Stirring the Energy Pot

Since February of 2017, I have written frequently about changes in the global political economy of energy and the effects of those changes on imperialist rivalries and accompanying political trends: New Developments in Political Economy: The Politics of Oil (2-6-17), US Imperialism: Changing Direction (6-25-17), More on Energy Imperialism (7-26-17), Economic Nationalism: What It Means (12-28-17).

The broad gist of these articles was that (1) the era of global economic integration was severely challenged by the 2007-2008 shock; (2) a technological revolution in energy extraction moved the US-- the leading imperialist power-- towards energy independence; (3) the failure of OPEC and others to rein in US energy production and the continuing sluggishness of growth and trade prodded the US towards a further goal of energy dominance through competition in energy markets; (4) without the burden of dependence on stable, secure international energy sources, US imperialism stepped back from its role as the primary promoter and guarantor of global integration and stability; (5) intensifying competition in the context of stagnant growth fostered the politics of economic nationalism and the promotion of national self-interest in contrast to the politics of globalism.

Since the British navy and other navies converted from coal to oil-burning vessels in the early 1900s and with the burgeoning dependence of modern militaries on oil, securing energy sources has been a strategic centerpiece of imperialist strategy.

It is not too great of an exaggeration to see German expansion in World War II as accelerated by a thirst for reliable energy supplies (Romania, Soviet Union). And the denial of energy resources to the Japanese militarists similarly prodded aggression in Southeast Asia.

For the US, declining domestic production and increasing reliance on foreign oil, particularly from the Middle East, led to greater attention to security and stability in the Middle East. The US established a powerful gendarmerie to police the region: the Shah’s Iran, Israel, and the Arabian petrostates. Billions of dollars of military hardware bolstered these watchdogs at various times in an effort to guarantee stable supplies of oil. US security services worked overtime to install stable regimes in all of the petrostates and their neighbors. US dominance was sealed with the establishment of the dollar as the petroleum-trading currency. The dominance was so complete that the US was able to use low petroleum prices as a weapon against the Soviets during the Cold War.

But matters have changed radically with the technology-enabled explosion of oil and natural gas production in the US.

The New

Writing in The Washington Post (The US is about to be the world’s top crude oil producer. Guess who didn’t see it coming, 3-7-18), Charles Lane reminds us of how matters were before: “During his 2006 ‘addicted to oil’ State of the Union address, President George W. Bush bemoaned imports from unstable parts of the world and called for replacing 75% of Middle East oil imports by 2025.” Bush, like his father, spent great efforts-- lives and wealth-- policing and bullying those “unstable” oil producers.  

Energy writer James Blas explains in Bloomberg Businessweek (The New World Order of Energy Will Be American, 1-29-18) how matters are now, how the US no longer has to “tiptoe around oil supplying nations” whether they are “friends” (Saudi Arabia) or “adversaries” (Venezuela). Instead, “energy dominance” is on the agenda.

Blas notes that the US won the battle for dominance started by Saudi Arabia in 2014 when the Saudis drove the price of West Texas crude oil down to as low as $26 a barrel through massive overproduction, expecting to cripple US shale production. Thanks to huge investments, the shale oil companies survived the attack, cut costs, and roared back. Today growth is faster than pre-2014 when prices for oil were actually much higher. And imports are now below 2.5 million barrels a day, the lowest level since record-keeping began in 1973 (imports were 12 million barrels per day in 2008).

Thanks to geo-political “flare-ups” (generally US-instigated instability), US exports at one point in 2017 hit 2 million barrels a day, mainly to Canada and the People's Republic of China (PRC). Exports are fully expected to grow even more in the future.

Venezuela is Illustrative of the US’s growing interest in disrupting oil markets to its advantage. Through disinvestment and sanctions, Venezuelan oil production dropped nearly 30% last year. Similarly, the US-NATO destruction of Libya has succeeded in disabling its oil industry. The wreckage of the Libyan energy industry means that oil prices would have to reach $78.10 per barrel for the industry to break even. With prices trending well below that number, there clearly is little chance for the Libyan industry to recover, invest, or add to the country’s sovereign wealth.

