With tensions in the Middle East high, I have fielded a number of queries on how this might impact the world’s oil markets. Today I want to explore that issue.
The Middle East presently produces about a third of the world’s oil. The most important producers there, ranked according to 2018 production, are:
- Saudi Arabia – 12.3 million barrels per day (BPD)
- Iran – 4.7 million BPD
- Iraq – 4.6 million BPD
- United Arab Emirates (UAE) – 3.9 million BPD
- Kuwait – 3.0 million BPD
- Qater – 1.9 million BPD
For reference, U.S. oil production in 2018 (per the BP Statistical Review) was 15.3 million BPD, which was more than the total from Iran, Iraq, and the UAE. (That number includes natural gas liquids, as do the numbers above).
It is also important to note that sanctions on Iran have impacted its ability to export oil. According to OPEC’s latest Oil Market Report, oil production in Iran fell by about 40% from 2018 to the end of 2019.
Before covering how much oil we get from the Middle East today, let’s look at the picture prior to the shale oil boom.
According to the Energy Information Administration, the high point for U.S. oil imports from Persian Gulf countries was 2.8 million BPD in 2001. At the time, that accounted for 23% of all U.S. crude oil imports (11.9 million BPD).
By 2008, U.S. oil production had begun to rise, but so had U.S. demand. Total crude oil imports had risen to 12.9 million BPD, but the share from the Persian Gulf had fallen to 2.4 million BPD (18.6%).
In 2018, the impact of U.S. shale oil production was readily apparent. Crude oil imports to the U.S. had fallen to 9.9 million BPD, and the share from the Persian Gulf had fallen to less than 1.6 million BPD (15.9%).
Of the total crude oil imports from that region, 57% came from Saudi Arabia and 33% came from Iraq in 2018. These Middle Eastern imports are primarily coming into the Gulf Coast and West Coast. Canada is now the most important source of U.S. oil imports, supplying 4.3 million BPD in 2018 (43% of the total).
As a side note, although U.S. imports may seem high given the huge surge in U.S. shale oil production, it’s important to keep in mind that this is not a net import figure. The U.S. also exports oil and finished products like gasoline. The net import number has fallen from a high of 12.5 million BPD in 2005 to 2.3 million BPD in 2018. In fact, for the last two months reported by the EIA — September and October 2019 — the monthly net import number had become a net export number for the first time in at least 70 years.
So U.S. dependence on Middle East oil has fallen, but production of Middle Eastern oil has risen by about 5 million BPD in the past decade. So the rest of the world uses more oil from the region than they did a decade ago. Further, about 20% of the world’s oil passes through waters in the Middle East that border Iran. Thus, a fair amount of the world’s oil supply could be at risk if the situation in the region continues to escalate.
Should that happen, we will likely see a larger rise in the price of Brent crude (an international benchmark) than we will in the price of West Texas Intermediate (a U.S. benchmark). Without a doubt, the impact today would be far less than it would have been a decade ago. You can primarily thank U.S. shale oil production for that.