The Risk Pivot

Great Powers, International Security, and the Energy Revolution

Bruce D. Jones, David Steven

• Publisher: Brookings Institution Press
• Year: 2014
• ISBN:
  9780815726050
• Topic: Politics & International Relations
• Subtopic: Environment & Energy Policy
• Index: Politics & International Relations

The last decade has seen a revolution in global energy. First, we saw explosive growth in demand from Asia's rising powers, which fueled fears about scarcity and conflict. But we've also seen an American revolution in technology and markets, resulting in a dramatic increase in sup-ply. This is strengthening America's hand in the world—but it's not without complications. There are major security consequences of these shifts. Among the most consequential are China and India, Asia's emerging giants, which are increasingly exposed to political risks associated with energy risks, as well as the energy flows, pivoting to Asia. Meanwhile the great powers struggle to balance their need for fossil fuels with a mounting effort to tackle climate change. The top powers, and the United States above all, face a stra-tegic choice: whether to use energy as a weapon of geopolitics, or as a tool of a stable order.

CONTENTS

Introduction

1. The President and the King—Key Messages of the Book

2. The Energy Revolutions—A Primer

Geopolitics in Flux—The Players

3. Choices—Scenarios, and the Choice the Powers Confront

4. Rough Seas Ahead—The Great Powers' Search for Energy Security

Globalization and Complexity—The Problems

5. Transition in the Gulf

6. The Turbulent Middle

7. Fragile States

8. The Russian Problem

9. Connections—from Pipelines to Politics

Governance—The Partners

10. An Emerging System of Global Energy Governance

11. Leadership Choices

CHAPTER ONE

Introduction:
An Energy Revolution

THIS IS A BOOK about the geopolitical consequences of revolutionary changes in the supply, demand, and flow of energy. These changes are transforming the global economy, reordering the relationship between states, and leading to rapid changes in the nature of, and prospects for, international security. Furthermore, climate change and fossil fuel pollution are creating pressures for an unprecedented shift in the way we use energy, piling new problems on both national and international policy.

The world's leading powers are grappling to understand this revolution. The pressure is greatest in Asia, where China and India are finding that resource risk is the flip side of their growing economic muscle. Both their domestic politics and their foreign policies are shaped by energy insecurity, as each country—in very different ways—tries to respond to a serious economic and geopolitical threat.

In contrast, the United States has reemerged as a dominant energy player, much to its surprise and that of its rivals. It enjoys increased strategic latitude as a result, but remains unsure how it will play the cards that energy riches have placed in its hand. What kind of globalization, and global order, does it want to be part of? Will it use energy to reinforce that order or to undermine it? Does it have the domestic tools and political consensus to drive effective policy, and to play a global leadership role?

This debate is shaped by the fact that we live in an unusual geopolitical moment, when some of the world's top ten economies and military powers also happen to be developing countries, and many states are rising economically. For these countries, still struggling with poverty even as they navigate global finance and international security, energy is the source of acute challenges and domestic political strain. This book is about those issues, too, as it is about the major knock-on effects that changes in the energy markets have had on that other most political commodity, food (and with it, land and water). The way the connections between energy, food, land, and water are playing out for resource-insecure citizens in the world's rising states is also central to this book.

This geopolitical context may be new, but energy and security have always been tightly bound together, with oil at the heart of U.S. diplomacy ever since it succeeded Great Britain as the dominant global power. Let's start with the role energy played in building the postwar order, the foundations of which were laid at a little-known event.

The President and the King

The meeting took place in secrecy, received little press or diplomatic coverage when it became known, and is neglected in accounts of how international order was forged in the wake of World War II. Yet it began a relationship that was central to geopolitics for seventy years.¹ And it shaped the fate of the Middle East, the global oil trade, and the projection of American power in the postwar world.

