American drivers used to pay a high price whenever there was military action in the Middle East. The best examples were during the 1970s, when the Arab oil embargo and the Iranian revolution caused steep increases in gasoline prices.
With that history, it is a surprise that last month’s attack on a large oil processing facility in Saudi Arabia had a relatively mild impact on gasoline prices. They rose about 20 cents, to the $2.50 per gallon range and remained at that price for just a few weeks.
That’s a temporary increase of less than 10 percent. By comparison, prices doubled or tripled during oil shocks of the 1970s, and also rose much more than 10 percent during more recent times of tension, such as the Persian Gulf War in the early 1990s and the invasion of Iraq a decade later.
The difference now is that the United States produces far more oil than it did back then. Even with rising energy usage, the increased output means the country is far less dependent on foreign oil than it used to be.
America’s oil production boom has been so large that we are now the world’s top oil producer — delivering more oil than any single member of OPEC and other large producers like Russia.
U.S. production, spurred by fracking and horizontal drilling, has doubled since the middle part of the last decade to 12 million barrels per day. Our imports from Saudi Arabia are down 60 percent from a decade ago.
The attack on the Saudi oil facility, allegedly sponsored by Iran, knocked out 6 percent of the world’s oil production. It also increased the possibility of conflict between Saudi Arabia and Iran, which would mean more price increases if anything like that were to happen.
The Washington Post recently reported that Saudi Arabia had restored half the production lost in the attack and would have the rest of it back by the end of September.
It is true that further attacks in the Middle East could continue to raise oil prices, which are largely set on a single, global market. The only way to truly get out from under the specter of future oil price shocks is to continue to get more of our energy from other sources like solar, wind, water and hydrogen combustion.
The country is moving in that direction. Alternative energy sources generated 17 percent of electricity production last year, a sizable increase from 13 percent in 2013. There is every reason to expect this trend to continue.
But for the near future, oil will remain the king of energy, especially for transportation, where the market for alternative-powered vehicles is growing but is not nearly as far along as the market for generating electricity.
That means this Saudi Arabia vs. Iran episode is a good reminder that there are benefits to producing a valuable commodity instead of having to buy it elsewhere.