BY KEITH JOHNSON
The United States in recent years has stunned the globe by becoming the world’s biggest oil producer, a remarkable about-face for a country that a decade ago reeled from reliance on pricey imported crude. So why does it seem so hard to translate that so-called energy dominance from rhetoric into reality?
President Donald Trump’s tweet-borne rage with the oil-price rollercoaster in recent months, and OPEC’s subsequent efforts to fix the market by adjusting the amount of oil it pumps, illustrates the frustration many in Washington feel when they see what looks like a huge U.S. energy boom failing to deliver on promises of dominance or independence.
But the reality is that the notion of energy dominance, as repeatedly trumpeted by the administration, is at heart a hollow idea. Even America’s position as the top producer in the world isn’t enough to shield it from rising prices, free it from Middle East entanglements, strangle foes with sanctions, or even give it many additional foreign-policy tools.
The ultimate irony is that what created the U.S. energy revolution—nimble, private-sector companies using new technologies to extract previously untapped crude—keeps the United States from wielding its energy strength in the way that Saudi Arabia, Russia, and other big producers with state-owned firms willing to put geopolitics above profits do.
“Ironically, the precise strength of the U.S. energy sector—that it is driven by the market and not by a government—also means that it is not a stick to beat people with,” said Bruce Jones, the director of the foreign-policy program at the Brookings Institution.
Nobody can deny the historic size and speed of America’s transformation from energy importer to major producer and exporter in its own right. The United States currently produces 11.4 million barrels per day, with forecasts of more than 12 million barrels a day next year. Since the beginning of the shale boom a decade ago, the United States has essentially discovered the resource equivalent of another Iran and a Kuwait trapped in Texas and North Dakota shale formations.
“It’s a stunning turnaround, and it has enormous benefits economically and to some extent geopolitically,” said Jason Bordoff, the director of Columbia University’s Center on Global Energy Policy.
The economic benefits, at least, are a little clearer. By producing more oil and importing less from abroad, the energy boom helps U.S. GDP by keeping dollars at home. And it helps shrink the trade deficit—a dividend of about $250 billion compared to where the United States would have been without the shale boom, according to a new study from the consultancy IHS Markit.
At the same time, all those extra barrels of American oil sloshing around, even if they aren’t physically exported, keep the world as a whole better supplied, meaning that nasty geopolitical surprises cause fewer price spikes than in years past. Jones called U.S. production an “important shock absorber” for the global economy.
And there are some foreign-policy benefits to newfound U.S. energy dominance, if not quite the bonanza many boosters seem to still expect. U.S. natural gas production and exports have limited Russia’s ability to gouge customers among U.S. allies in Europe, even if Moscow is still increasing its market share there. And the fact that the United States produces and even exports record amounts of oil gives it a different way to engage with neighbors such as Mexico, which once feared American designs on its black gold.
“It liberates our foreign policy to deal with other issues,” said David Goldwyn, the head of Goldwyn Global Strategies, an energy consultancy. “In that sense, it’s a positive, for the flexibility it provides.”
But none of that makes the United States immune to oil-price shocks or able to impose its will on other countries—or even able to add many arrows to its geopolitical quiver. Regardless of how much oil America produces, it’s still a global oil market. That means that prices for gasoline in the United States are largely determined by what happens with the other almost 90 million barrels of oil produced and consumed every day around the world.
And the United States is even more vulnerable than most countries to sudden pain at the pump, due to low taxes on fuel. That makes the up-and-down price of crude an even bigger driver of U.S. gasoline prices than in other countries, noted Goldwyn, who was a top State Department energy official in the Obama administration.
The biggest reality check for policymakers bewitched by America’s record levels of oil production is that sheer size doesn’t matter that much. Saudi Arabia produces less oil every day than the United States, but it plays an immeasurably bigger role in the world oil market than America does or ever will. That’s because Saudi Arabia has most of the world’s spare production capacity, millions of barrels of oil that can quickly be brought on line (or shut down) as the government orders to keep prices around an elusive Goldilocks level.
That ability to open or close the oil spigot on demand is “real leverage,” said Bordoff, who was a White House energy advisor in the Obama administration. “And that’s not something the United States has, or likely ever will. Real influence stems not just from how much you produce, but from the ability to quickly add or subtract supplies, and really that is only Saudi Arabia.”
Even the signature achievement of the Trump administration’s energy-powered foreign-policy success—squeezing Iranian oil out of the market with sanctions, while using growing U.S. production to blunt the price shock—is less than clear-cut. From 2012 to 2015, and again this year, the United States has sought to pressure Iran by limiting the amount of oil it can export to fund its foreign-policy agenda. In both cases, the million-odd barrels of Iranian oil taken off the market were essentially replaced by a million new U.S. barrels, keeping prices reasonable and limiting domestic political blowback.
But even greater U.S. production isn’t a perfect substitute for missing Iranian barrels. India, for example, has trouble refining anything but Iranian crude. That explains why both the Obama and Trump administrations have been forced to allow India to keep importing Iranian oil, blunting the effectiveness of the sanctions campaign.
And the Iran examples don’t mean that Washington can bank on its own oil strength to use sanctions with abandon. In both cases, Iran’s export limits happened to coincide with a period of intense, rapid growth in U.S. production. Even if U.S. oil output reaches stratospheric levels next year and stays there, it’s not likely to keep growing too much more. At that point, American oil production will just be part of the global baseline—not a fresh, annual injection of new supplies—limiting Washington’s ability to use oil sanctions as a lever in the future.
And no matter how much oil the U.S. pumps, that gusher alone won’t free the United States from involvement in the Middle East.
Decades ago, the United States was interested in keeping stability in Saudi Arabia and the Persian Gulf region both as a source of oil imports for itself and as a lubricant for the global economy. While America imports much less Persian Gulf oil than it ever did, it is still heavily invested in defending Saudi Arabia and other Gulf states, limiting instability in big oil-producing countries, and protecting critical sea lanes such as the Strait of Hormuz.
“The Western concern is a stable oil market. As the world’s largest oil exporter, Saudi Arabia is crucial—and will be until electric cars are more common than gasoline ones,” said Simon Henderson, the director of the Washington Institute’s program on Gulf and energy policy.
That link between Saudi Arabia’s importance to global supplies and thus global prices helps explain why the United States seemingly can’t escape making sometimes unsavory deals with unsavory regimes.
“Shale oil means that U.S. dependence on imports is now much less, but an increase in gasoline prices [from a Saudi supply shock] would be very unpopular. So we have to work toward a deal with the Saudis,” Henderson said, even if it means swallowing the story that dissident journalist Jamal Khashoggi’s killing was not authorized by Saudi Crown Prince Mohammed bin Salman.
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