More on Energy Imperialism

Literally days after my last post on the changes in US energy policy and its influence on the trajectory of US imperialism, President Donald Trump and his energy secretary proclaimed those changes in their customary blunt and bombastic way. On June 29, Trump declared a US policy of “energy dominance” at a meeting at the Department of Energy. Reuters‘s headline on their coverage perfectly captured the meaning of this policy: “Trump Seeks to Project Global Power through Energy Exports.” Bloomberg News’s Gennifer Dlouhy quotes Trump: “We are a top producer of petroleum and the No. 1 producer of natural gas. We have so much more than we ever thought possible. We are really in the driver’s seat.”

Clearly, Russia is a target of the emerging policy. The Administration’s Secretary of Energy, Rick Perry said that “... the entirety of the EU totally get it that if we can lay in American LNG [liquefied natural gas] ... we can be able to have an alternative to Russia…” “The US will be able to clearly create a hell of a lot more friends by being able to deliver them energy and not being held hostage by some countries, Russia in particular.” (Reuters)

Lest anyone fail to get the message, Trump told cheering Polish people in Warsaw on July 6: "We are committed to securing your access to alternate sources of energy, so Poland and its neighbors are never again held hostage to a single supplier of energy.” (CNBC) Instead, they will be held hostage to the US.

Bloomberg’s Dlouhy notes that negotiations have begun to sell more LNG to the Republic of Korea. And Reuters’s Timothy Gardner comments that the US exports more petroleum products to Mexico than does any other country. In fact, according to Gardner, the US is already the world’s largest exporter of refined petroleum products.

Despite the near total neglect of the foreign policy implications of this emerging policy by US commentators and, especially, the left, they have not gone unnoticed in important circles internationally. Writing in the largest circulation UK paper, The Sunday Times, Irwin Stelzer stated on July 2: “LNG has created a new Great Game, with America’s ‘yuge’ reserves of natural gas giving Trump a weapon with which to offset Russia’s early lead.” Talk of “Great Games,” of course, invokes memories of the imperialist rivalries and clashes of the late 19th and early 20th century. While the “Russia-gate” controversies uncritically consume many US observers, even conservative Europeans are identifying the material interests, the imperialist interests standing behind the hysterical anti-Russia campaign.

Further, Stelzer sees the recent Gulf States’ aggression against Qatar for what it is: “... the Saudi royal family believe now is the time to wring a total surrender from Qatar… The implication for the global LNG market of a potential isolation of Qatar [the world’s largest exporter] could not be more consequential.” And it could not be more beneficial to the emerging US LNG shippers.

The recent Trump European trip was a sales trip for US LNG as much as it was participation in the G20 summit.

OPEC ‘Monopoly’ versus US Hegemony

It appears more and more likely that the era of OPEC dominance of energy markets is dwindling, broken by US energy production. Saudi Arabia attempted to reverse the expansion of US production by over producing and driving the price of oil below a level that would allow US shale producers to be profitable. Consequently, US operators lost $130 billion since 2015. But Wall Street has subsidized the shale industry by ploughing $57 billion back into the industry over the last 18 months, a move that shows both no fear of a price war and a determination to dominate the markets. The Wall Street Journal (7-8-2017) likened the investments to the tech boom of the past.

At the same time, the US is using political sanctions to hinder competitors. The recent Senate vote on Russian sanctions is one obvious example. But Iran is another competitor that the US hopes to discourage. The European sanctions are now lifted, but EXXON MOBIL and CHEVRON, as US companies, are still deterred from investing in Iran because of remaining US sanctions. BP is afraid of those sanctions and only French TOTAL has dared to invest, along with CHINA NPC. Where Iran is seeking $92 billion in energy investments, it has only secured $1 billion.

Worldwide, most energy investments have channeled to US shale oil.

