Exports being used for geopolitical leverage
US puts emphasis on energy domination
The 1970s featured a string of American humiliations – Vietnam, Watergate, the Iran hostage crisis and the Ford Pinto.
But the Arab oil embargo, bringing economic malaise, inflation and Jimmy Carter’s cardigan speech, was one of the worst. Now is payback, under the US president Donald Trump’s slogan of “Energy Dominance”.
Mr Trump stated: “We now have near limitless supplies of energy in our country … We don’t want to let other countries take away our sovereignty and tell us what to do and how to do it.”
This rebranded approach revolves around further growing domestic oil and gas, reviving moribund coal production, boosting nuclear power and increasing liquefied natural gas (LNG) exports, which began only last year. Removing the restrictions on offshore exploration, limits that exist in no other country, is reasonable enough.
Public acceptance will rely on rigorous safety and environmental standards, not a feature of this administration’s mindset. Also absent is any support for renewables such as solar and wind power, energy technology research, efficiency or curbing climate change.
Energy dominance is posed as all about oil, gas and perhaps coal and uranium. The US has excellent solar, wind, hydroelectric, geothermal and biofuel resources in various places, and might export a little electricity to Mexico and Canada, but probably not to Japan or Germany. Net coal exports are less than 2 per cent of production. The focus on fossil fuels ignores the developing future energy world, where knowledge is power, and ExxonMobil and Saudi Arabia's Aramco have to rub shoulders with Tesla and Suntech.
Even though US crude exports have grown sharply since president Obama lifted the ban in December 2015, the country remains the world’s second-largest net oil importer, at more than 4.4 million barrels per day, and it still needs to import heavier crude – from Canada, Mexico, Venezuela, Saudi Arabia and Iraq, among others – to blend for refineries. Canada, Mexico and the US considered as a Nafta (North American Free Trade Agreement) bloc might become a net exporter in the 2020s but their trade relations are facing strain.
Using American energy exports for geopolitical leverage is not new. The Roosevelt administration’s sanctions on US oil exports to Japan helped to precipitate its decision to attack Pearl Harbor in the Second World War. More recently, Hillary Clinton, as secretary of state, promoted hydraulic fracturing worldwide, partly to undercut Russian gas. Rising US oil production was a key part of the Obama administration’s ability to cut off Iran’s exports to pressure it into reaching a deal over its nuclear programme.
The striking change now is in the rhetoric. In combination with the Trump administration’s other actions and overall approach, it is uncomfortably reminiscent of the weaponisation of energy, and one of the poorest marketing slogans the US could have chosen for its new LNG exports. Given the importance of energy to modern life, no one wants their energy supplier to be “dominant”.
A small country which can, in extremis, be coerced is a more comfortable energy supplier than a superpower. The Europeans know this from their experiences with Russian gas and the invasion of Ukraine. At least Russia relies on its gas exports for revenue, while oil and LNG would only be a small part of the US budget. China, which already has the US Fifth Fleet on its oil lifeline from the Arabian Gulf, would worry most. Who is to say that the US at some point, in response to a rise in domestic gas prices, a trade dispute or an inflammatory tweet, might not turn off the taps?
The Arab countries spent many years retrieving their reputation as reliable suppliers after the 1973 embargo. The US may feel more comfortable that it no longer has to answer to the upstart Opec states.
But the implication is not that wielding political control over energy is bad, but that the US should be the one wielding it.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis