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OWENS: How Obama could beat Putin playing energy geopolitics
Gas and oil are at the center of the struggle
Question of the Day
The White House's first round of "sanctions" announced Monday against 11 individuals involved in Russia's recent actions in Ukraine and Crimea evoked gales of laughter in Moscow, according to news reports. An embarrassed President Obama made a second try with additional penalties on Thursday.
Of course, President Obama's defenders are quick to point out that our options in this case are limited. Certainly that is true of potential military steps. There is one alternative that could be a game changer, though: wielding the energy weapon against Russia, a country that has not hesitated to use that weapon to advance its own interests.
Russian President Vladimir Putin has not hesitated to leverage the fact that Ukraine depends on Russia for more than two-thirds of its natural gas, and Europe for 34 percent. Indeed, it was Ukraine's reliance on Russian energy that forced the now-deposed Ukraine president Viktor Yanukovych to abandon a scheduled trade deal with the European Union.
The United States has had the opportunity to play "the great game" of energy geopolitics against Russia, but so far has not done so. The Obama administration could, if it desires, change the geopolitical balance of energy power in the world, curtailing the ability of the likes of Mr. Putin to cause mischief. The United States has already surpassed Russia as the largest producer of natural gas. The causes of this momentous shift in the geopolitics of energy are advances in directional drilling and hydraulic fracturing (fracking) technologies that have enabled U.S. producers to achieve high rates of gas production from deep gas shale formations.
These methods are also applicable to oil production. Indeed, a November, 2012 report of the International Energy Agency states that the United States is set to overtake Saudi Arabia and Russia to become the world's largest oil producer and a net exporter of energy by 2017. One geopolitical consequence of increased U.S. energy production will be to reduce Russia's ability to bully Eastern and Central Europe.
On the one hand, the Obama administration is in thrall to the environmental lobby, which sees hydrocarbons as a greater enemy than Mr. Putin and is opposed to the fracking revolution. On the other, the administration has, to its credit, said that it wants to increase exports of gas — which have been limited by previous policy decisions and a lack of infrastructure — and oil, which will require action by Congress.
The mere announcement that the United States will begin to export oil and gas, though, could very well change the global energy situation to the detriment of Russia. The Reagan presidency offers a precedent.
Taking office in 1981, one of President Reagan's first steps was to lift the price controls that President Jimmy Carter had imposed on crude oil prices. The "experts" were appalled. Carter "energy czar" Frank Zarb, predicted that the price of gasoline would soon be $10 per gallon.
Instead, crude oil prices — and the prices of refined product — fell precipitously. Why? Because the price controls on U.S. domestic oil production actually had helped OPEC to keep oil prices high by controlling the output of its members. With U.S. price controls, OPEC's oil was more valuable in the ground. Once the price controls were lifted, U.S. domestic production increased, placing downward pressure on worldwide crude prices. This broke the discipline within OPEC necessary to ensure cartel cohesion.
In order to ensure that their oil did not lose value as it lay untapped in the ground, OPEC members increased production, causing oil prices to plummet. One geopolitically significant consequence of the increased output of OPEC members, especially Saudi Arabia, in response to President Reagan's actions was to help cause the Soviet Union to implode as the decline of oil prices badly hurt the Soviet economy.
There are other steps the administration could take to boost U.S. oil and gas production, including throwing its support behind a bill to fast-track drilling and pipeline permits in order to exploit the great potential for increased oil production in the North Dakota and Texas shale formations. The fact is that advances in technology enable producers to drill a new well in six days.
Today, advances in directional drilling and fracking have the potential to allow the United States to do to Mr. Putin what Reagan did to OPEC in the early 1980s. The question is: Will this profound transformation be strangled by the administration's deference to the environmental lobby?
Mackubin Thomas Owens is editor of Orbis, the quarterly journal of the Foreign Policy Research Institute in Philadelphia.
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