The date was February 14, 1945, just days after U.S. President Franklin D. Roosevelt's fateful talks in Yalta with Prime Minister Winston Churchill of Britain and Premier Josef Stalin of the Soviet Union. The site was the USS Quincy, afloat in the Great Bitter Lake, part of the Suez Canal. On board, FDR and a delegation of admirals and advisers awaited their guest. Earlier, the USS Murphy had steamed to Jeddah to fetch him. It was a sign of the limited contact between the United States and Saudi Arabia at the time that the U.S. Navy had no up-to-date chart of Jeddah's harbor, and little diplomatic presence in Saudi Arabia to secure one. Rather, the effort to coordinate the Murphy's arrival—symbolically, in light of what was to come—took place via the offices of the Arabian American Oil Company, better known as ARAMCO (and the Standard Oil Company of California before that).²

At Jeddah, the Murphy boarded its passengers—47 men, 7 sheep, and a large, ornate throne. Just before midday on the 14th, the Murphy rendezvoused with the Quincy, and this throne was hoisted across. Its owner was King Abdulaziz Ibn Saud, the founder of Saudi Arabia. This was the first and only meeting between the president and the king, and the first time that the king had left his country. In Jeddah, rumors flew that the king had absconded or been kidnapped by the Americans. The ladies of his harem went into ritual mourning at the thought their protector would never return.

The meeting between the two leaders lasted for four hours. Discussion focused on the fate of Jewish refugees from Europe and whether the king would support the notion of a Jewish homeland in Palestine (he did not). The two leaders also discussed agriculture—President Roosevelt offered to assist King Abdulaziz with the technology that would be needed to irrigate Saudi Arabia and generate an agricultural industry (an offer the king politely spurned, telling the president he was too old to become a farmer). Those policy issues may not have been advanced, but international politics is sometimes about personality, not policy. Roosevelt charmed the Saudi leader. He also convinced the Saudi leader that the United States was not looking for a relationship of dominance in the region, but one of openness and mutual support. The question of oil was not discussed.

And yet energy questions loomed large. The United States had supplied much of the oil consumed by Allied forces during World War II, but the strain had been keenly felt, despite unprecedented cooperation between government and industry to keep supplies flowing. Roosevelt knew it was important for the United States to diversify its own supply and to resist British moves to shut American oil companies out of the Middle East. Churchill reacted with fury when he discovered the American president was meeting the Saudis behind his back and hastily organized his own summit to re-exert control. But this went poorly after he drank and smoked cigars in the king's presence, underlining the Saudi leader's perceptions of British insensitivity and arrogance. King Abdulaziz was convinced that his country's future lay in partnership with a country that embraced the future, not one that was tied to a colonial past.

Within weeks, the Saudis would begin preparations for work on a pipeline from the Kingdom's main oil fields in Dhahran toward the Mediterranean, allowing the flow of Saudi oil to the United States and Europe. American investors provided the capital and the expertise and, in the early years at least, took the bulk of the profits. Middle Eastern oil was to become important to American industry, but, in the immediate term, it played a much greater role in rebuilding Europe's shattered economies. The United States, meanwhile, began construction of an airfield that it occupied until the 1960s and started training the Saudi air force, such as it was.

These events represented the start of a strategic and economic partnership: an American guarantee of security for Saudi Arabia in exchange for Saudi de facto guarantees about the free flow of oil. It was a relationship that put the United States—for good and bad—at the heart of the Arab world and pushed Britain to the sidelines. The Saudis received reassurance that they would be protected from neighbors who coveted Saudi oil riches (a commitment that bore its greatest fruit when Iraq invaded Kuwait decades later). The United States gained a bulwark against Soviet influence in the Middle East, as its military provided a security guarantee to the region whose costs would rise to an estimated $500 billion annually in the 2000s.³ Saudi willingness to act as a swing producer of oil, and U.S. determination to secure Middle Eastern supplies, were fundamental to the architecture of global economics and international security in the late twentieth century and into the twenty-first. And they bound together an authoritarian and secretive kingdom and the country that led the free world.

Seventy years after that fateful meeting, the relationship between energy and international security endures, but it is partway through a transformation triggered by a revolution in the way energy is produced, consumed, and distributed. This is a book about why and how this change is happening, and what it means. Our focus is on the geopolitics of energy—that is, what the paramount importance of energy to modern societies means for patterns of global power. Our topic is security in a traditional sense: of strategic rivalry between the world's dominant military forces. But it is also about the ways international power is constrained now that all major powers are enmeshed in a complex economic globalization that requires an uninterrupted flow of resources to survive.

