In 2007 and 2008, the price of oil skyrocketed, hitting historic highs. The corresponding increase in gas price was felt sharply in the United States by ordinary people, industries, the military and the government. Citizens were spending more and more of their paychecks to fill their gas tanks, airlines grounded planes to avoid the high cost of fuel, and the military saw its daily price tag for the wars in Afghanistan and Iraq increase due to fuel costs. The U.S. military depended almost exclusively on oil to power its weapons and vehicles.
Economists the world over debated whether this sudden price jump was caused by supply and demand dynamics, market “speculation,” or the weak dollar. In addition, debate intensified over whether the world was hitting “peak oil,” - a time when global oil production capacity would plateau.
If strategy is about gaining and maintaining control of destiny through managing the balance between influence and dependence,2 the U.S. faced an increasingly dangerous strategic situation in 2008. Although the U.S. had traditionally been strongly influential in the oil industry, by 2008 it seemed that this influence had waned. U.S. oil production had been decreasing steadily since the mid 1980s, and the U.S. was losing clout as a customer as developing nations like China and India began buying increasing amounts of oil. As a result, the U.S. was potentially facing a situation of strategic subordination.3
The strategic imperatives facing the U.S. in 2008 were therefore first, to gain more control of the forces driving the United States increased dependency on oil, especially foreign oil, and second, to take decisive action to significantly reduce its dependency on oil as a major source of energy within the shortest possible time.
To develop a greater understanding of the strategic challenges facing the U.S. in 2008, this paper provides the key facts and figures, as well as key contextual factors, to describe global and U.S. energy and oil consumption, the history and evolution of the oil industry, the global oil marketplace in 2008, and the relationship between U.S. oil consumption and national security. This greater understanding, we believe, will facilitate taking the decisive strategic actions that the situation calls for.