OUR NEW WEAPON TO USE AGAINST RUSSIA
For decades it has seemed as if God has played a great joke on mankind, granting the best fuel reserves to the worst places. Iran, Russia, Saudi Arabia, Turkmenistan – all have been able to run fairly repressive regimes, feeling no need to become open, competitive democracies. As Vladimir Putin has found, if you own the gas which the rich world needs, then you can get away with murder.
Consider yesterday’s European Union summit. Leaders agreed, in effect, to be jolly annoyed about Putin’s annexation of Crimea. They may even cut up some oligarchs’ Harrods storecards. But to go much further? Difficult, when Russia is supplying a third of Europe’s gas. As Finland’s Europe minister candidly put it: “There isn’t that much that we could do, at the end of the day. And I think the Russians know that.”
Europe is a recession-struck continent dependent on a Kremlin-controlled energy price. Putin cleverly cut Gazprom tariffs to the region last year, ramping up its dependence on Russian gas to record levels. And in so doing, he effectively bought EU foreign policy.
He’d find it harder to buy America’s nowadays. As Barack Obama considers his options, he has a substantial new weapon that he is not sure how to deploy. In the last few years, the shale revolution has utterly transformed America’s energy fortunes. When Putin invaded Georgia, it seemed as if the US was running out of natural gas – and George W Bush meekly wondered whether to buy some from Russia. Since then, the shale bonanza has sent American crude output soaring by 60 per cent, taking the country into a thoroughly unexpected era of energy abundance. Its gas prices have fallen by two thirds; factories and jobs are flooding back to former rust belt states. By the end of this decade, America will be exporting more energy than it imports.
This is redrawing the global energy map, and the implications go way beyond the economic. If America doesn’t need Arabian oil, why should it spend billions having the US Fifth Fleet keep the peace in the Persian Gulf? Why spill so much blood and treasure in overseas entanglements where no national interest can be found? Why not let Europe sort out its own back yard – and let this debt-addled continent confront the consequences of its failure to pay for a proper military?
But events in the Crimea have now added another question: why shouldn’t America use its new-found energy reserves as a weapon? It would be easy enough to do. If Barack Obama were to export more of this gas, he could send world prices to the floor – hurting not just the Kremlin, but the oligarchs who support Putin. Of all the weapons in America’s arsenal, its new energy power is perhaps what the Kremlin fears most.
Russia is, in effect, a giant gas company with a military attached to it. Moscow’s interests are synonymous with that of its state-owned gas concerns, which explains much of its bizarre foreign policy. Why should Putin have protected Bashar Assad when he was gassing his own people? We were reminded of the answer on Christmas Day, when Russia signed a 25-year deal with the Assad regime, handing the state-controlled energy firm Soyuzneftegaz a chunk of the Levant Basin. In this way, Assad’s Syria has joined Putin’s virtual empire.
This is why hawks in Washington are not content with Obama deploying F-16 fighters to Poland, and are urging him to retaliate with robust pipeline politics. A Texan congressman, Ted Poe, yesterday introduced a Bill that would speed up the delivery of American gas to Ukraine and other threatened regions. John Boehner, the Republican Speaker of the House, is telling Obama his prevaricating over gas export licences has helped Putin “to finance his geopolitical goals”. The fuel hawks are clear: energy has strategic value, and Obama’s failure to use it has emboldened the enemy.
Another weapon the president might deploy is approving the Keystone XL pipeline, which would take oil to coastal refineries, ready for export. Then he could lift the ban on exporting crude oil, which has lingered since the crisis of the Seventies. He could fast-track the 15 gas export terminals still waiting for planning approval, to send supplies to America’s allies. All of these demands have been made, for years, in the name of cheaper energy. The Greens protested, as did those who feared exports would make fuel pricy again. But only now does exporting energy seem like an essential tool of American statecraft – a weapon in a new cold war.
It’s not hard to guess what Hillary Clinton, favourite to be the next US president, would do. When she was Obama’s secretary of state, she spotted early on the chance to exploit American oil. The word “energy” was mentioned 81 times in her Quadrennial Diplomacy and Development Review, which proposed building a Bureau of Energy Resources “to unite our diplomatic and programmatic efforts”. This bureau has been working away behind the scenes and is credited for helping Ukraine reduce its dependence on Russian energy – although not, as it turned out, fast enough.
The hawks can argue that America’s new weapon has already been used to great effect – on Iran. The recent sanctions, credited with forcing the ayatollahs to the negotiating table, only worked because the US had so much energy. Not so long ago, if 1.5 million barrels a day of Iranian oil were taken off the market, prices would spike – hurting everyone. But this time, America was able to persuade its allies that it would increase production, keeping prices stable. When the US threatened deeper cuts to Iranian exports, the ayatollahs blinked. Without the shale revolution, such a gambit would not have been possible.
So after Tehran, should Moscow be the next testing ground for America’s E-Bomb? Obama is a naturally cautious president, and here he has much to be cautious about. He is being asked, in effect, to behave like the Russians – and explicitly use energy as a diplomatic trump card. This risks making any future development of America’s energy industry look like a hostile act. Also, Putin would respond, which would hurt his European allies a lot more than it would hurt America. As yesterday’s summit showed, Germany has no appetite for confronting the Kremlin. Even conservative Die Welt declared that “the West should embrace Putin”.
The shale revolution, and its awesome implications, have taken most of Washington by surprise – it was unforeseen, even six years ago. And in six years’ time, America will have overtaken Saudi Arabia as the world’s top supplier of hydrocarbons, with all the extra clout that will bring. Ten years after that, it will be completely self-sufficient – a development that may transform world politics as profoundly as the collapse of the Berlin Wall.
But for now, the Ukraine crisis will have served to remind Obama that America is not – yet – ready to use its energy glut to full effect. It doesn’t have the export apparatus, and is only beginning to learn how to use the extra leverage. But it is, at least, far clearer now why America needs the ability to pump out far more gas when it’s needed – and this, in itself, should focus Russian minds. Like the Cold War, the principle will be that of deterrence. Putin will be less likely to strike if he realises that, next time, America and its new energy industry will be ready for him.