MEXICAN AND RUSSIAN OIL SUPPLIES CAN SHIFT U.S. DEPENDENCE
FROM MIDDLE EAST
By Bill Richardson
Bill Richardson was U.S. ambassador to the United Nations and secretary
of energy. He is now senior managing director of Kissinger McLarty Associates,
a strategic advisory firm based in Washington and New York.
WASHINGTON -- Within hours of the Sept. 11 attacks in New York and
Washington, a gas station in Dallas boosted gasoline prices to $5 a gallon.
Others in Detroit, Chicago and Omaha took a similar course, changing the
price by the minute and hour until they were charging upward of $4 a gallon.
The reason was simple, if wrongheaded: With an attack on the United States
suspected of coming from players in the Middle East, war in the world's
prime oil-producing region was imminent and the nation's supplies of gasoline
were sure to be interrupted.
Fast forward two months and realize that gasoline prices in the United
States have, in fact, come down by 20 percent since Sept. 11 with no long
lines, no shortages and no panic-buying. Our economic slowdown has been
softened by stable and low energy prices and our economic confidence buoyed
by the fact that inflationary pressures from rising gas and heating-oil
costs -- the double whammy in times of slowing productivity -- are not
Why is U.S. military involvement in the Near and Middle East in 2001 having
a different effect from its 1991 incarnation? After all, when U.S. forces
were stationed in Saudi Arabia and drove the Iraqi military from Kuwait
a decade ago, gasoline prices in the United States ran up nearly 30 percent,
and the nation was pushed into a recession. Because today, the United
States has diversified its sources of oil beyond the always-volatile Middle
East and because the region's oil producers find their own economic health
dependent on the vitality of the U.S. market.
The basics: Economies consume less energy in times of slow growth, and
this depresses oil prices. But a cut in oil supply to raise prices risks
generating inflationary pressures that start and lengthen recessions.
For the Organization of Petroleum Exporting Countries (OPEC), this reality
is particularly dangerous since, for most of these nations, oil makes
up 90 percent of export earnings and sustains their budgets. Any cut in
oil production to raise prices would only weaken other countries' economies,
depress demand, reduce OPEC revenues and seriously hurt almost all of
the oil cartel's 11 members.
Now, with U.S. troops active in Afghanistan, with more forces massed in
the region -- in Pakistan, Uzbekistan and now Tajikistan -- and with political,
military and intelligence engagement with Saudi Arabia, Egypt and the
Gulf states shifting somewhere between complicated and cooperative, it
is important to re-examine U.S. energy policy vis-a-vis the Middle East
and our nation's national security needs and priorities.
Clearly the United States is energy dependent. Fully half of our oil is
imported, as is almost a quarter of our natural gas. For some perspective
on the challenge of reducing oil imports, consider that 50 new nuclear
energy plants would have to be constructed to cut U.S. oil consumption
by just 10 percent -- and right now 103 are functioning in this country,
only two having been built in the past decade. But working in our favor
is the global oil marketplace, no longer dominated by OPEC. Today nations
as geographically and politically diverse as Russia, Norway, Mexico, Angola
and the Central Asian nations of the former Soviet Union are all players
on the world oil stage and helping to meet the West's energy needs.
Mexican President Vicente Fox, likely President George Bush's closest
friend among heads of state, has pledged his country to be a serious energy
source for the United States. He began by providing electricity for 50,000
California homes during the peak of the state's energy crisis this past
summer and expanded that demonstration of potential energy cooperation
by suggesting the creation of a North American energy market.
This is a dramatic departure from Mexico's traditional approach to its
energy resources, which viewed oil almost as a natural treasure to be
held tight -- a fact reflected in the limits Mexico's national oil company,
Pemex, labors under, where some 75 percent of its profits accrue to the
state, and capital for expansion and modernization is hard to come by.
Now, though, Fox is talking about opening the Mexican oil sector to U.S.
investment, a bold approach to grow the nation's oil industry, provide
more energy for U.S. consumption and raise revenues for the Mexican treasury.
Fox' vision for a modern Mexican oil industry closely aligns with what
Russian President Vladimir Putin has laid out for his country. The world's
No. 2 oil exporter is now working to become a reliable and innovative
supplier of energy to Europe, Asia and the world.
Two weeks after the attacks on the World Trade Center and Pentagon, Russia
declined an OPEC invitation to join the cartel, instead opting to independently
manage its own oil industry. This decision was consistent with Putin's
core foreign policies of integrating Russia more firmly into European
life and serving as a bulwark against Islamic radicalism.
Following the government's lead, Russia's oil industry is looking for
new opportunities in the world energy marketplace. LUKoil, Russia's largest
oil and gas company, is now investigating a new export terminal in the
Arctic that will expedite exports of Siberian oil directly to Europe rather
than being routed through the Black Sea and Central Asia. This new Arctic
shipping route may also allow for shipments directly to Japan, speeding
deliveries by two weeks. A 600,000-barrel-per-day pipeline to China --
a 15 percent expansion from current exports -- is now on the drawing board,
while projects with Western companies ExxonMobil, Royal Dutch/Shell, BP-Amoco
and others are in various stages of development, all to put greater oil
production and exporting on line. In the aftermath of Sept. 11 Putin pledged
more oil to the United States, strengthening Russia's economic and commercial
ties to the West in a time of crisis, securing energy stability for the
United States, helping to limit our vulnerabilities in the oil-rich Arab
world and in the process carving out a new area of U.S.-Russian cooperation.
U.S. and world oil security is emerging from other fronts as well. Norway,
the world's third largest oil exporter, went along with an OPEC-led production
cut in 1998 to boost prices from its then $8 per barrel (versus the current
$20) but has made clear it will not do the same now. Instead, it has announced
plans to increase production. Kazakhstan's government is partnering with
Chevron on a new export line to the Black Sea. Six separate pipelines
that link the Caspian region and Russia to Europe and the West, including
the Trans-Balkan and Ukrainian Transit lines and new lines across the
Black Sea floor, are in varied states of planning or development. Undeveloped
oil fields in Angola are attracting interest from Western companies Elf
Aquitaine, BP-Amoco, Chevron and others.
Taken as a whole, the world energy market is no longer dominated by OPEC,
and oil prices are increasingly set by competition for market share and
interconnected economic interests.
This should be good news as the United States pursues its war against
the Taliban and terrorism worldwide. The Middle East is a complex place
-- politically, militarily, culturally -- and nations there are not always
aligned with U.S. interests. Domestic political realities have constrained
some of our closest regional friends from being as helpful now to American
objectives as they have been in the past. Security and stability concerns
within Saudi Arabia, Kuwait, Egypt and elsewhere have limited the ways
in which those governments can be openly and materially supportive.
We should understand the Realpolitik of the Middle East, realize that
a diverse and competitive global oil market reduces our economic vulnerabilities
and defend America's national security interests without fear of setting
off an energy crisis.
(c) 2001, Global Viewpoint. Distributed by Los Angeles Times Syndicate
International, a division of Tribune Media Services.
For immediate release (Distributed 11/12/01)