America’s Too Much of a Good Thing

Monday, March 30, 2015

The United States is currently importing oil at about 1996 levels, or roughly 2.5 million barrels per day less than its peak years of 2005-6 when imports topped 10 million barrels per day. And the price per barrel has collapsed by more than half to about $50. The old 1970s dream of a U.S. self-sufficient in fossil fuel energy is now conceivable. Indeed, in short order the U.S. could soon be a net exporter of coal and national gas, while meeting all its oil needs through North American augmentation from Mexico and Canada.

While such yearly energy savings are not huge by standards of annual $600 billion budget deficits and $18 trillion in aggregate debt, nonetheless the U.S. is saving—depending on changing daily import levels and pricing—about $45 to $50 billion per year in reduced import costs. But more importantly, the ability of the U.S. to curb its import needs is having a depressing effect on world oil prices at a time when the global economy is not yet consuming energy at its full capacity. Countries in the Persian Gulf are intent on using their huge production capacities to drive down prices for geostrategic reasons, largely the diminution of Iran’s ability to subsidize terrorism, gain a nuclear bomb, and spread its hegemony to Syria, Iraq, Lebanon, and Yemen. And the specter of rapidly increasingly alternate sources of fuel add a psychological element to the equation of making it wiser for cash desperate countries like Russia and Iran to pump more now rather than later.

Strategically the quite unexpected energy renaissance in the U.S. is an enormous boon. America is less likely to become hamstrung by disruptions in Middle Eastern oil; psychologically, it is now mostly immune from threats of another politically-driven oil boycott. And the collapse in prices hurts many of its loudest enemies, in particular Iran, Russia, and Venezuela. Coupled with similar spectacular energy finds in Israel’s offshore new fields, the entire complexion of the Middle East soon should begin to turn topsy-turvy.

But what is ironic about the energy revolution is how independently it has developed from the U.S. government. Fracking and horizontal drilling came despite, not because of the Obama administration. New leases on public lands remain in limbo; most finds of gas and oil were on private ground. Far from being in the driver’s seat in the Middle East by virtue of being the world’s largest fossil fuel producer, the U.S. instead seems by intent marginalized and in retreat. In a logical world, both Israel and the United States would have forged even stronger relationships since both are less exposed to the capriciousness of the world energy markets, especially supplies from hostile Islamic enemies and fickle friends.

Why the disconnect? The energy bonanza could not have come at a more importune time for the Obama administration. Its climate change obsessions argue for less production of fossil fuels, not more. Punishing Iran and Russia through lower oil prices did not accord well initially with naïve ideas of Russian reset and the more recent fantasy that Iran might become a strategic partner. The Obama administration wanted to leave the Middle East, not gain more leverage and independence within it. Israel was supposed to be more dependent on U.S. aid and vulnerable to its pressure, not suddenly flush with more strategic and economic options. For the Obama administration vast new deposits of energy are just too much of a good thing.