Could Shale Oil, Gas Boom Undermine OPEC’s Stranglehold?

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In the 1970’s America was rocked by the so-called Oil Crisis when leading petroleum exporting nations in the Middle East moved to severely restrict exports to the U.S. over the nation’s support for Israel. Now, a resurgent American oil industry, based largely on shale oil, is poised to reshape the international geopolitical landscape.

Could Shale Oil, Gas Boom Undermine OPEC's Stranglehold?

Oil in United States:

While the United States economy remains largely in the doldrums, its oil and gas sector is steaming ahead. Fueled by major investments from oil giants and smaller “boutique” firms, the United States is poised to become the next oil exporter within the next five years. This is a huge change from only a few years ago, when the USA was the world’s leading oil importer and was heavily reliant on the decisions of the OPEC cartel.

Much of the oil is coming from oil sands in Canada, though Utah, Colorado and other states within the U.S. are also beginning to see an expansion of sand oil extraction. Now, the United States is on the verge of becoming a major oil supplier, and should be self-sufficient in all energy needs by 2035. And by 2015 the U.S. could overtake Russia as the world’s largest exporter of natural gas.

Challenge to OPEC

These developments are challenging the power of OPEC, the leading oil consortium, which currently controls 35 percent of global production. On one hand OPEC must contend with emerging competitors, which are not limited just to the United States, but also places like Burma. On the other hand, the Arab Spring and ongoing conflicts and tensions have slowed production and expansion within many OPEC nations. Most of OPEC’s members are located in Africa and the Middle East, though two members are from South America.

Indeed, experts believe that even should the global economy rebound and demand for oil spike, the United States should be able to meet any resurgent increases in demand for the next five years. This could severely weaken the power of OPEC and its ability to influence global prices. Now member states are scrambling to react.

Oil Exports:

Still, the USA has not actually been exporting most of the oil it extracts, due to  the Export Administration Act of 1979, which banned exports. This bill was installed largely as a result of the Oil Crisis and a drive to protect America’s oil reserves. Now, many parties are calling for an end to the act and to allow exports to resume. Some are arguing that the export ban should be left in place, while others are pointing out that it might kill investment within the oil and gas industry.

The oil boom is not without its critics. Shale oil and gas is extracted through a process called “fracking,” in which high pressure water is blasted through the Earth to force the release of nature gas and oil. Critics warm that this will use up a lot of water, could contaminate water supplies, and release green house gases such as methane. Further, many question whether increasing oil supplies will discourage the shift away from fossil fuels, which have numerous detrimental impacts on the environment.

Still, the continued development of America’s oil and gas industry, along with its growing alternative energy industry, could mean that the United States will never again suffer from another Oil Crisis. And with the decline of OPEC’s influence, the entire power structure of the Middle East may also shift.

What this could mean for global energy markets, let alone regional geopolitics, remains unclear.

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