The Potential for Diversifying Oil Imports by Accelerating Worldwide Oil Exploration and Production

ID-81-07: Published: Nov 25, 1980. Publicly Released: Dec 29, 1980.

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GAO examined the potential for the United States to diversify its sources of imported oil and the incentives and disincentives for private U.S. oil companies to diversify their individual foreign oil sources in order to reduce dependency upon the Middle East and North Africa. Diversification does not mean abandoning traditional oil sources; it means reducing reliance upon them by supplementing them with other sources to the point that dependency upon insecure regions is sufficiently reduced so that a supply disruption would not be critical to national security. Although few oil companies have been able to significantly reduce their dependence on Middle Eastern or North African oil sources, recently their oil exploration activities have been concentrated elsewhere. The areas which hold the most promise for future oil discoveries are the Arctic areas, Antarctica, Mexico, the North Sea, China, and certain developing nations in Latin America and Africa. The United States has one official program which directly influences petroleum exploration in other countries, the Overseas Private Investment Corporation, and participates in a number of international organizations which have or are developing programs to stimulate petroleum exploration and production in developing countries.

Diversification is not a viable short-range strategy, but holds some potential in the mid- to long-range period if new sources can be developed in countries that are currently nonproducers or low producers, and if current producers outside the Middle East and North Africa, such as Mexico and the North Sea countries, continue to increase their export capacities. Aggressive acceleration of worldwide petroleum exploration can be achieved only if obstacles to such exploration are removed or reduced. These obstacles include the expropriation of private assets when exploration is successful, excessive rates of taxation by host governments, an uncertain U.S. tax policy relating to foreign income, and exclusionary host-government policies. Both Congress and the executive branch need to consider U.S. oil company operations in foreign countries as an issue to be factored into relationships with those countries. The United States should seek, through both bilateral and multilateral channels, to favorably influence the attitudes and policies of the governments of the less developed countries concerning private investment in petroleum exploration and development. The United States also should explore ways of helping these countries increase the commercial viability for private development of small oil fields with little or no export potential.

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