June 23, 2011
Should rising oil prices still be seen as a national security threat?
Every economic downturn since the end of the Vietnam War has been preceded by a sudden steep increase in the price of oil. The 1974-75 recession, for instance, followed hard on the heels of the formation of the Oil Petroleum Exporting Countries cartel (OPEC), which for the first time imposed sharply higher oil prices on global consumers.
In 2000, oil hit the then unheard of price of $40 a barrel, and within months the dot-come bubble collapsed. Crude spiked over $100 a barrel in 2007, and a few months later the economy tanked. While there were usually other factors driving those downturns – in 2007-09 it was the subprime mortgage mess and resulting financial crisis, for instance – rising oil has always been seen as a major contributor to economic slowdowns, the equivalent of an externally imposed tax that was cause for geopolitical concern.
But this time around, economic prognosticators are saying that the $100-a-barrel oil prices of the past two months – as long as they don’t spike into the stratosphere – will only have a transitory impact on growth , which is projected to be above 3 percent for the rest of this year. If their forecasts are right, the U.S. will have turned the corner into a new era, one where oil prices are permanently high but no longer derail the rest of the economy.
Yet little of that new reality has influenced U.S. strategic thinking, which is still dominated by a mindset forged during World War II when global economic and military power depended on controlling access to sources of crude, and naval strategy was predicated on protecting the sea lanes that guaranteed shipments. How else to explain the 11 aircraft carrier battle groups in the $649 billion defense appropriations bill that is sailing through the House of Representatives this week, when no one else in the world has more than one?
Oil is an internationally traded commodity where supply disruptions can occur at any time, in any region and for any reason. As the coordinated response by nations belonging to the International Energy Agency Thursday suggests, the more effective responses in the 21st century will be those that rely on market forces than on the 20th century mindset that uses military might and military-derived influence to guarantee access to increasingly scarce supplies.
The much-maligned President Jimmy Carter articulated the current strategic vision , which has remained essentially unchanged since his 1980 State of the Union Address. With the Iranian hostage crisis dominating the headlines, Carter declared that any “attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”
Yet in an era where Canada is now the U.S.’s major source of foreign oil, and rising competitors like China and India and Europe are the nations most dependent on the Middle East, the U.S. remains the sole guarantor of their uninterrupted supplies. “Everybody, including us, uses Middle Eastern oil,” said Lawrence Korb, a defense analyst at the Center for American Progress. “Why should we be the only ones guaranteeing the world access to that resource?”
|Total U.S. oil consumption (barrels per day average for month in thousands, March 2011): 19,150 |
U.S. Production: 9,650
The chart below, from the Energy Information Administration, shows the top five foreign sources of oil in 2010.
Top 5 Foreign Sources of Oil (2010)
Thousands of bbl/day
Percent of Imports
|5. Saudi Arabia
|Sources: Energy Information Administration|
Ironically enough, a series of reports from a military-supported non-profit think tank laid out the rationale for the U.S. altering its strategic vision. Rising oil prices will be the new normal, the report suggested, since the years ahead will see demand from rapidly industrializing developing countries inexorably rising while supplies will remain limited due to the peak in global oil production.
The Center for Naval Analyses Military Advisory Board in its 2009 report “Powering America’s Defense” identified dependence on oil as the threat to national security, not potential disruptions to supply. “Inefficient use and overreliance on oil burdens the military, undermines combat effectiveness, and exacts a huge price tag – in dollars and lives,” the report said.
It called for dramatic reductions in the military’s use of fossil fuels, by switching to solar power and batteries to power field installations instead of using diesel generators. “The market for fossil fuels will be shaped by finite supplies and increasing demand,” the report said. “Continuing our heavy reliance on these fuels is a security risk.”
That report followed a similar 2007 report on climate change that warned “destabilization driven by ongoing climate change has the potential to add significantly to the mission burden of the U.S. military in fragile regions of the world . . . Diversifying energy sources and moving away from fossil fuels where possible is critical to future energy security,” the report said.
Former Vice Admiral Dennis McGinn, who recently retired from the Navy, served on the advisory board that issued both reports and recently took over the helm of the American Council on Renewable Energy, which brings together non-fossil-fuel energy producers and Fortune 500 companies to promote energy efficiency and clean-energy technologies. The 35-year military veteran, who began his career flying fighter jets over Vietnam, sees his new career as an extension of his work on long-term strategic policy conducted at the Naval War College during the 1990s.
“You can’t have a viable national security strategy unless you’re economically strong and you can’t be economically strong as long as you’re dependent on energy coming from unstable parts of the world,” he said in an interview with The Fiscal Times.
He has become a critic of the Obama administration’s slow drawdown of U.S. troops in Iraq and Afghanistan, whose presence in those two countries is projected to cost $119 billion next year. “The reason U.S. troops are over there is because we have to keep the lifeblood of the global economy flowing,” he said. “We’re taking the hits from IEDs to defend the global oil supply.”
As he looks out at the year ahead, he has joined forces with environmentalists to push for higher fuel efficiency standards for the nation’s auto fleet. The administration proposal for a standard that will be put in place in 2016 is due this fall. “We’ve got to get off oil by using every gallon as efficiently as we can,” McGinn said.
When Oil Prices Double, Recession Often Follows (The Fiscal Times)
Man the Lifeboats! Oil Prices Could Scuttle the Recovery (The Fiscal Times)
Drilling Down to the Truth about Rising Oil Prices (The Fiscal Times)