The Oil and the Glory

Would becoming a petrostate change the American character?

Would becoming a petrostate change the American character?

If the largest consumer of oil on the planet abruptly does two things — doubles its own liquids production and cuts its imports in half — one might find a big chain-reaction in both macroeconomics and geopolitics. This is precisely what many of the country’s top industry analysts suggest is happening in the United States — that the country will soon account for almost all its own oil requirements, and be in the position of exporting some of it. Count me as a skeptic, but since so many serious analysts are not, it merits looking under the hood.

Yesterday I raised the potential for a U.S. political shakeout if the oil-abundant theorists are correct: If the U.S. truly does become effectively self-sufficient in oil, political support for clean-energy would be seriously undermined.

Today, the Obama Administration imposed super-strict standards on the emissions from coal-fired power plants, incentivizing the development of carbon-capture technology, as well as the use of natural gas. This demonstrates that aggressive public policy can keep the goals of the clean-tech edifice alive; but it cannot be taken as a template, since policy ebbs and flows, and any future Republican administration, for example, is unlikely to embrace the same philosophy.

What about the economic wrinkles of a shift to oil as a trigger of a new U.S. Industrial Revolution, as forecast by Citibank analyst Ed Morse? Low-price energy provides a big advantage to U.S. makers of chemicals and plastics, since the feedstock — natural gas — is so cheap. Yet would this edge flow up the line to high-end technologies, the foundation of the overall U.S. economic advantage?

I exchanged emails with Michael Klare, a professor at Hampshire College and the author of The Race for What’s Left. Klare thinks that oil abundance could have a fundamental impact on the character of the United States. He said:

I see this as making the United States more like a Third World petro-state — we will see increased economic benefits in some quarters and among certain specialized labor sectors. But we will become more like a basic commodity producer that must lower its environmental standards in order to boost production, and less like a modern high-tech country like Germany and Japan.

A key geopolitical dividend for the U.S. if the abundant-oil crowd is correct would be the ability to distance itself from nefarious petrostate rulers, and scale down its naval patrols of Persian Gulf sea lanes. Citibank analyst Ed Morse suggests that this dividend could materialize — "with such a turnaround in its energy dependence, it is questionable how arduously the U.S. government might want to play those traditional roles," he writes.

We have previously plumbed this question. Among those saying the opposite are Michael Ross, a professor at the University of California at Los Angeles and the author of the new book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. In an email exchange from Cairo, where Ross is currently on his book tour, he cited detail from a New York Times piece last week by Clifford Krauss and Eric Lipton. Ross:

I think the impact on U.S. foreign policy will actually be rather small, even negligible. Since 1970, there have been wide swings in the degree of U.S. energy dependence. According to the figures in the Krauss/Lipton article, imports rose from 28 to 60 percent of U.S. liquid fuel use from 1982 to 2005.  But I can’t discern any resulting changes in the role of the U.S. in protecting sea lanes, intervening in oil-producing countries, ensuring the security of friendly governments in the [Persian Gulf], etc.  So I don’t see why movement back towards 28 percent fuel dependence will change our role.

Yet if U.S. oil production creates more global supply overall, and global oil prices drop as a result, one impact could be to make petro-dictators less powerful by thinning out their money flow. Ross:

The political effects of oil wealth in [resource-rich, developing countries] certainly depends on the global oil price, which will be affected by U.S. production levels. Hence, to the extent that higher production in the U.S. eases global prices, it could help alleviate the dictator-entrenching, and economy-distorting, consequences of oil exports.