We have a powerful weapon at our disposal: lifting the crude oil export ban. The mere possibility of adding more US product into the global energy market is making government leaders worldwide stand up and take notice. Some countries are cheering, while others are shaking in their boots. Unfortunately, some of our own leaders also seem to be paralyzed by a similar fear.
Part one of this global investigation posed an important question: Missed Opportunities: Why Would the US Hesitate to Claim its Role as an Energy Superpower? This second part elucidates some important reasons not to miss out.
Case in Point: Ukraine
Throughout 2014, Russian-backed insurgents in eastern Ukraine perpetrated violent civil war with the goal of dismembering the country and thwarting its energy supplies. All the while, US energy officials, policy wonks, and Congress members argued the fine points of gasoline prices and import statistics, stubbornly refusing to commit to changes in American crude oil export policy or energy aid.
In September, Ukrainian president Petro Poroshenko flew directly to Ottawa and Washington to appeal for military and energy assistance. Russia’s OAO Gazprom had turned off Ukraine’s gas on June 16 in a dispute over alleged unpaid bills, and Ukraine, threatened to boycott all Russian oil and gas in the wake of civil war.
Yet energy officials here and in Canada seemed unwilling or unable to answer direct questions about whether Ukraine could soon import oil and gas from North America to help ease Eastern Europe’s energy shortages. Their message: “Sorry, no can do.” Essentially, the rationale was that the US remains a major importer of oil and doesn’t have enough supply to export just now, and that Canada really wants to diversify exports but doesn’t have the infrastructure (a.k.a. Keystone pipeline) in place to ship oil directly to Gulf refineries for processing and export to Europe.
Talking in Circles
This type of rhetoric is confusing at best, irritating at worst.
Now that the US is producing a geyser of shale energy, with recoverable reserves projected to last decades on (Yergin, The Quest, 2011), the debate about lifting the 40-year-old US crude oil export ban is becoming more urgent. As Senators and economists continue to bicker about whether the US is ready to loosen its export restrictions, the crude export advocates see lifting the ban as not just a question of economic benefit, but of national identity. They believe crude exports are a means of lengthening America’s reach as a rebirthed energy superpower, extending the benefits of greater supplies, and diversifying resources worldwide.
Tom Ridge, former Governor of Pennsylvania and first US Director of Homeland Security, is a strong advocate for energy exports. In an exclusive Canary interview with Ridge, Ridge insisted that US energy exports should be part of an “energy-smart, all-in” national policy, a key to cementing global relationships and increasing world supplies while lowering prices of multiple energy sources, not just oil and gas. Free US energy trade would also mean greater security for the US and allies, placing energy “buffers” in zones that are at the mercy of unstable and even hostile suppliers.
“You do not want to rely on certain sources of energy from unreliable and unstable countries,” Ridge said. “As the Russians have demonstrated now – you don’t have to have as large an army if you can control the energy of potential adversaries.”
Control the Energy, Control the World
Russia has amply demonstrated its power over Europe by becoming its principal energy supplier. In fact, Europe now accounts for 84% of Russia’s total oil exports and about 76% of its natural gas, according to the Energy Information Administration (EIA). The Russian government under Vladimir Putin has built up massive oil and gas infrastructure since 2000 and now counts energy production revenue as half of its federal budget.
Ukraine itself acts as a transit hub linking major Russian oil and gas pipelines to the rest of Europe. Last year, Ukraine transited 86 billion cubic feet of Russian gas and 15.6 million tons of oil. That’s roughly half of all Russian gas exports and 7% of its petroleum exports.
Ukraine’s unique geographic and energy position means the country is strategically important to Russia. But it is also a thorn in Moscow’s side, actively seeking NATO admission and striving to fix a collapsing economy linked to rampant corruption, much of it caused by briberies and sweetheart deals forged between Ukraine’s past government regime and Russian energy oligarchs. Any energy disruptions to Ukraine mean disruptions – shortages – embargoes – to both Eastern and parts of Western Europe. Even though surrounding countries have tried to diversify in recent years, Europe has actively sought US energy aid in the form of oil and gas exports for several years. In July, 2014, for example, The Washington Post leaked a secret document showing that the European Union (EU) is pressing the US to lift its ban on crude oil exports as part of a “sweeping trade and investment deal” that could equal $4.7 trillion if completed.
To retaliate against Russia’s incursions in Ukraine, the EU has imposed sanctions blocking Russian state-owned banks and oil companies from seeking financing in European capital markets. Europe is also blocking the export of deep-water technology to the Russian oil majors Rosneft and Transneft. Clearly, the objective is to hit Moscow in the pocketbook, and the strategy seems to be working in part. A fragile peace in Ukraine is holding, and Russia is reportedly hemorrhaging money in capital flight and headed for recession with a collapsing ruble and rising inflation.
Quenching the Thirst for War
Reliable US oil exports could go far as to lessen global security threats in the Ukraine and elsewhere. Consider the Islamic State (ISIL or ISIS) militants in Iraq and the borders of Syria. The terror organization earns somewhere around $3 million per day selling local black market crude captured from Iraqi and Syrian oil fields. Unloading roughly 30,000 gallons of discounted crude per day, the militants exchange the oil for cash and refined products – some used for warfare – throughout regional black markets in Syria, Iraq, Jordan, Iran, Kurdistan, and Turkey. Oil sales yield an estimated $730 million a year – enough to perpetuate ISIS operations beyond Iraq. With smuggling routes to Jordan via Anbar province, Iran via Kurdistan, and Turkey via Mosul, ISIS has now captured more than 60% of the oil fields in Eastern Syria and several fields and two refineries in Iraq. It sells to black market intermediaries in Jordan, Iran, and Turkey, using its oil money to recruit foreign jihadists, meet army payrolls, and expand its territory across two countries with the ambition to launch terrorist attacks in the US.
But the Obama Administration and allies abroad, including the Persian Gulf states committed to countering ISIS, can curtail the group by expanding US oil export. Cut off ISIS energy and financial networks, especially the crude oil smuggling network, say analysts in the region, and ISIS will have very little capital in which to operate.
A Global Shockwave
“The American energy revolution has wide-reaching geopolitical consequences. And as US production continues to increase, it will put downward pressure on global oil and gas prices, thereby diminishing the global leverage that some energy suppliers have wielded for decades,” Foreign Affairs authors Robert Blackwell and Megan O’Sullivan wrote.
The potential for the US to export oil to these consuming countries, through a repeal of the crude oil export ban, opens up real possibilities for strengthening trading relationships and geopolitical ties:
- Establishing secure supply relationships between American producers and foreign consumers;
- Increasing flexibility to export crude to others to address supply disruptions;
- Empowering another non-OPEC nation to meet the growing energy demands from countries in Asia, as well as other rapidly developing nations;
- Shifting oil rents to the U.S. from less reliable suppliers;
- Providing our own hemisphere with a competitive source of crude supply.
Most important, US crude exports will increase revenues to domestic producers, helping to maximize the scope of the production boom and boosting American economic power that forms the basis of US national power and global influence.
Even with predictable delays of implementation and supply, a fast-track crude export program will deliver to the EU, Ukraine, and other energy-consumer allies a powerful tool to counter monopoly supplier aggression. Repealing the crude oil export ban will bolster our domestic economy provide our allies the most vital commodities of all: optimism and the continued will to survive.