Issues Related to Foreign Oil Supply Diversification

ID-79-36: Published: May 31, 1979. Publicly Released: Jun 18, 1979.

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In response to questions raised, GAO prepared this report concerning oil source diversification policy and the U.S. position on the World Bank program to accelerate petroleum production in developing countries.

The principal benefits to the United States of foreign oil supply diversification are increased supply security and increased independence for foreign policy formulation and execution. Supply security could be achieved by shifting a significant portion of U.S. imported oil dependency to non-OPEC and, more specifically, non-Arab nations. The security of U.S. Middle East oil supplies is vulnerable to terrorist, military, and political disruptions. Overreliance upon the Arab world for oil also places constraint upon U.S. foreign policy in the Middle East. Some obstacles to diversification include that as world supply increases, OPEC will simply restrain production to keep prices up and extend its production life, and the removal of other countries from the OPEC customer list might enable OPEC to more precisely target embargo and pricing warfare directly against the United States without worrying about injuring less developed countries. The Administration has been slow to support a World Bank plan designed to establish a revolving fund which would finance oil exploration in non-OPEC developing countries when it is estimated that it would only cost the United States about $33 million.

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