Saturday, March 31, 2012

Would becoming a petrostate change the American character?

Posted By Steve LeVine   


If the largest consumer of oil on the planet abruptly does two things -- doubles its own liquids production and cuts its imports in half -- one might find a big chain-reaction in both macroeconomics and geopolitics. This is precisely what many of the country's top industry analysts suggest is happening in the United States -- that the country will soon account for almost all its own oil requirements, and be in the position of exporting some of it. Count me as a skeptic, but since so many serious analysts are not, it merits looking under the hood.
Yesterday I raised the potential for a U.S. political shakeout if the oil-abundant theorists are correct: If the U.S. truly does become effectively self-sufficient in oil, political support for clean-energy would be seriously undermined.
Today, the Obama Administration imposed super-strict standards on the emissions from coal-fired power plants, incentivizing the development of carbon-capture technology, as well as the use of natural gas. This demonstrates that aggressive public policy can keep the goals of the clean-tech edifice alive; but it cannot be taken as a template, since policy ebbs and flows, and any future Republican administration, for example, is unlikely to embrace the same philosophy.
What about the economic wrinkles of a shift to oil as a trigger of a new U.S. Industrial Revolution, as forecast by Citibank analyst Ed Morse? Low-price energy provides a big advantage to U.S. makers of chemicals and plastics, since the feedstock -- natural gas -- is so cheap. Yet would this edge flow up the line to high-end technologies, the foundation of the overall U.S. economic advantage?
I exchanged emails with Michael Klare, a professor at Hampshire College and the author of The Race for What's Left. Klare thinks that oil abundance could have a fundamental impact on the character of the United States. He said:
I see this as making the United States more like a Third World petro-state -- we will see increased economic benefits in some quarters and among certain specialized labor sectors. But we will become more like a basic commodity producer that must lower its environmental standards in order to boost production, and less like a modern high-tech country like Germany and Japan.
A key geopolitical dividend for the U.S. if the abundant-oil crowd is correct would be the ability to distance itself from nefarious petrostate rulers, and scale down its naval patrols of Persian Gulf sea lanes. Citibank analyst Ed Morse suggests that this dividend could materialize -- "with such a turnaround in its energy dependence, it is questionable how arduously the U.S. government might want to play those traditional roles," he writes.
We have previously plumbed this question. Among those saying the opposite are Michael Ross, a professor at the University of California at Los Angeles and the author of the new book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. In an email exchange from Cairo, where Ross is currently on his book tour, he cited detail from a New York Times piece last week by Clifford Krauss and Eric Lipton. Ross:
I think the impact on U.S. foreign policy will actually be rather small, even negligible. Since 1970, there have been wide swings in the degree of U.S. energy dependence. According to the figures in the Krauss/Lipton article, imports rose from 28 to 60 percent of U.S. liquid fuel use from 1982 to 2005. But I can't discern any resulting changes in the role of the U.S. in protecting sea lanes, intervening in oil-producing countries, ensuring the security of friendly governments in the [Persian Gulf], etc. So I don't see why movement back towards 28 percent fuel dependence will change our role.
Yet if U.S. oil production creates more global supply overall, and global oil prices drop as a result, one impact could be to make petro-dictators less powerful by thinning out their money flow. Ross:
The political effects of oil wealth in [resource-rich, developing countries] certainly depends on the global oil price, which will be affected by U.S. production levels. Hence, to the extent that higher production in the U.S. eases global prices, it could help alleviate the dictator-entrenching, and economy-distorting, consequences of oil exports.

These 4 Huge Economies are in Deep Trouble

Iran Watch: Oil, oil everywhere

Posted By Uri Friedman  

With all the talk about an April 13 date being set for nuclear talks between Iran and the world's top powers, another important milestone got lost in the shuffle: today, March 30, when President Obama is required by a U.S. sanctions law to determine whether, as Reuters puts it, "the price and supply of non-Iranian oil are sufficient to allow consumers to 'significantly' cut their purchases from Iran." If the answer to that question is yes, then, beginning in June, the United States can proceed with its effort to isolate Tehran by sanctioning foreign banks that continue to purchase Iranian oil.
Obama's conclusion? There may not be oil, oil everywhere, but there's enough of it to green light sanctions. The Associated Press has more:

"The president said he based his determination on global economic conditions, the level of spare oil capacity, and increased production by some countries, among other factors. He said he would keep monitoring the global market closely to ensure it can handle a reduction of oil purchases from Iran.

With oil prices already rising this year amid rising tensions over the nuclear dispute between Iran and the West, U.S. officials have sought assurances that pushing countries to stop buying from Iran would not cause a further spike in prices.

That's particularly important for Obama in an election year that has seen an increasing focus on gas prices."
Iran meter: Obama's decision clears a path for the administration's aggressive sanctions strategy, which it favors over military conflict.
But there's a wrinkle. Globalization has proven a double-edged sword for sanctions regimes. As scholars Steve Smith, Amelia Hadfield, and Tim Dunne note, an interdependent world economy can make countries more vulnerable to international sanctions. Yet globalization also means that countries facing sanctions can seek out alternative markets and suppliers.
This reality has been on vivid display recently. Bloomberg takes a look today at how China and India are evading U.S. and EU financial sanctions by buying Iranian oil in exchange for local currencies or goods such as wheat, soybean meal, and consumer products. During a meeting in New Delhi this week, the BRICS group of emerging world powers -- Brazil, Russia, India, China, and South Africa -- declared that they would continue trading with Iran in defiance of U.S. sanctions.
This doesn't necessarily mean Western sanctions are doomed. Turkey, the fifth largest buyer of Iranian oil, announced today that it would cut imports of oil from Iran by a tenth in the face of U.S. pressure. And the Congressional Research Service's Kenneth Katzman tells Bloomberg that Iran's "junk-for-oil" program with countries such as China and India is economically unsustainable. "Iran cannot stabilize the value of its currency with such unorthodox payment methods," he explains.
But the big question is whether, come June, the United States will actually sanction Chinese and Indian banks -- an action fraught with political landmines. Obama's announcement today doesn't get us much closer to answering that question.
For more support for keeping the Iran meter at Natanz to Worry About, check out Amir Oren's argument for why Israel may be postponing an attack on Iran and Karl Vick's report on Israel's intelligence services scaling back covert operations inside Iran. (And for a gripping account of how an Israeli strike might play out, read Gary Sick.) 
Note to readers: Earlier this month, I dismissed the importance of Azerbaijan's pledge to prevent any country from using its territory as a launching pad for an attack on Iran, arguing that Israel probably wouldn't strike Iran through its neighbor to the north anyway.
This week, Mark Perry reported at Foreign Policy that Azerbaijan has granted Israel access to airbases near its border with Iran, which could heighten the prospect of an Israeli strike. Authorities in Azerbaijan have denied the allegations, and some others have expressed doubt that Israel would actually use Azeri airbases as part of an attack. But the report does raise the question of whether my headline -- "You can stop worrying about Azerbaijan" -- needs revising.