Why you should care
It’s good news for the U.S., but it could mean big changes in the country’s global influence.
Over the last year or so, the realization has begun to take hold in the United States that the country is on its way to achieving independence in oil and natural gas production. Given that the competition for oil has been one of the key drivers of international politics for decades, this has potentially profound implications for the relative power positions of the United States and other countries — both oil producers and non-oil producers.
Energy demand is falling in the United States, particularly for oil… At the same time, U.S. production of natural gas and crude oil is surging.
While the trends that account for coming American energy independence are pretty well-documented, foreign policy thinkers are only beginning to grapple with what this might mean for U.S. policies and influence abroad and how it might impact other nations that are heavy producers of oil and gas, like Russia and the Persian Gulf countries, or rapidly growing consumers like China.
At this point, there are probably more questions than answers, but it’s definitely time to start thinking about what this enormous change in global dynamics means.
A few things are clear and known; others are not.
Source: Gallery Stock
First, let’s talk about what’s clear. A number of recent studies have documented that energy demand is falling in the United States, particularly for oil, due to a variety of factors ranging from conservation to more efficient use and the availability of cheaper natural gas. At the same time, U.S. production of natural gas and crude oil is surging, due in large part to more efficient drilling practices and advances in “fracking” technology — the process whereby liquid is injected into rock fractures to enlarge them and allow natural gas and crude oil to escape.
Fracking is a controversial technique, with conservationists worried about its impact on the environment, particularly water supplies. But with President Obama generally in favor of fracking, it’s likely to continue.
This combination of declining demand and rising production has put the U.S. on a path to overtake both Saudi Arabia and Russia as the world’s largest oil producer by 2017, according to the International Energy Agency (IEA). Meanwhile Citigroup projects that within five years, the U.S. will not have to buy oil from any country other than Canada. And the IEA foresees North America becoming a net exporter of oil in about 25 years and the U.S. becoming nearly self-sufficient shortly thereafter.
This energy revolution has sharply different implications for various countries.
For the United States, it is obviously good news. It probably means lower oil prices and a more advantageous trading position, because many goods will be cheaper to manufacture and we will not be spending so much to import oil. It will also mean more leverage with oil-producing nations, which will be less able to use oil as a weapon, as OPEC started doing with its damaging oil embargo almost 20 years ago. And should circumstances again cause the U.S. to push for sanctions on an oil producer, as it has with Iran, it will be able to do so with more freedom from retaliation.
Implications for many other countries are mixed at best. Citigroup projects that the market impact could be benchmark crude trading at $70-$90 per barrel by the end of the decade, considerably below the current range of $90-$120. This would be bad news for countries like Russia, which relies on oil selling in the higher range to sustain its budget and growth. At the same time, the increasing availability of oil and natural gas from North America could cut into Moscow’s ability to use its oil and gas for political leverage with Western Europe and states once part of the Soviet Union, such as Ukraine.
For producers in North Africa and the Persian Gulf, it would mean lower revenues at a time when many are coping with the calls for increased services and other popular demands flowing from the Arab Spring and its aftermath.
For the U.S., it means lower oil prices and an advantageous trading position…Get ready for a big debate on whether we remain engaged in the Middle East once we no longer depend on it for oil.
Those countries will still have customers soaking up their oil, however, even if the U.S. is not. Chief among them will be China, which is likely to become the world’s No. 1 oil customer, largely because in Beijing, the reigning formula is still energy security = economic growth = political stability.
But this in turn raises other imponderables. Will the American public continue to support expensive U.S. efforts to protect currently vital sea lanes (such at the Gulf’s Strait of Hormuz) when the chief beneficiary is China? Will China want to take this on, and with what implications for its military strength and posture? And might China shift to a more proactive political role in the Middle East, as opposed to its current posture, which basically centers on buying and selling things?
For the United States, this cannot be a simple economic calculation. Providing what many call the “global commons” — freedom of the seas and other security guarantees — is one of the foundations of our global influence, one that could become still more important at a time when we are no longer the undisputed sole superpower. And get ready for a big debate on whether we have to remain as engaged in the Middle East as we have been once we no longer depend on it for oil. Again, this cannot be simple economics, given the U.S. commitment to Israel and the fact that so many of our allies will continue to depend on a modicum of stability in the region.
The bottom line is this: Sooner or later, countries around the world will have to start factoring all of this into their strategic calculations because it is certain to inject a major new element of unpredictability into a global environment that is already fractious and turbulent.