U.S. Energy Independence Weakens its Power

The United States needs to make some decisions on how to capitalize on its surging oil production. Crude oil exports, except under certain circumstances, were banned in 1979 in response to the Arab oil embargo. More than 30 years later, Saudi Oil Minister Ali al-Naimi said he was upbeat about an emerging U.S. oil market but said talk of energy independence was a "naive" position. There may be enough oil available in the United States to sideline Saudi Arabia and its fellow OPEC members, the International Energy Agency said. In its latest market report, the IEA said an increase in North American oil production could have long-lasting domino effects. Many of those extend far beyond oil markets to the very core of the geopolitical hierarchy.

The IEA said it expects North American oil supply to increase by 4 million barrels per day, a figure that represents about half of what's expected from global oil producers during the same period. IEA Executive Director Maria van der Hoeven said production gains mean it's time to take a serious look at export restrictions by the United States.

"The answers have to be given by the U.S. government," she said. "I hope they are going to give the answers soon."

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U.S. policymakers favouring the oil industry said gains in production would help lead to energy independence and shield the regional economy from oil shocks like those that resulted from the 1970s oil embargo. OPEC members responded to the $2 billion in military aid sent to Israel after the Yom Kippur War in 1973 by halting oil shipments to the United States and its allies, causing substantial spikes in oil prices and pain at the pump for American consumers. By 1974, President Nixon said it was time to break away from foreign oil by pressing for energy independence.

Saudi Oil Minister Ali al-Naimi said the North American oil production boom was "great news" but stressed that talk of breaking away from overseas oil failed to take into account the interconnected nature of the oil markets.

Some political theorists speculate that retracting from the foreign market could be costly. Walter Russell Mead wrote almost a decade ago that superpowers can't maintain a position of dominance by force in perpetuity. Instead, he said, "sticky power," or connecting other countries to U.S. markets and then trapping them in it, is what ensures supremacy in a global system. By that logic, the United States, if oil production predictions come true, could hold the same geopolitical influence over global markets that OPEC members did in the 1970s.

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"Once the victim has touched the sap, it is stuck; it can't get away," Mead writes. "That is sticky power; that is how economic power works."

Rising oil production from North America, along with a shift in demand to Asia, means there's more than just a global shift in economic centers. For the last 30 years or so, U.S. military power has focused on the Middle East, where oil had run freely. Now, with the war in Iraq over, the Defense Department has started to pivot toward Asia, the same place that OPEC expects global oil demand will increase. Some of the same policymakers in the United States that favoured Middle East adventurism are from the same camp pushing for energy independence. If the IEA is right, however, the United States could become the world leader in more ways than one, but only if it opens its spigot.

By. Daniel J. Graeber of Oilprice.com