Khashoggi affair exposes myth of US energy dominance

Khashoggi affair exposes myth of US energy dominance
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The widely condemned killing of journalist Jamal Khashoggi has escalated tensions in the Middle East and strained the U.S.-Saudi relationship to a degree seldom seen since Ibn Saud and Franklin Roosevelt first cemented the “oil-for security relationship” in 1945.

By resurrecting the specter of the oil weapon, the crisis also exposes the myth of the Trump administration’s agenda of American “energy dominance.” 

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The shale revolution has more than doubled U.S. oil production over the last decade, slashing U.S. net import dependence. But in a globally integrated market, our vulnerability to gasoline price shocks comes not from how much we produce, but how much we consume.

The Trump administration’s concept of energy dominance was articulated in a June 2017 op-ed by Energy Secretary Rick PerryJames (Rick) Richard PerryEnergy Department defends Rick Perry’s wife's travel Texas New Members 2019 Senate should reject Trump’s radical nominee to key energy panel MORE, Interior Secretary Ryan ZinkeRyan Keith ZinkeOvernight Energy: EPA official steps down after indictment on ethics charges | Sanders to hold town hall on climate | Zinke slams 'environmental radicals' for fires Zinke blames ‘environmental radicals’ for deadly California fires Lawmakers say California will eventually get emergency funding for fire relief MORE and Environmental Protection Administrator Scott PruittEdward (Scott) Scott PruittOvernight Energy: EPA official steps down after indictment on ethics charges | Sanders to hold town hall on climate | Zinke slams 'environmental radicals' for fires Trump EPA official resigns after indictment on ethics charges Overnight Energy: Trump to nominate Wheeler as EPA chief | House votes to remove protections for gray wolves | Lawmakers aim to pass disaster funds for California fires MORE:

“An energy-dominant America means a self-reliant and secure nation, free from the geopolitical turmoil of other nations that seek to use energy as an economic weapon.” 

President TrumpDonald John TrumpPaul Ryan defends Navy admiral after Trump's criticism Trump discussing visit overseas to troops following criticism: report Retired Army General: Trump is ‘acting like an 8th grader’ in attacking ex-Navy SEAL who led bin Laden operation MORE’s National Economic Council Director Larry Kudlow echoed this view when he dismissed concerns about possible Saudi retaliation should the U.S. impose punishments for Khashoggi’s death by saying, “The U.S. is the dominant energy player. So, we are in pretty good shape in my opinion with our energy boom to cover any shortfalls.” 

In reality, the fallout from the Khashoggi affairs belies the rhetoric of dominance. In the days following the journalist’s disappearance, Saudi Arabia responded to the threat of possible U.S. sanctions by reminding the U.S. that it has leverage to harm the U.S., too, with a senior official saying, “The kingdom’s economy has an influential and vital role in the global economy.”

This veiled threat was widely seen as referring to its oil supplies, and oil prices rose accordingly. The fears were exacerbated when the head of the Arabiya news network wrote a piece explicitly threatening to use oil as a weapon. 

Saudi officials, including Energy Minister Khalid al-Falih, were quick to tame the market’s fears. The Kingdom understands well that any disruption in oil supply would do far more lasting harm to itself than to the U.S., as it would not only undermine the reputation Saudi Arabia has developed for 45 years as a reliable supplier, it would also spur the transition to alternative fuels, trigger a release of strategic oil stocks and complicate Trump’s efforts to reduce Iran’s oil exports. 

While a disruption in Saudi oil supplies is unlikely, the threat was a stark reminder that no matter how much oil the U.S. produces or how little we import, prices at the pump will still spike if there is a disruption in any global oil supply, whether the U.S. imports from that country or not.

Today’s oil market bears little resemblance to the one that existed during the Arab Oil Embargo of 1973, when most internationally traded oil was sold under long-term contracts.

Today, the oil market is the largest and most liquid commodity market in the world. As a result, supply disruptions today lead not to lasting physical shortfalls but rather to price spikes.

In a global market, increased U.S. oil supply does not insulate drivers from higher pump prices because a supply disruption anywhere leads to a price increase everywhere — regardless of whether the U.S. imports oil or not.

As a result, the best way to reduce the risk to consumers at the pump from global oil supply disruptions is to reduce how much oil we use in the first place.

Yet the Trump administration is moving in the opposite direction by weakening planned increases in fuel economy and proposing budgets that slash research and development into alternative transportation technologies and fuels.

The threat to use oil as a weapon, and the reality that a supply disruption will still hit consumers at the pump despite the shale revolution, is also a reminder of the value of holding strategic oil stocks.

Since 2015, Congress has sold nearly half of the oil in the Strategic Petroleum Reserve to pay for other priorities, like transportation and medical research, in the misguided belief that the shale revolution insulates us from geopolitical risk to oil.

The credibility of the Saudi threat to use oil as a weapon — however unlikely it may actually be to materialize —should be a wake-up call to policymakers that action is needed today not only to increase domestic oil supply, but more importantly to reduce consumption.

Slashing oil use is not only necessary to deal with the urgent problem of climate change, but is also the best way to enhance energy security, free us of the oil market’s geopolitical turmoil and achieve true and lasting energy dominance.

Jason Bordoff (@JasonBordoff), a former special assistant to President Barack ObamaBarack Hussein ObamaMichelle Obama's memoir is 2018's fastest-selling book at Barnes & Noble Dem bundler: Donors waiting on 2020 commitments until Beto O'Rourke makes decision Leon Panetta’s nightmare is today's national security crisis MORE, is a professor of professional practice in international and public affairs and the founding director of the Center on Global Energy Policy at Columbia University.