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An end to 'blood for oil'? Maybe not just yet

Red Adair fire fighting crew work on a blown-out well damaged by retreating Iraqi soldiers in Al-Ahmadi oil field in southern Kuwait,  March 29, 1991.
Romeo Gacad | AFP | Getty Images
Red Adair fire fighting crew work on a blown-out well damaged by retreating Iraqi soldiers in Al-Ahmadi oil field in southern Kuwait, March 29, 1991.

As the North American shale boom propels domestic production to near 9 million barrels per day, some believe that America's geostrategic interests could realign—and focus more inward.

While still in its infancy, the U.S. oil and gas boom is credited with offsetting supply disruptions from conflict-ridden places such as Iraq and Libya. Despite turmoil there and in other petroleum-exporting countries, U.S. oil prices have remained remarkably stable.

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In a note this week, Bank of America Merrill Lynch posed the question of whether the U.S. energy surge will keep the country out of foreign entanglements—if it will, in effect, bring about an "isolationism" that could create a geopolitical void as the U.S. retrenches militarily.

"Can the U.S. preserve geopolitical stability?" the bank asked in a research note. Noting that the U.S. still has 30 far-flung outposts across six continents, BofA wrote that "America still takes up 38 percent of global military spending, but appetite for foreign adventures is low."

For decades, U.S. security interests in petro-states have been broadly defined as keeping energy supplies secure, and projecting "hard power" in the process. That has triggered repeated criticism that conflicts in the Middle East and elsewhere were being waged exclusively for oil.

Regardless, many experts feel that not much will change. Although the geopolitical backdrop has been altered—America's reliance on imports is at its lowest levels in nearly 20 years—analysts and officials say the U.S. still has compelling interests to defend in the relentlessly rocky Mideast.

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"It's not simply a matter of what we import ... it's what happens to the global economy if oil prices suddenly peak," said Anthony Cordesman, a scholar at the Center for Strategic and International Studies. "The strategic regions for being in the Gulf haven't really changed very much."

Cordesman, who chairs the CSIS' strategy center, pointed out that the Energy Information Administration's baseline forecasts see the U.S. importing at least 32 percent of its oil through 2040.

So even as the U.S. becomes an energy behemoth in its own right, it's still in the country's interest for there to be a stable flow of energy supplies in both domestic and international energy markets.

Indeed, at a speech at Columbia University last year, former White House National Security Advisor Tom Donilon told an audience that world energy markets "are part of a deeply interdependent world economy. The United States continues to have an enduring interest in stable supplies of energy and the free flow of commerce everywhere."

Unless the country can both satisfy all its energy needs and export to economies that still rely on OPEC crude—the latter of which is largely forbidden by U.S. law at this point—a war-weary America can scarcely afford to ignore the importance of the Middle East, which is arguably more unstable than ever.

The strategic retreat from Iraq and Afghanistan "may not be helping curb global violence. Quite the contrary, a continued decline in US combat deaths in recent years has been mirrored by a rise in combat deaths elsewhere," BofA analysts said, noting a "limited appetite" for military engagement may not work to the U.S.'s advantage.

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"If there's supply disruption in the Mideast, U.S. consumers will feel that," said Jason Bordoff, who heads Columbia University's Center on Global Energy Policy. "In addition to that, there are lots of other (U.S.) security interests in the Middle East," such as democratic reform, human rights and counterterrorism, he added.

Uncertainty about the sustainability of the boom also makes it less likely that the U.S. can disengage abroad. The International Energy Agency expects the U.S. production surge to peak somewhere after 2020, unless more domestic sources are found.

"Every piece of data suggests reason to be optimistic, and (has) surprised to the upside, but we're not sure how long that will continue," Bordoff said.

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"Everything suggests the growth rate will slow. We're not going to be producing 20 million barrels of oil per day," he added.

There's also another question of who would fill a void in the region if it were left by the United States.

"The only country that can ever really replace us in China," said CSIS' Cordesman. "The last thing on earth you want is the U.S. leaving a power vacuum in the Gulf, and someone has to fill it for us."

—By CNBC's Javier E. David

Energy

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