2012 Index of U.S. Energy Security Risk

2012 Index of U.S. Energy Security Risk

Sub-Index of U.S. Geopolitical Energy Security Risk

The Geopolitical Sub-Index measures the security of global oil, gas, and coal supplies and other factors that affect the ability of the U.S. economy to withstand supply disruptions from whatever causes. Geopolitical energy security risks in 2011 breeched 100 for the second time since 1980, climbing 5.3 points to 101.6 (Figure 2). This is 18.4 points above the above the 30-year average of 83.2.

Most of the increase in risks seen in the Geopolitical Sub-Index over the past decade or more is because of higher crude oil prices and price volatility, which led to greater import expenditures. Supply and demand fundamentals were largely responsible for moving oil prices higher. Despite the sluggish economies of many developed countries, demand in the large emerging economies like China, India, Brazil and others kept upward pressure on global prices. Moreover, tension in the Middle East related to terrorism, the "Arab Spring," and Iran’s pursuit of nuclear weapons all contributed to nervousness in the market that pushed prices higher than they might have been otherwise.

Greater domestic oil and natural gas production, however, helped to offset a portion of these risingrisks by lower the risks associated with oil and natural gas imports. Growing oil output from the Bakken, Eagle Ford and other shale formations and natural gas from the Barnett and Marcellus shale formations have helped reverse the declining production of these two energy resources, causing a drop in import levels.