I haven’t posted in two weeks. Instead of blogging, I’ve been vacationing, catching up with all the news and analysis I missed, and writing for some other publications. Links to new articles on Saudi Arabia and Iran should be posted here in the coming weeks. It’s good to be back.
I spent Thursday morning at a New America Foundation event on oil. The topic: rising North American production and its political implications. (You can watch the two-hour event on YouTube.) Conventional wisdom has snapped into place in less than a year, it seems, with bright forecasts giving analysts whiplash. There’s almost no question now that U.S. energy production will rise significantly in the coming years. A year ago no one was talking about this. Two years ago you’d be laughed out of a conference if you said the U.S. might soon compete with Saudi Arabia.
Today’s conversation is surreal given the pessimism seen only months ago. The market was supposed to remain tight for a generation–but new technology and higher energy prices have transformed the energy landscape. Tough oil plays are both technically feasible and economically attractive now. Tight oil is now being unlocked by techniques like “fracking.” And deepwater drilling is making a comeback after the 2010 BP spill resulted in a brief moratorium. In March, Citigroup surprised many with a bold report titled “Energy 2020: North America, the New Middle East?” (PDF).
This isn’t a new topic for Al Ajnabee. In a February post titled “The Very Long Goodbye?” I wrote excitedly about how abundant oil might change America’s strategic calculus. I even floated the idea of the U.S. downsizing its commitment to the Persian Gulf, an idea that—like future oil abundance—might soon become conventional wisdom too. Indeed, we might come to expect a drawdown in the coming decade if the U.S. really does flirt with energy independence. “There is no question that many national security policy makers will believe they have much more flexibility and will think about the world differently if the United States is importing a lot less oil,” Cliff Krauss and Eric Lipton of the New York Times wrote in March.
Here is where we’ll slam on the breaks.
In my post, I also emphasized time, concluding that, “any significant change in U.S. policy is a long way off.” My last line is worth repeating: “Any newfound ‘flexibility’ [in policy] will only be recognized by Washington after it feels that it has the luxury to consider bold change. The long goodbye could be very long indeed.”
We should also reconsider what “energy independence” actually means. Michael A. Levi of the Council on Foreign Relations said it best last month. “Is U.S. energy independence achievable? If you define ‘energy independence’ in oil as a United States where the price of a barrel of oil is totally unaffected by oil supply and demand abroad, then no, it isn’t. The chances of that scenario coming to pass are essentially nil [emphasis added].”
I presume most Americans would define “independence” this way. Why else would every administration since Nixon promote energy independence if it didn’t insulate the U.S. from destructive price shocks? Presidents hate those. In another post from May, Levi noted that some analysts think U.S. oil imports will fall from 52 to 22 percent, as domestic production pushes out foreign oil.
“How does a shift from 52 to 22 percent import dependence translate into a fundamental reversal in vulnerability?” Levi continued. “After all, in 1973 itself, only 15 percent of U.S. oil and gas consumption (and only 26 percent of oil) came from imports. If 1973 ushered in a new age of energy insecurity [with the Arab oil embargo and OPEC price hikes], it is tough to see how a fall in imports to a level still higher than the 1973 one would reverse that.”
Oil is a globally traded commodity meaning that if it is not consumed where it is produced then it will be traded and consumed elsewhere. Forgive me if you’ve heard that a million times. Prices everywhere will still be dictated to some extent by the global supply-demand picture even if the U.S. increases production. As a rule, more production is a good thing, but you’ll still pay more at the pump if Venezuelan oil goes offline, strikes in West Africa cut off supply, or if war breaks out in the Persian Gulf.
Even if North America produces more hydrocarbons, Europe will continue to depend on the Middle East and North Africa for energy. So will China. It goes without saying that the health of the American economy cannot be separated from these regions. Just look at the headlines and follow the stock market. When the Eurozone can’t agree on policy, U.S. stocks tumble; when traders get wind of Chinese stimulus, stocks rise. These eggs can’t be unscrambled. And so Washington must be sensitive to threats to foreign economies if they want to ensure American prosperity.
Does that mean the U.S. might remain a fixture in the Persian Gulf? Right now, the U.S. underwrites security there with the Fifth Fleet. Presidents going back to Carter have all explicitly promised to defend the region from hostile powers that might interrupt the flow of oil. If Iran attempts to close the Strait of Hormuz, mine the Persian Gulf, or harass shipping again like it did in the 1980s, the U.S. will react with overwhelming force and with good reason. The White House will rationalize the response by arguing that Iran’s aggression constitutes an attack on the global economy.
17 million barrels of oil pass through the Strait every day. That’s 20 percent of oil traded daily. That number might shrink slightly in the coming years, as more Gulf Arab producers invest in pipeline projects that avoid the Strait of Hormuz, but Iraq, Saudi Arabia, Oman, and Qatar will have no choice but to depend on shipping for the foreseeable future. The Strait will remain a vital energy artery and defending it will be a top priority.
China and Europe can’t project force like the United States, however. To give you some perspective, the U.S. normally has two aircraft carriers within striking distance of Iran; the entire Chinese navy only has one aircraft carrier, and it’s a Soviet-era clunker. Just last year the United Kingdom and France considered sharing aircraft carriers so that both countries could cut down on defense costs. The Gulf Arab countries, even if they fear Iran and spend heavily on defense hardware, simply don’t have the incentive to start a joint defense scheme if the U.S. Fifth Fleet stands ready in the Gulf. Leaving the Gulf might force these countries to work closer together but any crisis could quickly overwhelm forces that lack combat experience.
North America might become the “new Middle East” by 2020 or 2030, like energy analysts predict. But that doesn’t mean the U.S. can simply walk away from the region. China and Europe are in no position to replace the United States and guarantee regional security. Even if that were the case, would Washington be willing to trust Beijing with custodianship of the world’s most important energy chokepoint? I think not. It sure seems likelier that the U.S. will remain the preeminent power in the region so long as the Gulf Arab states distrust Iran and regimes there accept U.S. deployments.
A post like this should end with a call for humility. The last two years of unrest and dramatic change in the Middle East prove the future is up for grabs. So much could change between now and the time oil market analysts think the U.S. will achieve energy self-sufficiency. In the interim, the Persian Gulf could shift politically. The Fifth Fleet is stationed in Bahrain, for instance, a country at risk of exploding thanks to demographics. The Khalifa regime is locked in an existential conflict with the Shia majority at the moment. Violence, protest, and abuse are the new normal. The situation is unsustainable and it’s possible the U.S. could lose its naval base in Manama.
The stakes are so high, however, that we should expect the U.S. to remain in the Gulf for decades still. America’s strategic rationale will likely outlive the country’s dependence on foreign oil.