The monopoly price-manipulation model enforced by OPEC discipline is eroding. Since competition is intensifying, pricing has become extremely volatile. With Chinese imports of crude oil up 13% this year, the Saudis have sharply cut the price of super light crude to Asia to garner a greater share of this burgeoning market.

The Future

Of course, it is impossible to spell out all of the foreign policy implications of the new energy imperialism. But it appears certain that the US drive toward energy dominance will reshape US imperialist designs and generate a strong international response.

The House of Representatives companion bill on sanctions passed 419-3, demonstrating again the ruling-class consensus on punishing oil and gas producers-- Russia and Iran. The European Union wisely interprets this and its Senate companion as a challenge to existing energy relations. As The New York Times reported (July 25) immediately after the vote: “...the new sanctions have important implications for Europe because they target any company that contributes to the development, maintenance or modernization of Russia’s energy export pipelines.” It notes that: “Jean-Claude Juncker, the president of the European Commission, the bloc’s bureaucratic arm, has called for an urgent review of how the European Union should respond.”

Speaking to the “principles” behind the House bill, Russian “Alexey Pushkov, a legislator and frequent commentator on international relations, wrote on Twitter: ‘The exceptional nation wants to block Russian gas supplies to Europe and to sell expensive shale gas from the U.S. to its European servants. That’s the entire ‘morality’ of Congress,’” as reported by The New York Times (7-25-17)

And the price war between the US and OPEC along with its friends has left OPEC unity in danger and its policies in shambles. At the most recent meeting in St. Petersburg, disputes over production and exports have combined with frustration over the effectiveness of agreements. States are conflicted over protecting prices and earnings or fighting for market share.

Where unbridled competition arises, conflict is soon to follow. With economic interests joining with political maneuvering, as the US-contrived hysteria over Russia and Iran instantiates, the danger of aggression and war grows exponentially.

The new US imperialist “Game” is played to dominate energy markets, an even more perilous project that threatens friend and foe alike.

Zoltan Zigedy

zoltanzigedy@gmail.com

New Developments in Political Economy: The Politics of Oil

Since the military build-up leading to the First World War, petroleum production has been the figurative, if not literal, motor for economic growth. Modern machines of war demonstrated the future. The imperialist powers recognized the crucial role of motorized vehicles, airplanes, and naval vessels and their thirst for oil in modern warfare, as well as anticipating the many important peacetime uses to come. At the same time, these same powers foresaw that securing sources of crude oil would be an essential, if not the essential, key to achieving and maintaining a dominant position in the global economy.

It is not far-fetched to view the post-First World War victor’s settlement, especially regarding the peoples of the Middle East, as significantly driven by considerations of future energy resources. The secret Sykes-Picot agreement likely had as its unspoken goal the guarantee of access to petroleum in the Middle East by both France and the British Empire. The conquest and oversight of oil reserves and the anti-Communist crusade became two essential pillars of twentieth-century imperialism.

US oil companies joined the European imperialists in sourcing Middle Eastern oil to complement domestic production. And the acquisition of sources of oil played no small part in the Second World War. All three Axis belligerents-- Germany, Italy, and Japan-- lacked sufficient petroleum access to sustain their imperial designs. The course of their aggression was shaped, to a great extent, in order to accommodate their thirst for oil.

In the Cold War era, the US took responsibility for securing oil for itself and its allies, installing Iran and Israel as Middle Eastern gendarmes. The oil issue became particularly acute with the collective organization of oil-rich nations into the Organization of Petroleum Exporting Countries in 1960, a development coming to a head with the oil embargo of the early 1970s that debilitated the advanced capitalist economies. This blow coincided with the beginning of a decline of US domestic oil production, sending shock waves through the US ruling class. A further shock struck with the loss of the Shah’s policing of the Middle East as a result of the Iranian Revolution.

Thus, the US entered the last two decades of the twentieth century facing shrinking domestic oil supplies and Middle East instability, two developments prompting more imperialist attention upon the affairs of oil-producing nations.