We have six central messages. The first is that Asia's appetite for resources comes with a cost. As energy flows to the region's emerging powers—China and India in particular—so does risk. We don’t yet know whether we will see a full U.S. foreign policy pivot to Asia, but what we call a “risk pivot” is well under way. The Asian powers find themselves increasingly exposed to the geopolitical risks inherent in dependence on energy supplies that come from parts of the world over which they have minimal control. Energy insecurity is far from the only driver of Chinese and Indian foreign policy, but it is a powerful one.

At the same time, U.S. energy security is improving as it relies to a growing extent on domestic and reliable regional supplies, and its exposure to risk is diminishing as a result. These observations are true only to a point, of course. The United States remains embedded in a global energy system that supports a $70+ trillion economy and will be damaged by any erosion of that system's ability to function smoothly. Some of its regional suppliers—like Venezuela—remain hostile or unstable. A revolution in U.S. energy supply has created a buffer, but not a firewall, against global risk, but the buffer is a sizable one and creates an important bulwark against American decline.

Our third message is that the risk pivot offers the United States new strategic choices. Some politicians and strategists are attracted by the sense that the United States can now play dirty: attempting to use energy as a strategic weapon to weaken China, marginalize Russia, and bolster its allies—as we saw, for example, with calls from some in Congress to use America's new natural gas abundance as a weapon against Russia, thereby weakening what Senator John McCain called “a gas station masquerading as a country.”⁴ Or, the United States could turn its back on the problem, standing back from the management of international energy flows in order to focus on the energy riches within its borders and those of its region. Under this scenario, it would let the chips fall where they may elsewhere in the world. Or it could choose a more complex, but potentially more rewarding path, by attempting to forge a more effective system of energy and climate governance in a way that promotes stable relations—or somewhat stable relations—with China and India.

However, decisions about these strategic choices must be infused with a greater sense of realism about the nature of global markets and the commercial dynamics of the energy industry. For example, the notion that the United States could rapidly wean Europe from Russian gas ignores basic market realities—a lack of gas export infrastructure in the United States and regional price differences that would pull gas toward Asian rather than European markets. Another example: many have asserted that because the United States will soon import little if any oil from the Persian Gulf, it is insulated from instability there. This assumption neglects a basic reality, that oil is a globally traded commodity, and the United States is still exposed to the global price. True, the United States now faces less risk of supply interruption, but it still faces economic consequences if we see prolonged instability in the Gulf—again, a buffer, not a firewall.

Fourth, we look beyond the major powers to the broader impacts of the energy revolution on globalization, an economic system that now encompasses all but a handful of isolated or conflict-ridden states. Anyone seeking to understand the relationship between energy and globalization must confront several challenges: the “rising middle” of countries and people that face a squeeze for the resources needed to fuel the next stage of development; the fragile states that are weakened by having too many natural resources, or having not enough of them; and the way that the interaction between resources and globalization is complicating life for an already turbulent Arab world, whose political instability in turn threatens global energy markets.

Fifth, there is climate change, a challenge that carves its way through every aspect of the energy revolution, that places the resulting shift in geopolitical risk in a new light, and that is set to become a predominant risk to globalization. Here, we are not simply making the argument that changing climate is driving weather patterns that have security or economic impacts, even though there is strong evidence that that is true. Rather, we are claiming that climate change negotiations in their broadest sense—the attempt to establish rules about who gets to emit what and when—have become central to the relations between major powers. This is not always appreciated in the United States, where few treat climate as a strategic topic (and many politicians fail to regard it as a serious challenge at all). For a long time, Washington has been the only capital where climate politics is seen as the exclusive domain of climate specialists and environmental activists. From Beijing to Delhi to Brasília, America's allies and potential adversaries view climate as integral to one of the essential questions of our time: what will the international order of the future look like, and will the emerging powers choose to challenge or accept it? Washington is now beginning to catch up to this strategic dimension as well.

