Crude oil prices Friday surged 4.3 percent to near $90 per barrel, adding to existing jitters. Egypt's unrest sparks fears about oil

For all the uncertainty surrounding events in Egypt, at least one thing is clear: Political unrest in a Middle Eastern country will inevitably lead to a new fight over oil in Washington.

Protests against Egyptian President Hosni Mubarak have already caused a fresh uptick in global crude oil prices, and politicians are ready to pounce with new hearings and old talking points.


Congressional Republicans quickly called for a greater push for North American energy production, including accelerating oil drilling in the Gulf of Mexico. Democrats will undoubtedly use high prices to pursue more conservation and oil-alternatives, such as with President Barack Obama’s call for a “clean energy” production mandate, as well as shine a renewed spotlight on what lawmakers say is rampant market speculation.

“The tenuous situation in Egypt underscores our vulnerabilities and the need for American-made energy,” House Energy and Commerce Chairman Fred Upton (R-Mich.) said in a statement to POLITICO Sunday. “While not the usual ‘hot spot’ like Iran and Venezuela, Egypt highlights the effect an unforeseen global event can have on prices here at home, especially when a major supply route in the Suez Canal is threatened.

“Now is not the time for policies that lock away our domestic oil and gas resources,” Upton added, calling for, among other things, to move forward with the Keystone XL pipeline designed to bring Canadian oil to Texas.

Crude oil prices Friday surged 4.3 percent to near $90 per barrel, adding to existing jitters that U.S. consumers could soon see a repeat of $4 per gallon gasoline similar to the summer of 2008.

Energy Secretary Steven Chu on Friday acknowledged a potential spike in oil prices.

“We’ve diversified our oil supplies. But certainly any disruption in the Middle East means a partial disruption of the oil we import,” Chu told reporters. “More importantly, any serious disruption in the Middle East will mean that even though we don’t get our oil, it’s a world market and that could actually have real harm for the price.”

On Capitol Hill, The Senate Energy and Natural Resources Committee will hold a (previously scheduled) hearing Thursday on global oil and gas markets.

“Undoubtedly, the turmoil in the Arab world will be addressed, early and often,” Bill Wicker, spokesman for committee Chairman Jeff Bingaman (D-N.M.), said via e-mail. “After the hearing, committee members (new and old) will be much better informed as they consider what Congressional response might make sense.”

And the White House was preparing to follow up the State of the Union address with a push on energy this week. As of press time, Obama was planning to host a Tuesday meeting at the White House with technology business leaders to talk about energy innovation and to hold a cabinet meeting on the topic.

Wednesday, the president is scheduled to visit Penn State University and speak about “the importance of investing in innovation and clean energy to put people back to work, grow the economy, and win the future,” the White House said. E-mails to a White House spokesman Sunday were not returned.

In the State of the Union, Obama lent presidential weight to the congressional effort to require that 80 percent of U.S. power come from “clean energy” sources by 2035. Obama said that should include traditional renewable sources like wind and solar, as well as nuclear, natural gas and “clean” coal.

“We will work with Congress to set this goal and figure out how to define this,” Chu said Friday. “We’re halfway there now. Currently by that definition, we’re roughly 40 percent coming from clean sources. So we want to double it.”

The practical effect of the Egyptian instability on prices is unclear.

Egypt is the 21st highest global oil producer, producing roughly 673,000 barrels of oil daily.

But more importantly it is home to two major energy supply routes – the 120-mile Suez Canal, that ships oil and fuel from the Persian Gulf to the Western world, and a 200-mile alternative transit route called the Sumed pipeline. The Suez Canal carried an estimated 1.8 million barrels of crude oil and refined products per day in 2009, according to the Energy Information Administration. The Sumed pipeline carried 1.1 million barrels per day in 2009.

There is also concern that unrest in Egypt could carry over to others in the region, including Libya and Algeria, which are both members of the Organization of Petroleum Exporting Countries and produce more oil than Egypt.

Guy Caruso – former head of EIA under President George W. Bush and now a senior adviser at the Center for Strategic & International Studies – downplayed the likelihood of additional oil spikes tied directly to Egypt, but said the event is “contributing to nervousness in an already tense market.”

“The main things are the nervousness and the psychological impact tend to get a bump anytime there is that uncertainty out there,” he said, noting protests in Libya and Algeria that disrupt production and transit could lead to a short-term $10 per barrel bump in oil prices.

Libya holds around 44 billion barrels of oil reserves, the largest in Africa, and slightly over 54 trillion cubic feet of natural gas reserves. Crude oil production there was roughly 1.8 million barrels per day as of 2009. Algeria was the sixth largest producer of natural gas in 2008, while producing about 1.3 million barrels per day of crude oil, the fourth most in Africa.

A potentially far worse case scenario would be if there was a “perfect storm” of increased instability in the Middle East coupled with escalated demand both in the developed world and emerging economies like in China and India. The growing demand in the developing world has been the main driver so far in the higher crude oil prices in recent months.

“A one-dollar, one-day increase in a barrel of oil takes $12 million out of the U.S. economy,” said Jason Grumet, president of the Bipartisan Policy Center. “If tensions in the Mideast cause oil prices to rise by $5 for even just three months, over 5 billion dollars will leave the U.S. economy. Obviously, this is not a strategy for creating new jobs.”

The weak dollar is already driving up oil and other commodity prices, Grumet said. “Add instability in the Mideast and a rebounding global economy and prices at the pump could quickly eclipse $4.”

The average U.S. retail price of regular gasoline increased for the eighth straight week, reaching $3.11 per gallon – 41 cents per gallon higher than last year at this time, the EIA reported Jan. 26. It is the highest level since October 2008, when gas prices were continuing a downward spiral due to the economic crisis.

Analysts note that distinct differences between now and then that may lessen the chance that prices are headed to 2008 numbers.

Inventories are in better shape now, demand in developed countries has tapered and policies put in place increasing fuel efficiency and allowing more biofuels have helped.

But that hasn’t cooled the jets of those seeking more domestic production, including in the Gulf of Mexico, where new drilling has been hamstrung as investigations continue into last year’s BP oil spill.

“At any point in time, a conflict in the Middle East can erupt and hold our economy hostage because the president is fantasizing about an oil-free green energy policy,” Rep. Jeff Landry (R-La.) said in a statement Saturday.

In 2008, Republicans used the pressure from high oil and gasoline prices to force Democrats to give up the congressional moratorium on new offshore drilling. The effort hit a high point with the “Drill baby, drill” chants at the Republican National Convention that September.

The Obama White House subsequently got behind a push open up new offshore U.S. waters to oil exploration, but that effort ended with the deadly blowout of BP’s Macondo well and subsequent Gulf of Mexico oil spill.

Meanwhile, the Democrats’ speculation argument lost some wind in its sails after lawmakers last year approved a Wall Street bill that addressed many of their concerns.

The Dodd-Frank law – named after now-retired Sen. Chris Dodd (D-Conn.) and top House Financial Services Democrat Barney Frank (Mass.) – directs the Commodity Futures Trading Commission to address the issue and the commission recently proposed a rule to curb speculation in the natural gas, crude oil and other commodity markets.

But there is still lingering concern among Republicans both on the commission and on Capitol Hill that there is insufficient data to move forward with issuing hard rules right now capping speculators, calling into question whether there are enough votes on the panel to approve the final rules.

Darren Samuelsohn contributed to this report.