The Iraq-Iran War, beginning in 1980, further destabilized the region; US imperialism sided with Iraq out of fear that the Iranian revolution would spread throughout the Middle East, jeopardizing oil security.

And in 1991, the US undertook a massive military intervention in Iraq to protect the government of Kuwait, a reliable oil source threatened by an Iraqi invasion. US imperialism then recognized both Iran and Iraq as major threats to imperialist dominance of the region.

The Twenty-first Century

With the demise of the Soviet Union, the US enjoyed an unprecedented freedom of action. At the same time, US rulers faced growing dependence on foreign petroleum resources-- the US imported twice as much crude oil as it produced domestically at the turn of the new century. The Bolivarian Revolution in Venezuela was perceived as a threat to a once reliable source of petroleum products. Long-compliant allies in the Cold War sought their own independent arrangements with oil producers, stoking inter-imperialist rivalries. The explosive growth of the People's Republic of China and its dramatically expanded energy needs stressed global oil production.  

A panicky US ruling class looked to different paths to ensure access to resources for its mighty military machine and to assuage a restive public rocked by energy-price volatility. On one front, the US began to explore moving away from traditional sources of oil imports. Capitalist Russia enjoyed vast petroleum reserves and production capacity rivaling Saudi Arabia. And capitalist Russia was also in need of foreign investment. Two factors blocked this route (see Bloomberg Businessweek, 1-16/1-22-17, An Oily Reset in US-Russia Relations): first, Russian nationalization of some of its private oil business, and, two, the beginning of a revolution in domestic energy extraction (fracking and shale production). US allergy to supporting nationalization and the emergence of promising technologies (not to be shared with an imperialist rival) soon closed the opening to Russia in the eyes of many policymakers.

On the other hand, a substantial sector of the US ruling class favored achieving oil security through military intervention and under the guise of human rights and democratization. Tested in the Cold War, this strategy of imposing US capital’s will upon other nations by posturing as high-minded saviors proved even more effective after the demise of the Soviet Union as a counterforce. Before, imperialism promised to bring civilization to its victims; today, it is human rights and democracy.

The twenty-first century overt and covert interventions in Afghanistan, Iraq, Libya, Iran, Egypt, Syria, and possibly Turkey can all be seen, through the lens of the politics of oil, as related to securing or protecting petroleum resources. Because of active resistance to US domination, because of the strategic importance of oil, the US has been at continual war in the region since 2001 under the tattered banner of fighting terrorism.

Matters began to change in the last decade, with US domestic oil production nearly doubling between 2010 and 2014. In the last few years, US oil production has reached levels in line with the world’s largest producers, Saudi Arabia and Russia. For the first time in decades, the US is again exporting extracted energy products. In fact, many experts expect the US to become a net energy exporter in the next decade.

The return of the US as an energy competitor has predictably shifted US foreign policy. The Obama administration began to sour on leading the way in regime change in the Middle East as US energy production ramped up domestically. ENI, the Italian oil company led the call for regime change in Libya, backed up by the Italian and French governments. ENI’s relations with Gaddafi had worsened. The US joined, but did not lead the intervention. Obama later spoke of regret at being drawn into the schemes leading to the overthrow of the Gaddafi government.

Similarly, the US intervention in Syria was modest in contrast to the massive military expedition in Iraq eight years earlier. The Obama administration refrained from establishing a “no fly” zone, a military maneuver expected to open the way to the defeat of Syria’s military.

US relations with Iran improved during the later years of the Obama administration as well, despite Iran’s independent foreign policy.

These developments signal the change brought on by the US shift from a voracious consumer of Middle Eastern oil to becoming a potential rival for markets.

