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Over the last six years, net oil imports have fallen by 33% to
average 8.4 million barrels per day (Mb/d) in 2011. This represents
45% of domestic consumption, down from 60% in 2005. Oil is a
critical resource for the U.S. economy, but despite policy makers'
longstanding concern, U.S. oil imports had generally increased for
decades until peaking in 2005. Since then, the economic downturn
and higher oil prices were a drag on oil consumption, while
price-driven private investment and policy helped increase domestic
supply of oil and oil alternatives. Net imports are gross imports
minus exports. The decline in net imports has manifested itself as
a decrease in gross imports and an increase in exports of petroleum
products. Gross U.S. imports of crude oil and petroleum products
averaged 11.4 Mb/d in 2011, down 17% since 2005. More than a third
of gross imports came from Canada and Mexico in 2011. About 40%
came from members of the Organization for the Petroleum Exporting
Countries (OPEC), mostly from OPEC members outside the Persian
Gulf. Regionally, the largest share of U.S. imports come into the
Gulf Coast region, which holds about half of U.S. refining capacity
and sends petroleum products to other parts of the country and
abroad. All regions of the country import more crude than refined
products except for the East Coast, where petroleum products
imports may rise further due to refinery closures. U.S. oil
exports, made up almost entirely of petroleum products, averaged
2.9 Mb/d in 2011. This is up from export of 1.2 Mb/d in 2005, led
by growing export of distillates (diesel and related fuels) and
gasoline. More than 60% of U.S. exports went to countries in the
Western Hemisphere, particularly to countries such as Mexico and
Canada from which the U.S. imports crude oil. Exports occur largely
as a result of commercial decisions by oil market participants
which reflect current oil market conditions as well as past
investment in refining. As a result, net oil imports fell from a
peak of 12.5 Mb/d in 2005 to 8.4 Mb/d in 2011, their lowest level
since 1995. A consensus is generally emerging among energy analysts
that U.S. oil imports may be past their peak, reached in 2005.
Imports as a share of consumption are expected to fall further, to
less than 40% after 2020 driven by tighter fuel economy standards
and increased domestic supply. Despite the decline in net import
volumes, the cost of net imports has increased due to rising oil
prices. The aggregate national cost of oil imports is a function of
the volume of oil imported and the price of that oil. The United
States spent about $327 billion on net oil imports in 2011. Being a
net importer of a particular good is not necessarily negative for
an economy, but greater national oil import dependence can amplify
the negative economic impacts of oil price increases. Oil import
and export developments pose a host of policy issues. Concerns
about import dependence continue to generate interest in policy
options to directly discourage imports or to reduce the need for
imports by increasing domestic supply and decreasing demand. Rising
exports at a time of rising prices has led to calls for policies to
restrict such trade. The debate around the Keystone XL pipeline
involves concerns about imports, exports, and the environment. The
rising cost for fuels has led to calls for release of the Strategic
Petroleum Reserve, meant to provide a short term policy option in
case of supply disruptions. Policy options may entail various
economic, fiscal, and environmental trade-offs.
Some officials of the Islamic Republic of Iran have recently
renewed threats to close or exercise control over the Strait of
Hormuz. Iran's threats appear to have been prompted by the likely
imposition of new multilateral sanctions targeting Iran's economic
lifeline-the export of oil and other energy products. In the past,
Iranian leaders have made similar threats and comments when the
country's oil exports have been threatened. However, as in the
past, the prospect of a major disruption of maritime traffic in the
Strait risks damaging Iranian interests. U.S. and allied military
capabilities in the region remain formidable. This makes a
prolonged outright closure of the Strait appear unlikely.
Nevertheless, such threats can and do raise tensions in global
energy markets and leave the United States and other global oil
consumers to consider the risks of another potential conflict in
the Middle East. This report explains Iranian threats to the Strait
of Hormuz, and analyzes the implications of some scenarios for
potential U.S. or international conflict with Iran. These scenarios
include: (1) Outright Closure. An outright closure of the Strait of
Hormuz, a major artery of the global oil market, would be an
unprecedented disruption of global oil supply and contribute to
higher global oil prices. However, at present, this appears to be a
low probability event. Were this to occur, it is not likely to be
prolonged. It would likely trigger a military response from the
United States and others, which could reach beyond simply
reestablishing Strait transit. Iran would also alienate countries
that currently oppose broader oil sanctions. Iran could become more
likely to actually pursue this if few or no countries were willing
to import its oil. (2) Harassment and/or Infrastructure Damage.
