy losses sustained in the 2011 earthquake/tsunami and nuclear meltdown, will be in dire straits. OPEC countries will continue to allocate a growing portion of their oil production inventory for domestic use, leaving less available for export. The rising costs of agricultural products and loss of cheap energy for water and desalinization systems will be devastating to third world countries. Mass migrations and regional wars over water and other resources will become endemic.
Strategic Petroleum Reserve (SPR) and Inventories of the United States and China:
Oil inventories in both countries are at record lows, and spot shortages occur regularly. Inventories are scattered throughout the domestic energy chain; draining reserves in a systematic way to make good on oil shortages will be problematic. While this report refrains from projecting the shelf life of existing oil inventories, a detailed report will soon follow.
The SPR for both countries is quantifiable; the amount of SPR oil available to replace that lost in the embargo is perhaps the best measure of how long each economy can sustain itself. The SPR of the United States dropped from a high of almost 800 million barrels in 2011 to the current level of 422 million barrels. (America’s SPR was repeatedly tapped in the interim years in response to political pressures to stabilize gasoline prices.) China’s current SPR stands at 525 million barrels as a result of determined efforts to build it incrementally. The maximum daily flow rate at which oil can be extracted from the SPRs of both countries is 4 MB/D; daily shortfalls exceeding this level cannot be made good and will directly result in a deterioration of the economy.
Chart C provides a projection of each country’s ability to replace oil lost from the embargo by drawing down their SPRs. It provides a timeframe based on the percentage amount of oil taken out of the system by the embargo; the higher the percentage, the quicker the SPR will be used up. Once SPRs are depleted, both economies will feel the full force of the embargo.
Chart C
Comparative Positions of China and the United States
Using the above example, China could hold out for 219 days by drawing from its SPR to make good the 20% loss of Saudi oil. The United States could do so for 162 days. If the percentage of oil taken off the market climbed to 30%, the days remaining for the United States and China would be 108 and 146 days respectively until the full economic impact of the embargo was felt. On the surface, China has a slight edge in staying power, but the United States has far more fat to trim and could outlast China by instituting aggressive austerity and conservation programs and ramping up liquefaction and bio-mass fuel production efforts.
Bottom Line: Depending on the level of oil supply reductions, neither country has more than 5-7 months to resolve the crisis or face catastrophic economic consequences. Given other variables that could divert SPR reserves from direct injection into the domestic economy, such as military operations, oil support shipments to allies, additional OPEC holdbacks, etc., the Saudi oil crisis has to be resolved within five months—by March 2018—to avert a complete global economic meltdown.
Geopolitical Scenarios and Options:
King Mustafa holds the upper hand for the moment. He has the oil and is immune from attack by virtue of his dirty bombs. The Saudi economy could be sustained indefinitely by selling a mere 2-3 MB/D of oil