This shift is further demonstrated by US relations with the two largest oil producers in the world: Saudi Arabia and Russia. During the later years of the Obama administration, officials and a compliant press ginned up a new Cold War against Russia. Sanctions, saber-rattling, and hysteria brought tensions far beyond the actual points of contention. An energy-hungry, resource-poor EU has grown dependent upon Russian energy supplies, particularly natural gas. As the US is fast achieving energy independence and beginning the export of liquefied natural gas, the battle for the European market is intensifying and driving hostility with Russia.

Similar tensions arose between the US and its long-term ally, Saudi Arabia. The growth of the US as an energy producer certainly alarmed the Saudi regime. With the threat of a former customer becoming a rival, and with the effects of dramatic increases in global production, Saudi leaders reacted. While they may not have precipitated the collapse of world oil prices in 2014, they did nothing to stop it. They made no effort to lobby OPEC for price-supporting cutbacks.

A falling price of oil advantaged the Saudis, who had one of the lowest costs of production among producers and harmed the new US producers, who had a much higher break-even point. Indeed, the price drop slowed, even reduced US production, but at great cost to the Saudis. Despite having efficient production, their reserves are diminishing. But more importantly, their social costs, budget balance, and the maintenance of foreign exchange reserves require a much higher price for oil. Saudi Arabia has achieved all the trappings of a modern, wealthy state thanks almost entirely to oil. But that state cannot be supported without high oil prices, a massive surplus over their low cost of production. Moreover, the costly war that Saudi Arabia has pressed in Yemen has helped drain reserves and expand the budget. It is not lost on the Saudis that the Obama administration was less than enthusiastic about this adventure.

Consequently, the Saudis surrendered going into the new year, working a deal to cut production in the OPEC states and with other producers, raising the price of oil.

It should be clear, then, that the approaching oil independence of the US, the changing role of the US from consumer to producer, and the attention to markets-for-oil over sources-for-oil profoundly influences US strategic policies, including the weakening or souring relations with other major oil-producing nations like Saudi Arabia and Russia. Oil self-sufficiency also accounts for the reluctance, on the part of the Obama administration, to resolve the profound Middle Eastern antagonisms created by US intervention. Instability among oil-producing nations only secures the US a better opportunity to penetrate new markets and a higher margin over relatively high costs of production.

While it is too early in the Trump administration to be confident, the appointment of Rex Tillerson, the CEO of Exxon/Mobil, to direct State Department policy would seem to suggest a significant change. As the world’s largest multinational energy company and one of the largest corporations in the US, Exxon/Mobil has enormous interests in nearly every energy-producing country. With extensive investments in Russia, it feels neither bound nor moved by diplomatic or political niceties; the Obama-era sanctions on Russia cost Exxon/Mobil hundreds of millions of dollars.

Tillerson’s direction of foreign policy will likely return to embracing, protecting, and securing oil-producing countries while seeking enemies elsewhere to appease the military-industrial complex. The most recent US casualty in Yemen, a death dramatically acknowledged by Trump, would seem to support a friendlier approach to Saudi Arabia. The hysterical pre-emptive attack on better relations with Russia would likewise seem to suggest that improved links with Russia are seen by a prominent section of the ruling class as imminent and to be contested.

Some may see a contradiction in Obama, the internationalist, having moved towards a nationalist foreign policy, or in Trump, the nationalist, opting for an internationalist Secretary of State; but they are contradictions only if the decisive control of the state by monopoly capitalism is neglected. Ultimately, the dominant interests of monopoly capital always defeat professed principles.

The disparate interests of the smaller domestic drillers of shale oil and the large multinationals like Exxon/Mobil are reflected in US foreign policy. The upstart domestic drillers need higher prices, modest capital investments, and growth to insure profits; the giant international oil companies need massive capital investments for development of new reserves and continual cost cuts to guarantee profits.

Trump’s new regime reminds us that bourgeois politics is not about personalities or civility, but about differing visions of service to monopoly capital. The politics of oil underscores this truth. Further, the politics of oil tells us that inter-imperialist rivalries are coming to a boil.

Zoltan Zigedy

zoltanzigedy@gmail.com