The Oil and the Glory

Keystone: front and center in the plan to bring down Obama

Until a few days ago, high gasoline prices threatened to bring down Nigerian President Goodluck Jonathan. A denial of oil markets to Iran is currently raising the specter of deadly brinksmanship in the Strait of Hormuz (pictured above, looking peaceful off the coast of Oman), and potential terrorism in Saudi Arabia. Now, if U.S. President ...

Marwan Naamani  AFP/Getty Images
Marwan Naamani AFP/Getty Images

Until a few days ago, high gasoline prices threatened to bring down Nigerian President Goodluck Jonathan. A denial of oil markets to Iran is currently raising the specter of deadly brinksmanship in the Strait of Hormuz (pictured above, looking peaceful off the coast of Oman), and potential terrorism in Saudi Arabia. Now, if U.S. President Barack Obama’s opponents have their way, his rejection of a new oil pipeline from Canada will help to incite his ouster later this year.

Ever since the mid-to-late 19th century, when Edwin Drake discovered oil in Pennsylvania and the Czar freed up drilling in Baku, the passions unleashed by energy have played an outsized role in local- and geo-politics. Yet there is something different today in sheer scale — although wars and brandished fists over oil are not new, we’d need to go back to the Teapot Dome scandal of the 1920s, for instance, to find a pure energy event that so threatened an occupant of the White House.

The storm of energy-driven geopolitical turbulence shows no signs of letting up any time soon. One impact is in the price of oil, which traders are keeping above $100 a barrel mostly over Iran, and the potential loss of some 17 million barrels a day to the market should it mine Hormuz or achieve the same outcome with speedboat harassment of tanker traffic. As precedence, traders are harking back to the nightmarish 1980s "Tanker War" between Iraq and Iran in which some 250 supertankers were sunk, write the Financial Times’ Javier Blas and Caroline Binham. If it were not for such tension, traders might bid oil prices below $90-a-barrel, judging by a new International Energy Agency report that absolute global oil demand had a rare overall decline last year, and may fall in 2012 as well.

Oil prices are a prime geopolitical metric given their affect on the economic health of nations, along with their ability to at turns embolden or depress the leaders of nations like Russia, Venezuela and Saudi Arabia. But there are additional measures of energy’s intensified geopolitical impact.

Go to the Jump.

There is the prospect of an open commercial sea lane straight across the Arctic Circle two or three months of the year, according to Rear Admiral David Titley, who spoke yesterday at a panel I moderated for the annual conference of the National Council for Science and the Environment in Washington, D.C. That would be thanks to the rise in global temperatures. In addition, OPEC’s influence could be eroded by a simultaneous leveling off of global oil demand (described by former BP executive Nick Butler in the FT), and the rise of competing oil-producing centers of gravity in the Arctic, East and West Africa, eastern South America and Canada.

As for the rattling of American politics, we are talking about the flaring of tempers over Keystone, a 1,600-mile pipeline that would carry some 830,000 barrels of additional bitumen from the oil sands of Alberta, Canada, to refineries in Port Arthur, Texas (see this very good timeline by Reuters). In all, the U.S. would be importing about 1.4 million barrels of the bitumen.

On an objective basis, the line is a no-brainer — it is a large, secure volume of crude situated right on the northern U.S. border, produced using cleaner methods that make it more or less the same qualitatively as the world’s heavy crudes says Frank Verrastro, director of energy and security at the Center for Strategic and International Studies.

In addition, the immutable laws of supply tell you that the sands will reach the U.S. market regardless of anyone’s opposition: Time and again, large supplies of addictive goods — whether we are talking cocaine or crude — tend to create demand and make their way to eager consumers.

This law of supply holds for Iranian oil — as discussed previously, smugglers, middlemen and China will evade global sanctions and get Iran’s oil to market, albeit at a steep cost to Tehran in the form of a discount. As for the oil sands, the initial new volumes will reach the United States aboard trucks and railroad tankers, providing time for Obama or his successor to approve the pipeline in the beginning of 2013, and for Keystone to be finished just in time for the bulk of the bitumen in 2015, says CSIS’s Verrastro, with whom I spoke by phone.

So why are U.S. politics being roiled by Keystone? Because both sides wish to excite their respective political bases. In other words, both wanted this fight, write Glenn Thrush and Darren Samuelsohn at Politico. In terms of Obama’s opponents, a tagteam consisting of the Republican Party’s chief business lobbyists — the American Petroleum Institute and the U.S. Chamber of Commerce — appear prepared to make Keystone the signature issue of the 2012 presidential race.

Sometimes geopolitical impact is deliberate. Take a look at the video below, from the Wall Steret Journal, for a pretty good description.

 

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