And so this book is also, sixth and finally, about the loose system of global energy and climate governance whose shape we can begin to discern. Its existence is new. Only a few years ago, there was a scattering of important organizations, but nothing like the institutions and norms and rules that shape global economic interactions, or even those that bind international security together. That's changing fast. Now, a veritable flotilla of international and regional bodies, groups, and institutions, formal and informal, are attempting to manage different parts of the global energy system, linking state action to the private sector (or trying to), and responding to energy's links with climate, with food and water—and with poverty. What's more, international security institutions, from NATO to the Security Council, have become increasingly entangled in energy challenges.

Our concern is that energy and other resource challenges are currently amplifying political, economic and social tensions, whether among great powers or more broadly across the international system. The new flotilla of governance responses aims to manage these tensions, but it lacks clear goals and direction and is a long way from being able to function effectively. For the United States—still the actor with the greatest capacity to shape international affairs and to drive international governance arrangements—this creates a choice. It could choose to view resource tensions as an inevitable consequence of a changing balance of economic power and of a dynamic, but fragile, globalization. Or it could seize an opportunity for leadership—leadership not in the form of military adventurism but through the task of forging new arrangements for governance, seeking to buttress the existing international order by acting as an “admiral” that creates and directs a coherent governance system.

The Energy Revolution

These choices for the United States, and the resulting opportunity to exercise leadership, arise primarily from an energy revolution that has two parts.

On one side, we find sources of demand—that is, who needs energy, and who is importing it. Here, the newly thirsty countries matter most. Explosive growth in the emerging powers, especially China and increasingly India, has reshaped global energy markets and will continue to do so. This is about emerging Asia.

On the other side of the revolution, we find sources of supply—that is, energy producers, and their export markets. The supply revolution is partly about technology, government-sponsored research, deregulation, and market innovation. It is about shale gas and fracking, and “tight” and “deep” oil. This is about the United States, first and foremost. But it is also about a far-flung search for new sources of supply on the world's fragile frontiers that is bringing new energy exporters into play. The same tonic—high prices—has hit the world's most powerful economy and some of its least sophisticated ones in very different ways.

The two sides of the energy revolution have played out at different speeds. The surge in demand came first. After the oil shock of the 1970s, energy prices entered a protracted period of decline, punctuated only by short-lived geopolitical shocks. But consumption was surging, increasing by nearly 50 percent between 1990 and 2008.⁵ Growth in the West was modest, where per capita energy use has been declining, but the emerging economies were increasingly dominating the world's energy-intensive industries. Low prices gave them little incentive to use energy efficiently and sucked investment out of the commodity sector. Despite tight supply, price signals were slow to filter through to markets that were distorted by subsidies and political interference. The result was an inevitable erosion in the stability that spread from energy to other resource markets. In 2005, his final year as chairman of the Federal Reserve, Alan Greenspan was among those who had become preoccupied with the impending crisis. “How did we arrive at a state in which the balance of world energy supply and demand could be so fragile that weather, not to mention individual acts of sabotage or local insurrection, could have a significant impact on economic growth?” he complained in one of a series of speeches on the subject.⁶

In 2008, the shock that Greenspan had foreseen finally came, but its dimensions were greater than he or anyone else had anticipated, and it was part of a global crisis that had three dimensions: not just energy, but also finance and food. In July of that year, the spot price for oil hit $147 per barrel, while food prices soared to levels not seen since the 1970s. Some concluded that global oil production was close to peaking, but it soon became clear that the world had more oil than many thought—as long as investors had incentives to surmount technological obstacles or increase their appetite for political risk. Investment in the oil sector had already begun to pick up by 2003, a trend reinforced as underutilized capital sought a home in the wake of the Great Recession.⁷ At the same time, the scale of the American shale gas boom was hitting home. As recently as 2006, the International Ene...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication Page
• Contents
• 1 - Introduction: An Energy Revolution
• 2 - Energy and Geopolitics
• 3 - Resources and Globalization
• 4 - Energy and Climate
• 5 - Toward Sustainable Globalization: The International Governance of Energy
• Acknowledgments
• Notes
• Index
• Back Cover