Iran could harass tanker traffic through the Strait through a range
of measures without necessarily shutting down all traffic. This
took place during the Iran-Iraq war in the 1980s. Also, critical
energy production and export infrastructure could be damaged as a
result of military action by Iran, the United States, or other
actors. Harassment or infrastructure damage could contribute to
lower exports of oil from the Persian Gulf, greater uncertainty
around oil supply, higher shipping costs, and consequently higher
oil prices. However, harassment also runs the risk of triggering a
military response and alienating Iran's remaining oil customers.
(3) Continued Threats. Iranian officials could continue to make
threatening statements without taking action. This could still
raise energy market tensions and contribute to higher oil prices,
though only to the degree that oil market participants take such
threats seriously. If an oil disruption does occur, the United
States has the option of temporarily offsetting its effects through
the release of oil from the Strategic Petroleum Reserve. Such
action could be coordinated with other countries that hold
strategic reserves, as was done with other members of the
International Energy Agency after the disruption of Libyan crude
supplies in 2011. Iran's threats suggest to many experts that
international and multilateral sanctions-and the prospect of
additional sanctions-have begun to affect its political and
strategic calculations. The threats have been coupled with a
publicly announced agreement by Iran to resume talks with six
countries on measures that would assure the international community
that Iran's nuclear program is used for purely peaceful purposes.
Some experts believe that the pressure on Iran's economy, and its
agreement to renewed talks, provide the best opportunity in at
least two years to reach agreement with Iran on curbing its nuclear
program.
In 2008, Canadian pipeline company TransCanada filed an application
with the U.S. Department of State to build the Keystone XL
pipeline, which would transport crude oil from the oil sands region
of Alberta, Canada, to refineries on the U.S. Gulf Coast. Keystone
XL would ultimately have the capacity to transport 830,000 barrels
per day, delivering crude oil to the market hub at Cushing, OK, and
further to points in Texas. TransCanada plans to build a pipeline
spur so that oil from the Bakken formation in Montana and North
Dakota can also be carried on Keystone XL. As a facility connecting
the United States with a foreign country, the pipeline requires a
Presidential Permit from the State Department. In evaluating such a
permit application, the department must determine whether it is in
the "national interest," considering the project's potential
effects on the environment, economy, energy security, foreign
policy, and other factors. Environmental impacts are considered
pursuant to the National Environmental Policy Act, and documented
by the State Department in an Environmental Impact Statement (EIS).
The final EIS was released for the Keystone XL pipeline permit
application in August 2011, after which a 90-day public review
period began to make the national interest determination. During
that time the State Department determined that more information was
needed to consider an alternative pipeline route avoiding the
environmentally sensitive Sand Hills region of Nebraska, an
extensive sand dune formation with highly porous soil and a shallow
depth to groundwater recharging the Ogallala aquifer. The Temporary
Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) required the
Secretary of State to approve or deny the project within 60 days.
On January 18, 2012, the State Department, with the President's
consent, denied the Keystone XL permit, citing insufficient time
under this deadline to properly assess the reconfigured project.
Subsequently, TransCanada announced that it would proceed with
development of the pipeline segment connecting Cushing, OK, to the
Gulf Coast as a stand-alone project not requiring a Presidential
Permit-a decision supported by the Obama administration. In April
2012, TransCanada submitted to Nebraska proposed pipeline routes
avoiding the Sand Hills. Subsequently, on May 4, 2012, TransCanada
submitted a new application for a Presidential Permit that includes
proposed new routes through Nebraska. With the new permit
application, the NEPA compliance process begins anew, although it
may draw from relevant existing analysis and documentation prepared
for the August 2011 final EIS. In the wake of the State
Department's denial of the Presidential Permit, Congress has
debated legislative options addressing the Keystone XL pipeline.
The Surface Transportation Extension Act of 2012, Part II (H.R.
4348) and the North American Energy Access Act (H.R. 3548) would
transfer the permitting authority for the Keystone XL pipeline
project to the Federal Energy Regulatory Commission, requiring FERC
to issue a permit within 30 days of enactment. The Keystone For a
Secure Tomorrow Act (H.R. 3811), the Grow America Act of 2012 (S.
2199), S. 2041 (a bill to approve the Keystone XL pipeline), the
EXPAND Act (H.R. 4301), and the Energizing America through
Employment Act (H.R. 4000) would immediately approve the original
permit application filed by TransCanada.
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