Energy Squeeze

The international energy market of the twenty-first century is witnessing an unprecedented period of turmoil and instability, an indication of an indisputable global power shift that holds serious, long-term implications for U.S. national security interests throughout the world.

Acting in silent unison, energy-rich governments in the Middle East, Eurasia and South America, in particular, populist dictator Hugo Chavez of Venezuela; Iran’s President Mahmoud Ahmandinejad; China’s stoic President Hu Jintao, and Russia’s enigmatic President Vladimir Putin, have demonstrated a growing penchant for energy-related controversy and confrontation. No longer satisfied with Western-defined progress, these countries have become emboldened players on the world stage, using commodities such as crude oil, natural gas and mineral deposits as weapons against perceived U.S. hegemony.

The ultimate goal of this new energy alliance is to eventually humble the U.S. as the world’s undisputed political, economic and military power, forcing its withdraw from the world stage by using energy as a sledgehammer for international change. Acting independently, these countries can attain, at best, only marginal influence and power. Acting together, however, they become formidable adversaries.

The power of energy as a weapon for capitulation was demonstrated in late 2005 when Russian oil conglomerate Gazprom used the "energy weapon" against former Soviet republic Ukraine. By temporarily cutting off natural gas supplies to the western-leaning government of Viktor Yushchenko and ignoring standing contractual obligations, Moscow gave an early glimpse of how its new energy-based foreign policy could be used to persuade and punish.

As a direct result of the Russia-Ukraine dispute, alleged energy distribution "difficulties" were reported by Moscow which resulted in natural gas supplies to Europe being substantially cut, raising the ire of European leaders such as Germany’s Chancellor Angela Merkel. In hindsight, Chancellor Merkel’s reaction is understandable. Europe’s reliance on Russian crude exports has risen from 9 percent of total crude imports in 1995 to 29 percent in 2006. Energy industry experts predict the EU will import 90 percent of its oil and 80 percent of its natural gas within 20 years as onshore and offshore fields become mature. Although the Russia-EU crisis was eventually resolved, it provided a "dry run" exercise for Moscow and proved once again what most of Europe’s leaders knew all along – that energy is the EU’s "Achilles heel."

In the past several days, Moscow has threatened to cut off Estonia’s energy supplies in response to the small country’s decision to remove a Soviet-era memorial of a Red Army soldier, saying oil, diesel and natural gas deliveries "may be disrupted" starting May 1. Even long-time allies of Moscow such as Belarus’ Cold-War dictator Alexander Lukashenko have become casualties in the new energy game, seeing a nearly fourfold increase in energy prices over a year ago.

Moves by the Kremlin to nationalize the country’s energy sector by pressuring a Royal Dutch Shell-led consortium to relinquish control of the Sahalin-2 natural gas project to Russia’s state-controlled monopoly Gazprom, and Putin’s meetings with Arab leaders last month to explore the creation of a "natural gas cartel" demonstrate an authoritarian view of energy management that is undeniably confrontational. Putin’s message to the world is clear – energy resources can, and will, be used as a tool to shape foreign policy and forcibly influence countries.

Although not an energy exporter to the U.S., China continues to complicate Washington’s global energy security. In April 2006, Chinese President Hu Jintao signed a number of bilateral agreements involving the future delivery of Saudi oil in exchange for Chinese weapons. The purpose of this alliance was not only to secure a long-term supply of energy for China’s burgeoning economy, but to offset existing U.S. energy alliances in the Middle East by influencing the "House of Saud." One year earlier, the Beijing regime signed an unprecedented US$70 billion, 25-year natural gas agreement with nuclear-obsessed Tehran.

Beijing’s quest for energy has recently led it to the shores of the U.S. With the help of communist Cuba, Chinese companies are performing what is known as "slant drilling" 50 miles off the Florida Keys, tapping into oil reserves located in U.S. sovereign territory. China has also attempted to secure significant amounts of oil and natural gas from top U.S. suppliers Canada and Mexico. And on the African continent, Beijing’s policy of turning a "blind eye" to the internal politics of countries it does business with has contributed to needless civilian deaths in countries such as the Sudan, Zimbabwe and Nigeria.  

Then there is the case of America’s fifth largest crude exporter, Venezuela. Last week, the country’s anti-American President Hugo Chavez delivered on an earlier promise to seize foreign oil operations in the energy-rich Orinoco Belt, saying, "Open investment will never return." With no other options available to confront Latin America’s "Little Fidel," U.S. companies ConocoPhillips, Chevron, Exxon Mobil, Britain’s BP, Norway’s Statoil and France’s Total agreed to cede operational control, transferring power to Chavez’s growing oil cartel. The rise in energy prices over the past several years – from US$18 a barrel in 2001 to US$67 today – has enriched Venezuela’s coffers, with oil revenues increasing 100 percent from 2002 to 2006. There is a very good chance this troubling trend will continue in the near future.

The current energy transition presents an immediate threat to the U.S. and its allies in Western Europe and Asia. The prospect of severe global energy disruptions, the further nationalization of existing energy resources and the formation of energy-based, anti-American alliances present a threat to the global competitive equation. As this transition becomes more acute, other energy rich countries, as well as non-aligned nations sympathetic to their views and in need of energy themselves, will join this anti-American movement.

With foreign petroleum products expected to provide 70 percent of U.S. energy needs in the coming decades, energy conservation, independence and diversity have become paramount initiatives. An aging refinery infrastructure, increased domestic gasoline consumption, unexpected distribution disruptions and dwindling oil and gasoline reserves have pushed the U.S. to the edge. In reality, the country is only one major disruption away from a very serious energy problem that could have wide-ranging consequences. If the perfect storm does occur – a lethal combination of the items mentioned previously and a military confrontation with Iran – the results will be immediate and extremely painful for all Americans.

President Bush has said that U.S. dependence on overseas oil is a "foreign tax on the American people." On this issue, he is right. Polls of the American public consistently show that energy dependence is on their minds. Recognizing this, definitive action must be taken by Washington to remedy this crisis by protecting all of America’s vital energy interests throughout the world. Otherwise, our inability as an independent country to react to dynamic world events will be severely curtailed, leading to inescapable and uncontrollable global scenarios.