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People commonly perceive the global oil market to be a collection of bilateral trade relationships through which consumers purchase their oil from specific producing countries. Perhaps unsurprisingly, this view has led policymakers to place special significance on their countries’ diplomatic and security relationships with oil producers because they believe such ties are key to ensuring reliable access to energy resources.

In reality, oil is a global commodity. And like the market for any global commodity, the oil market works more like a bathtub, in which many different producers contribute to a single world supply of oil from which consumers then draw. Some producers fill the bathtub through larger “spigots” than others, but most have a limited impact on the global supply on their own. In this market, individual trade relationships mean little because a barrel of oil from one country can easily be replaced by a barrel from another. Consequently, energy security depends more on the total amount of oil flowing into and out of the bathtub than on ties between specific consumers and producers.

There are a few countries that produce enough oil to have a noticeable effect on the global market if their supplies are disrupted. Among their ranks are historical energy giants, such as Saudi Arabia, as well as emerging producers like the United States. If any of these countries suddenly halted production and turned off their spigots, the level of oil in the bathtub would become markedly lower because few other producers would have the capacity to compensate for the large volume lost, at least in the short term. Since the total volume of oil in the bathtub impacts oil prices worldwide, wild swings in the global energy supply have dramatic implications for U.S. prosperity.

New Technologies Are Resizing the Spigots

New oil and gas production technologies are refitting the global bathtub with new spigots of different sizes. Countries that are using these technologies to extract larger volumes of oil or gas are getting bigger spigots. Others are becoming producers for the first time, adding entirely new spigots to the bathtub. Still others are watching their spigots shrink as their production levels decline and much-needed investment shifts toward promising unconventional plays elsewhere.