The dark side is the bright side
Here is my answer to the silly Benjamin Alter and Edward Fishman “The Dark Side of Energy Independence” published in the New York Times yesterday. They consider all the bad things that could happen in producing countries if oil prices decline to $50 per barrel because of increasing US production. Let’s leave aside the improbability that such a fall would be caused by relatively high-cost US oil and gas production, or the likelihood that Saudi Arabia and other OPEC producers would restrict their output to boost global prices. Sure, a fall to $50 is possible, especially in a period of slow economic growth.
Let’s instead remember that prices averaged around $60-65 per barrel as recently as 2009. In 1998, they were under $20 per barrel, having declined from nearly $100 (in today’s dollars) in 1980/81. So we have seen in the past even more dramatic oil price declines than Alter and Fishman are projecting. Did anything like the political consequences they dread come about? They predict instability in the Persian Gulf monarchies, especially Bahrain and Saudi Arabia, and trouble for Vladimir Putin, who they say might turn to bullying his neighbors.
The short answer is “no.” The Persian Gulf monarchies have survived, and thrived, through many ups and downs in global oil prices. Putin has been at least as inclined to bully his neighbors (and defy the US) with oil prices high than when they were low.
More important: the United States should welcome a situation in which both the Gulf monarchies and Russia need to pay more attention to their populations’ discontents and less to where to invest the mountains of cash they are building up. Alter and Fishman acknowledge this with respect to Russia:
In the long run, of course, America would welcome a Russia that is more beholden to its people’s wishes than to fluctuations in energy markets. Washington should be under no illusions, however, that the transition to that point will be either smooth or linear, and it should prepare for turbulence along the way.
It seems to me it is Moscow that should prepare for turbulence along the way, not Washington. Manama and Riyadh should also worry.
What we should be doing is preparing for the next increase in oil prices, which is inevitable even if unpredictable. This means refilling at lower prices the Strategic Petroleum Reserve and maintaining our focus on energy conservation (especially fuel efficiency standards for cars) and non-hydrocarbon alternatives. It also means convincing Gulf producers to circumnavigate the strait of Hormuz with pipelines, including from Iraq’s southern oil fields to the north and west and across Saudi Arabia. And it means building the Keystone pipeline, with whatever safety measures are required to ensure environmental protection.
The United States has endured decades of increasing oil imports. Paying for them has weakened our position in the world and enriched antagonists. The only dark side to oil independence we should worry about is letting down our guard. I hope never again to see us pandering to Moscow or Riyadh because dependency on oil imports.
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There have been changes in the world since oil last fell to $50/bbl – for one thing, the producing states have become major users in their own right, which will mean there will continue to be demand for oil right at home for the foreseeable future.
And if the U.S. no longer plays such a large role in the Mid-East, that would seem to be all to the good – all it does is increase resentment against us there. Losing the port in Bahrain for the 5th Fleet might prove a nuisance, but the world didn’t end when we closed those bases in Saudi Arabia. (Bahrain’s majority Shiites were brought in or allowed in as temporary workers – they could probably be replaced from some other source. It’s not as though Bahrain is applying for membership in the EU, which would probably be unhappy. Or envious.)
Russia has depended on its hydrocarbons to buy peace at home and to threaten Europe. A little turbulence as the situation changes is not necessarily too high a price to pay to change the situation. It would be fitting if Putin, who earned Russian support as the price of oil skyrocketed, lost it and his office as the price falls.
If the authors want something real to worry about, they might consider the effect reduced coal use will have on the economy of our good friend and reliable ally Australia. (As I have, since yesterday: http://www.guardian.co.uk/environment/2013/apr/28/carbon-bubble-australia-coal-industry). As the article points out, what is at stake is more than the lost revenues from the coal they are now selling to China, but the value of the reserves that will fall to nothing if the coal won’t be sold in the future.