Surging oil prices send military costs skyrocketing

The surging price of oil, which recently passed the $100-a-barrel mark, has sent airline stocks falling and American drivers searching for more fuel-efficient cars.

For the world's largest single consumer of petroleum, a U.S. military that is dependent on oil to fuel nearly all of its weapons systems, the increase has meant a 30 percent jump in the price of a gallon of gas in just three months. Currently, the military pays $3.04 per gallon for its most commonly used fuel -- an aviation fuel known as JP8 -- up from $2.31 in October.

In the midst of the ongoing wars in Iraq and Afghanistan, the military can do little to curtail its operations to cut back on fuel consumption. Reducing training flights could raise accident rates. More fuel-efficient vehicles are on the drawing board, but won't be delivered to troops in the field for decades. So for now, the military services are oil-dependent, stuck with skyrocketing prices, and passing those costs along to the taxpayers.

The U.S. military has been paying more than $100 a barrel for oil since late 2006, when the price jumped to $106.26 per barrel, or $2.53 a gallon. In 2005, the standard fuel price was $73.08 a barrel. As of Dec. 19, 2007, the price was $127.68 per barrel, or $3.04 per gallon, according to the Defense Energy Support Center, part of the Defense Logistics Agency. DESC buys fuel on the world markets and then sells it to the military services. The process is designed to allow the military to negotiate better prices and get a greater degree of price stability.

DESC sets a predetermined "standard price" for fuel delivered to the tank of a plane, ship or vehicle. It's based on projections of the price of fuel 18 months in the future, and factors in the costs of transporting, storing and managing fuel. DLA's contracts with fuel producers are adjusted up or down according to fuel price fluctuation.

The military spent $11.6 billion on petroleum in 2007, up from $7.8 billion in 2005, although the services purchased roughly the same amount of fuel -- 132 million barrels -- both years. The standard price in 2005 was $1.34 a gallon.

The Air Force is DESC's largest customer. Its planes burn 7.1 million gallons of fuel a day. Half of every dollar DESC earns comes from the Air Force, versus 28 cents from the Navy and just 12 cents from the Army.

A DESC fact book noted that the Air Force bought $6.1 billion worth of fuel in 2006. Figures supplied by the Air Force indicate that every $10 rise in the price of a barrel of oil increases the service's operating costs by $610 million a year.

According to a report produced last year by LMI Government Consulting, the military uses nearly 60,000 barrels of oil a day to support combat operations in Iraq and Afghanistan. Overall, though, combat operations have only slightly increased the amount of oil the military buys. Prior to the wars in Iraq and Afghanistan, the military bought 110 million barrels of oil annually from DESC.

The top three petroleum suppliers to the military in 2006 were BP, ExxonMobil and Shell. Together, they sold the Defense Department $3.4 billion worth of oil, 27 percent of the total fuel purchased. Coming in a close fourth was the Kuwait Petroleum Corp., with 7 percent of total contracts, valued at $909 million.

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