With massive corruption and an expensive war to finance, Saudi Arabia now needs $70 a barrel to merely break even. Hoping to escape from dependency on an oil regimen, the Saudis had planned a public offering (a sell-off to private interests) of its national oil company, ARAMCO. In the current unfavorable competitive environment, that move has been postponed time and time again.

Formerly a price dove-- the world’s advocate for low oil prices-- the Saudis are now desperate to achieve higher prices. Their escape plan from their losing hand in oil competition-- Vision 2030-- is endangered by modest prices. To reduce supply and increase both demand and prices, the Saudis are a strong advocate for sanctions against Iran, as are powerful energy interests within the US ruling class.

The new, competitive environment has brought forth new, unexpected alliances. Russia-- a frequent foe of Saudi foreign policy-- has recently signed a comprehensive energy agreement with Saudi Arabia. For its part, Russia is offering to take a substantial position in any future IPO of ARAMCO, boosting its prospects (along with a similar offer from the PRC). Saudi Arabia, in return has agreed to invest in Russian LNG projects and Eurasian drilling. It appears that Russia and the PRC are looking to guarantee security, stability, and cooperation among the energy-producing states, a role that the US has now abandoned with its pursuit of energy dominance and a role that is a necessary condition for peace in the region.

Because emerging US oil dominance (and sanctions: war by other means) threatens to disrupt the reliability and stability of existing petro-suppliers, the PRC has begun to negotiate crude-oil futures contracts in renminbis rather than petro-dollars.

Natural Gas

Much of the growing US animosity that is so apparent in US-Russia-PRC relations revolves around competition in the natural gas market. Through political fantasies, sanctions, threats, saber-rattling, and contrived affronts, the US has made every effort to wean Europe away from Russian natural gas, especially the expansion of pipelines to Europe promising consistent supply and favorable prices.

Some Eastern European countries, mired in historic anti-Russia enmity, have welcomed US liquefied natural gas (LNG) shipments, constructing new receiving facilities. They accept inconvenience, inefficiency, and higher prices as the cost of the politically motivated anti-Russia campaign. The US is trying to browbeat the rest of Europe into giving preference to US LNG.

But the big prize is the PRC, the fastest growing natural gas market in the world. Both Russia and the US are fighting to supply natural gas: Russia has a pipeline project (GAZPROM) sales agreement to supply 1.3 trillion cubic feet a year, while the US (Cheniere Energy) has contracts to supply 1.2 million tons of LNG per year.

The recently announced selective, very selective US tariffs-- apparently really only against PRC-- likely have a covert motive. US Secretary of Commerce Wilbur Ross suggested that increased Chinese purchases of LNG might have a happy consequence for tariffs by reducing the US-PRC trade deficit-- another shot fired in the energy wars.

Trade Tariffs

The sharpest edge of US economic nationalism is the emerging establishment and threats of trade tariffs. Short of embargo or out-and-out war, establishing disruptive trade barriers is the most hostile posture towards other nations. In the case of a powerful country like the US, tariffs constitute unabashed arrogance. As perceptive left commentators have noted, the US has always pressed its problems unto its weaker “friends,” but not with this hubris.

Lest anyone think this is a ‘Trump’ problem and not shared by fellow Republicans and Democrats, attention should be paid to what others are saying. When Trump announced the first round of tariffs directed at the PRC, Democratic Senate leader Chuck Schumer was quoted in The Wall Street Journal: “I don’t agree with President Trump on a whole lot, but today I want to give him a big pat on the back.”

And Reuters reported on April 1 that Democratic Senator Elizabeth Warren, speaking in Beijing:

The Massachusetts Democrat and Trump foe, who has been touted as a potential 2020 presidential candidate despite rejecting such speculation, has said U.S. trade policy needs a rethink and that she is not afraid of tariffs.

