Last week, Benjamin Alter and Edward Fishman of the New York Times co-authored an article, “The Dark Side of Energy Independence.” They argue that a coming increase in United States oil production will drive prices below $50/barrel; this price drop will “unleash unrest” in regions around the world and the United States should, therefore, adopt and even more aggressive foreign policy, evidencing a lack of appreciation for history, economics, and world affairs.
The U.S. is a declining power and no amount of domestic oil and natural gas production can change that. The power of a nation in the world has many origins. However, for the last 200+ years, manufacturing supremacy has been the core. Manufacturing supremacy translates directly into global financial and military power. China is now the world’s leading manufacturer and largest global creditor. We are the world’s leading debtor. Case closed.
To put this in perspective, Russia and Saudi Arabia are net oil exporters. Are either of them global powers as a consequence? Russia is a global power to some degree. However, Russia’s power is left over from the economic and military system created by the communists (who in turn built on work of the Czars).
U.S. oil production is rising (6.467 MBD in 2012). However, it is still far below peak production back in 1970 (9.637 MBD). Note that the low was 5.0 MBD in 2008. According to the EIA:
“The United States relied on net imports (imports minus exports) for about 45% of the petroleum (crude oil and petroleum products) that we consumed in 2011. Just over half of these imports came from the Western Hemisphere. Our dependence on foreign petroleum has declined since peaking in 2005.”
If the U.S. became a net oil exporter, Obama’s and Romney’s statements would be substantially true. However, the authors are correct in stating that America would still have reason to care about the Middle East.
Even back in the 1950s, when America’s domestic oil resources were quite sufficient, we were still involved in the Middle East because our allies in Europe and Asia were dependent on Middle Eastern oil. Notably, the oil embargo of 1956 triggered an immediate U.S. response even though we had unused crude reserves (back then) to offset the decline in Middle-Eastern oil.
How much the U.S. would care in 2020 or 2030 (assuming energy independence) is actually more a function of America’s political role in the world than anything else. By 2020/2030 we could let China/India/etc. deal with any problems that arose in the region.
Monthly U.S. production is up 2 MBD since 2005/2008. That’s actually somewhat amazing, but not nearly enough to crash world oil prices back to $50 per barrel permanently.
U.S. production can’t reduce world prices that much because the new U.S. production is entirely dependent on very, very high prices to be profitable. Stated differently, the very high cost of extracting tight oil (and tar sands in Canada) sets a floor under world oil prices at a level far above $50. Predictably, the details are more complex (the floor is medium/long term, not overnight). However, you can see the point.
The Petrostates are probably more resilient than you might think. For one thing, they aren’t completely dependent on immediate oil revenues. They can and do borrow. Supposedly, Saudi Arabia had budget deficits for 19 years before rising prices enabled Saudi Arabia to enjoy surpluses.
“The United States has benefited as much as any other country from the free exchange of goods, the safety of global sea lanes, the spread of democracy and the great-power stability that have characterized the entire post-World War II era. None of this could exist without the steadying hand of American power. Washington must make abundantly clear that it will continue to uphold this world order — irrespective of its own energy fortunes.”
The post-WWII era was defined by a bitter and dangerous confrontation between the U.S. and the Soviet Union. It could have easily ended in nuclear war. We are lucky that it did not.
After the Berlin Wall fell, the U.S. enjoyed its “unipolar moment” which ended badly in Iraq and Afghanistan. That’s the conventional interpretation and partially true. However, America’s brief moment in the Sun really ended with the rise of China as an economic superpower, the stunning fall in U.S. economic strength starting under Clinton and accelerating (massively) under Bush, the housing bubble, and the crash of 2008.
In 2020, China’s economy will be much larger than the U.S. By 2030, China’s economy could double or triple the United States. Any pretense of world power on the part of the United States will be an illusion.
The editors of the New York Times should be well versed enough in history, global economics, and power to know this. Of course, what we can really learn from this is that the desire for an interventionist foreign policy is far more bipartisan than the critics of Bush/Cheney were ever willing to admit. What the left and the right don’t get is that the “American Century” is over.