A More Powerful United States

Thursday, March 26, 2015
Image credit: 
Poster Collection, US 4102, Hoover Institution Archives.

The revolution in U.S. energy production is one of the big stories of our time, and it has consequences for the future of America’s primary geostrategic project of generating, leading, and defending a liberal capitalist world order. Not every result of American energy production will be positive, but the net effect will be to support America’s ability to play a leading role in world affairs.

The first benign consequence of the energy revolution will be a sustained economic boost for the United States and most of the world. The favorable supply shock will reduce energy prices at any given level of demand, and the safe location of the new supply will reduce the world economy’s vulnerability to the geopolitical instability of the Middle East and other oil-producing regions. This is already happening: world oil prices fell in 2014-15 despite chaos in Libya, uncertainty in Nigeria, war in Iraq, sanctions on Iran, and political confrontation between Russia and the West. Pre-shale boom, this concatenation of unfavorable developments would have driven energy prices significantly higher, with seriously negative consequences for economic growth in Europe, Asia, and North America.

The improved global outlook bodes well for America’s alliance network and for strengthening the prosperity and political order at the heart of American strategy worldwide. While China is also a beneficiary of lower energy prices, and so will arguably have more resources with which to compete with the United States, a healthy global economy will also promote the kind of Chinese economic engagement which makes war a more costly and difficult choice for Beijing. America’s “sticky power” increases when participation in a global trading system becomes more attractive; America’s energy abundance will lubricate the gears of global commerce.

Additionally, the United States will do better out of the energy revolution than many others. While oil and gas are fungible, so that increases in the supply in one part of the world influence prices all over the world, the enormous growth in American natural gas reserves means that the United States is likely to enjoy cheaper energy prices than parts of the world, like China and Japan, where liquefied natural gas must be imported. Liquefaction of natural gas is an expensive proposition and likely to remain so; countries like the United States that do not need to use it will see significant long term energy price advantages, with consequences for investment in energy intensive manufacturing.

At the same time, of course, a long-term (if sometimes erratic) domestic energy boom will support American growth in other ways by creating jobs, reducing import costs, and promoting economic development in the heartland where much of the new energy resources are found.

Some of the consequences will be tangible. Washington’s long-term budget picture, for example, is likely to improve, making more resources available for foreign policy goals without scanting domestic priorities. Greater foreign confidence in the future of the dollar will tend to reduce interest rates in the United States and promote more foreign investment. Other benefits, though less tangible, will be equally consequential. With a more prosperous domestic economy, and better job opportunities for blue collar workers, for example, Americans are likely to be more confident that their system works and have more faith in political leaders when they call for American engagement abroad.  A dynamic, energy exporting-United States is also likely to enjoy more respect abroad; foreign perceptions of the United States are often driven by foreign perceptions of the successes and failures of the American economic and political models. The energy boom increases the likelihood that we are likely to appear more successful in the future than in the recent past, and this success will lend prestige to American values and society as well as to the American government.

To fully appreciate the importance of the energy revolution in world affairs, one must take into account the degree to which the American revolution is only part of a larger phenomenon: a North American energy revolution in which Canadian and ultimately Mexican energy resources will play a significant part. America’s energy reserves can change the global energy picture; with Canadian and Mexican production included, North America will transform it. Include Venezuela (which presumably will achieve a rational government at some point) and Brazil, and the Americas as a whole could rival or even supplant the Middle East as the center of global energy production in the 21st century.

Given the unique U.S. role in the geopolitics of the Americas, the ability of the United States to assure key allies in Europe and Asia of secure energy supplies will grow substantially in the 21st century. It is also likely that the shift from a mostly state-run, cartel-based Middle Eastern oil system to one that is grounded more firmly in private ownership and market pricing will change the dynamics of the international economic and political system in ways broadly favorable to American interests.

The outlook is not entirely positive. Greater self-reliance in energy may support a more isolationist political attitude among some Americans. Why worry about the Middle East if we have plenty of oil right here at home?

In fact, the Middle East, given its continuing importance for European and Asian energy supplies, will remain a vital interest of the United States for a long time to come. Serious Middle East supply disruptions that caused economic crises among our key allies and trading partners would have devastating consequences for the American economy. Politicians will have to work harder to ensure that public opinion understands the connections between American domestic prosperity and security, and troubled hotspots around the world even when the average voter no longer thinks that a quiet Middle East assures his or her personal energy supply at an affordable price.

There will be other drawbacks and complications as the consequences of the energy revolution continue to unfold. Nevertheless, on balance the energy revolution is likely to make the American people stronger, richer, better respected, and more free in the 21st century than they would have otherwise been.