After years of mistakenly assuming economic engagement would lead to a more open China, the U.S. government was waking up to Chinese demands for U.S. companies to give up their know-how in exchange for access to its market, Warren said.

“The whole policy was misdirected. We told ourselves a happy-face story that never fit with the facts,” Warren told reporters on Saturday, during a three-day visit to China that began on Friday.

Clearly, broad sections of the US ruling class have joined the trend towards economic nationalism.

The implications for peace or war are stark.

Greg Godels

zzsblogml@gmail.com

US Imperialism: Changing Direction?

 

Developments over the last few weeks further remove the fog obscuring the foreign policy objectives of the US ruling class. A series of seemingly unrelated events casts light on the goals of US policy makers in an era of intensifying international rivalries. Further, it is becoming clear that President Trump is now largely deferring to the ruling-class consensus on foreign affairs; his straying from the fold has been substantially checked.

 

In February, I wrote of the implications of the widely ignored shift in the status of the United States from an energy-seeking, petroleum-importing country to a net exporter, a trader in all energy resources.

 

The US still has a significant but shrinking position in the international export of coal. Of course, coal use is both third in importance among hydrocarbons and shrinking in use (coal production internationally fell by the largest percentage on record in 2016). But petroleum imports became essential to fuel the critical transportation needs of the US as well as the massive military machine in the mid-twentieth century. 

After the oil crisis of the 1970s, dependence on petroleum imports became even more acute and an even more vital factor in setting US foreign policy. Often, and for good reason, the left was quick to associate the thirst for energy resources with war-mongering and neo-colonial intrigue.

 

But matters are changing rapidly, even if many seek to obscure or ignore the new reality. As I argued in February:

 

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 evidence has only mounted since the February posting. Despite low prices of oil, US drillers are producing like there is no tomorrow. From its low in mid-year 2016, the rig count has nearly doubled in North Dakota. As the Wall Street Journal reported on June 19, the big companies, Chevron, Royal Dutch Shell, and Exxon Mobil are investing tens of billions in the Permian region of the Southwestern US. The giant multinational, monopoly-capital producers are stepping in where smaller producers have failed because of costs and limited capital. They are projecting Permian production at 4 million barrels a day within a decade, about the production of modern-day Iraq. Chevron, alone, anticipates a four-fold increase of Permian production within a decade. Exxon is projected to spend half or more of its massive investments in the next three years on North American oil production.

 

Where will this oil go?

 

In a June 8 article, Wall Street Journal writer Lynn Cook stated bluntly: “American [US] oil exports are emerging as a disruptive new force in global markets.” From January to April, US suppliers shipped 110 million barrels to foreign destinations, chiefly India, Hong Kong, and Denmark. Asian buyers account for 39% of purchases, with China showing, by far, the greatest growth. With massive production increases coming online, is there any doubt that US producers will be competing furiously with OPEC and other traditional exporters for existing and new markets? Should we not expect the foreign policy and the covert and overt military strategies to reflect this intensifying competition?

 

Similarly, the US is becoming an increasingly important exporter of natural gas. As new technologies of liquefying and shipping natural gas are implemented, the competition for markets is becoming ever more ruthless. Seaborne liquid natural gas accounts for 40% of the market today. As the world leader in natural gas production, along with Russia, the US has a strong interest in exporting natural gas and acquiring new markets. Among the exporters of liquid natural gas (LNG), Qatar is the world leader, with every intention of maintaining its position, recently opening its North field, believed to be the largest gas reservoir in the world.

 

Geopolitical Implications

 

The long fostered model that views US imperial interests as served by the US securing and protecting its access to energy sources, by guaranteeing energy for its Cold War allies, is in need of a new look. Today, US interests lie in acquiring markets within the global economy, competing with other energy suppliers, and creating political and economic conditions favorable to US suppliers. Oil, gas, and energy remain central to the imperialist enterprise, but the roles are shifting in important ways, with important implications.

