Benefits Of Fracking Will Be Tested In Syria Attacks

Oil prices are surging on concerns that a U.S.-led attack on Syria could disrupt global oil supplies. West Texas Intermediate crude traded at $110.45 a barrel on the New York Mercantile Exchange this morning, after rising more than $3 a barrel on Tuesday. Less than two months ago, oil sold for less than $100. Gasoline prices have risen the most in six weeks at a time when forecasts had indicated they would be falling because of seasonal decline in demand.

It's a pretty typical market response to geopolitical unrest in the Middle East. The concern, of course, is that any escalation of the Syrian conflict will expand to include other oil-producing nations, particularly Iran. Iran has the power to control the all-important Strait of Hormuz, through which about 17 million barrels of oil pass each day -- roughly one fifth of the world supply.

But this time things are different, at least from the U.S. perspective. The implications of a supply disruption are muted because domestic production is at a 20-year high,  driven by the hydraulic fracturing boom. U.S. inventories are flush. As Liam Denning points out, the U.S. has enough supply of crude oil and refined products to sustain itself for 269 days without net imports, up from 150 days five years ago.

That's without any imports. Our biggest source for imports, though, is Canada, where the greatest threat has been the U.S. political response to the Keystone XL pipeline. With or without the pipeline, oil from Canada will continue flowing into the U.S. without regard for Middle Eastern conflict. If you include Canada imports, the U.S. has enough supply to hold out for more than a year.

Oil prices are set globally, and global markets continue to react to upheavals in the Middle East.  The coup in Egypt roiled the markets in early July, for example, even though Egypt is now a net oil importer and its unrest had little impact on global supply. Regardless of any short-term price swings, the U.S. is in a different position with regards to Syria than it has been in any other Mideast conflict in the past 50 years.

Fracking will not make the country immune to global price volatility, but combined with other U.S. consumption trends -- better fuel efficiency and an increased use of renewable energy -- it will provide a shield from the sorts of supply disruptions that could result from an attack on Syria. More important, it underscores the need for a diversified energy plan based on increased development of domestic reserves and viable alternatives. It also raises a broader question: will fracking ultimately lead to a shift in U.S. policy in the Middle East?