The reliability of Asian and European oil coming through the straits of Hormuz in contrast to the US energy independence.
Contrary to the near unanimous chorus of media coverage concerning the current impasse in the straits of Hormuz it isn't obvious that this is an American problem. The chief consumers of oil passing through this critical juncture are China, India, South Korea, Japan and the European markets. The U.S. has alternative reserves due to domestic crude from Alaska, the Permian Basin, the Gulf of America and domestic fracking. This is further augmented by Venezuelan heavy crude now refined in the U.S. and possible further supplementation with Canadian sand shale from Alberta. Based on those determinations if European powers won't contribute to efforts to keep the straits open, Trump can simply leave them to their own repercussions that will further drive up the price of Brent crude oil.
The question may then become whether the U.S. can redefine the global oil market by legislatively mandating the West Texas Intermediate. Can America divorce the WTI from the Brent prices and from the Rotterdam spot market prices by maintaining a domestic market legislatively controlled? In so doing, keeping all oil being drilled from federal lands subject to a semi-interventionist price control system that in theory could average domestic gasoline prices at $2/gallon varied only by state taxes. Such a fundamental restructuring of oil markets will allow the U.S. to operate independent of global bench marks. This might be opposed by petroleum industry interests who would benefit from higher international prices, but would likely have public support. Such price regulation would not be government mandated price controls in the ordinary sense, but could be legally enforced as terms of condition in federal licensing policies for drilling on federal lands.
Approximately 25% of oil pumped in the U.S. is drilled on federal land where contractual conditions can be easily implemented. These strategies would have a short to medium term impact on global markets and on domestic prices. Medium to longer term strategies however would require a national network construction of safer pebble cooled nuclear reactors, generating a viable source of electricity for electric vehicles. Additionally, similar to the energy company SASOL, the U.S. should begin domestic production of a coal conversion variant of gasoline, jet fuels and certain petrol chemicals. The Fischer-Tropsch process technology allowing for the production of cleaner synthetic fuels has existed since the 1930's and enhanced upgrades of this method are in active production use in South Africa. This would avoid the failed folly of moving towards 100% renewables that have crippled the German economy and driven energy costs punitively higher in order to placate Green Party-political interests.
The Trump administration must lower domestic gasoline prices in an election year in the short term. However, in the medium to longer term the current conflict with Iran affords an opportunity to restructure the international oil market in such a manner that it will immunize the U.S. from surging oil prices. In theory such a fundamental revamping of oil markets could keep domestically produced oil under $50/barrel.
Events are marching forward at pace. At time of writing some European nations have indicated a willingness to perhaps contribute towards a naval response. Trump himself has said that Iran is negotiating an end to the blockade. Irrespective of this, the situation has elucidated the vulnerability of European and Asian gas and oil supply and the opportunity for the U.S. to advance its energy independence in such a way that will directly translate into savings for domestic consumers.
(Author is an Israeli American lawyer academically qualified in British and in U.S.A. law, and a graduate of the School of Oriental & African Studies, London. He is a Jewish believer in Jesus and is currently based in Israel).