 

I sought to define that role more clearly in February, when I wrote:

 

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.

 

Events have only strengthened that observation. The rabid, crude intensification of hostility toward Russia, the renewed demonization of Iran, the sudden and bizarre isolation of Qatar, and the heightened aggression in the numerous destabilizing wars throughout the Middle East underline the evolution of an emerging foreign policy consistent with securing new energy markets.

 

The introduction and expansion of US military forces to hot spots like Syria, Iraq, and Afghanistan promise little resolution of the conflicts, but guarantee further instability of energy sources and the flow of hydrocarbons. The sale of a vast cache of military weaponry assures the deepening and lengthening of the Saudi incursion into Yemen.

 

The unexpected hostility toward Qatar shown by the other Gulf States in the wake of Trump’s recent vulgar performance in Riyadh, Saudi Arabia is likely directed against Qatari global leadership in the exporting of Liquid Natural Gas, the market that the US hopes to further penetrate. It is no accident that the Qatari gas fields are jointly owned with Iran and both countries have cooperated in the exploitation of the fields and the production of LNG. At the same time, the Saudis have surrendered in the price war with US shale drillers. With sovereign wealth shrinking from a costly war and low oil prices, the Saudis are more interested in finding the best moment to take ARAMCO public, to sell off portions of the national oil company and refresh the kingdom’s coffers. The king and his retinue are content to loyally serve the US in its global mission to command energy markets. Saudi leadership of OPEC in its fight for market share with US petroleum producers proved disastrous. The Saudi/OPEC output cut “has been deemed an OPEC failure and a US production win,” according to Tony Hendrick of CHS Hedging, as quoted in the WSJ (6-21-17).

 

The latest US anti-Russia (6-15-17) sanctions are clearly directed at markets for Russian natural gas. The Senate voted 98-2 to “broaden sanctions on Russia’s energy sector,” as reported by The Wall Street journal. While the message might have been lost on the mainstream media, wallowing in neo-McCarthyism, and while it might have been missed by a distracted left, it was not lost on Europeans. They immediately saw it as an attack on the Nord Stream 2 pipeline project that would bring Russian gas to Germany, Austria and other European countries. And they saw it for what it was; Germany and Austria immediately lashed out with a joint statement: “We cannot accept a threat of extraterritorial sanctions, illegal under international law, against European companies that participate in developing European energy supplies.”

 

They added sharply: “Europe’s energy supply is Europe’s business, not that of the United States of America.” and “The actual goal [of such sanctions] is to provide jobs for the US gas and oil industry...”

 

And there it is-- naked recognition that US anti-Russian acts are thinly concealed covers for US imperial goals. The US wants the European gas business currently done with Russia.

 

Lest anyone pretend that US imperialism-with-a-new-twist is strictly a product of Trump, it should be noted that the 98-2 Senate vote was no aberration. Writing in the Washington Post (6-8-17), David Gordon and Michael O’Hanlon-- two solidly connected Washington insiders-- pointed to “several hopeful signs” with Trump’s foreign policy. They lauded the President’s national security team and his stance in the Middle East. They were especially enthusiastic about his continued belligerence toward Russia.

 

The reckless foreign policy of the Trump administration still deviates occasionally from the ruling class consensus expressed in the editorial pages of The New York Times or The Washington Post. But more and more it is reckless because it conforms to that consensus. The endless wars and the escalation of those endless wars are not met with ruling class impatience, but appear to be more the new global norm.

 

The destabilization of countries and the promotion of sectarianism appear less as unintended consequences and more as those resulting from the deliberate, calculated tactics of an imperialist power benefiting from chaos.

 

As in the classic pre-World War I era of reckless imperialist competition, US imperialism is aggressively advancing its economic agenda against rivals, including recent “allies.” The dangers posed by these intensifying rivalries threaten to spark even more devastating clashes and widening wars.

Zoltan Zigedy

zoltanzigedy@gmail.com