ARCHIVE - MARCH 2017
Issues, News & Views
ALL THE PRESIDENT’S MEN. WELL, THREE OF THEM, ANYHOW…
2017/03/20 - Most people implicitly understand the world as a place where oil is one of the most important forces driving international diplomacy and geopolitics. It’s what we’ve become conditioned to. Anything else would be strangely unfamiliar. Oil seems to be at the root of every major diplomatic and military dispute. Yet from the dawn of civilization until the twentieth century, petroleum played no part at all in international and, indeed, intertribal relations.
Man has always sought to create tools, domesticate animals, and harness nature to ease our burdens of survival, thus creating demand for energy in various forms. Wood has been used for heating and cooking; wind power and animals have been used for transportation; animals, wind and water have been used for grinding grain; water has been used as a source for both mechanical and electrical energy. And coal. With the industrial revolution in the eighteenth century, energy sourcing took on a heightened significance and coal came to the forefront as the energy source to power the steam engines of big industry and railroads.
But as technological gains continued, coal was unsuitable for the nineteenth century’s version of nanotechnology, the internal combustion engine. As the twentieth century arrived, a new energy source, in liquid form, was required to power automobiles and aircraft: petroleum.
As the 1800’s progressed military organizations underwent the same mechanization transformation that industrial firms experienced, first using coal on a larger strategic scale to power battleships, and to use railroads to rapidly redeploy armies; then by the turn of the century on a smaller tactical level, using petroleum-powered technologies to replace horses and donkeys with tanks and trucks. This military mechanization set the stage for twentieth century warfare doctrine, guaranteeing that oil supply would be a driving strategic force for years to come.
Fuel supply has been a crucial logistical consideration in twentieth century military encounters. In an example of an outcome the world can be thankful for, the World War II Nazi counter-offensive known as the Battle of the Bulge failed partly because the Germans ran out of fuel, failing to capture intact fuel supplies from the Allies that were needed to keep their Panzer tanks advancing. If the Nazis had a more secure and plentiful oil supply chain, the offensive and perhaps WWII might have ended differently.
Petroleum can also be an economic weapon. Oil supply and price shocks have been at the heart of most economic downturns in the West over the past half century. The Arab oil embargo in the 1970’s, in retaliation for US support of Israel in the 1967 and 1973 wars, led to economic malaise and the creation of the word “stagflation” - economic stagnation accompanying price inflation, a phenomenon that now-debunked “Philips curve” economists had considered theoretically unlikely. More recently, record oil prices of approximately $140 per barrel placed excessive financial stress on already over-indebted consumers, contributing to the financial collapse that gave us the Great Recession of the past eight years.
As fate would have it, many of the places that need oil the least – such as the Mideast – have the most of it, a supply/demand imbalance that has been a major source of global political instability over the past fifty years. America had the world’s largest, most robust economy in the twentieth century. America’s oil supply was a partial contributor to economic expansion in the first half of the century, but as the century wore on, the combined effect of apparent depletion of domestic supplies, and ever increasing domestic demand, has made America more dependent upon unstable foreign sources, and more vulnerable to both economic and security threats.
The Organization of Petroleum Exporting Countries (OPEC) was founded in 1960 to take advantage of the supply/demand imbalance. OPEC is a cartel of mostly loathsome despotic states, small economies with huge petroleum reserves. It developed an outsized global stature and influence, and members were not shy about flexing their newfound muscle, using supply as a weapon to jack up prices and rake in the cash. By 2008 prices had surged to $140 per barrel leading to what was then being called “The Greatest Transfer of Wealth in Human History”, from the free people of the West to the tyrants of OPEC.
In the 1970’s US support for the Shah of oil-rich Iran led to the hostage crisis, and several other outcomes – on the good side possibly leading to President Carter’s loss to Ronald Reagan, and the subsequent demise of the Soviet Union; but on the bad side definitely laying the foundation for the present-day animosity between US and Iran, and Obama’s potentially disastrous Iranian nuclear weapons deal. Carter’s 1980 State of the Union declared the Persian Gulf to be an area of American national strategic interest, and that America would use military action to defend its interest there.
Iraq’s invasion of Kuwait in 1990 was an oil fight between two producers that sequentially set in motion a chain of events that gave us the 1993 World Trade Center bombing, 9/11, the overthrow of Saddam Hussein, ISIS, the current refugee crisis, and countless other unfortunate outcomes around the world that have inflicted so such misery on so many people.
Even more recently we saw the incursion of Russia into sovereign territory, invading neighboring Ukraine, fueling rebellion and insurrection in eastern parts of the country, illegally occupying Ukraine’s Crimea territory, and enabling the downing of a commercial airliner with hundreds killed. The dependency of Germany and Eastern Europe on Russian oil and gas prevented any response from the West more meaningful than a laughable finger-wagging to Russia over its military adventurism.
It may seem grim, but OPEC overplayed its hand and the dynamics of the global petroleum market have rapidly changed. The unifying theory of everything is supply and demand, and supply and demand forces have caught up with OPEC in two ways. The first problem was that their stratospheric prices plunged the world into recession, causing both prices to plummet by nearly three-quarters, and a collapse of quantity sold. This vaporization of prices and volumes put an abrupt end to “the greatest transfer of wealth”. But that was their lesser problem. Their second, far more destructive problem is that high prices triggered a revolution in the United States in extraction technologies, technologies that have both greatly expanded America’s proven recoverable reserves; and greatly decreased the American cost of extracting those reserves.
Suddenly, and quietly, and unexpectedly, America is an oil power able to meaningfully move the oil market, able to prevent price spikes, able to stabilize global supply, able to deweaponize the commodity, and able to prevent autocrats from extorting the free world. Leave it to American ingenuity, and free markets and the profit motive. Capitalism to the rescue once again. Unexpectedly, did we say? Maybe not; if you believe in the power of freedom, it probably should have been expected. Solving problems is what free people do.
The importance of this cannot be overemphasized: The twenty-first century need not perpetuate the failures of the late twentieth century. The foundation of international diplomacy and geopolitics has changed. The ground has shifted under OPEC’s feet - OPEC is vanquished. Oil is no longer a major, much less overriding, strategic consideration for the United States. The world has moved on, and our thinking has been left far behind. The Mideast is no longer all that relevant. The Carter Doctrine is over. Kaput. Finished.
The economic consequences are every bit as radiant. If oil supply/price shocks have caused most of the US recessions in the past fifty years, then our new-found supply/price stability and security has eliminated one of American’s major economic stumbling blocks. The pressure is now on OPEC. Private American oil producers can profitably produce oil at a far lower price than the price that sovereign OPEC producers require to meet their national budgetary obligations.
It should be obvious that plentiful, secure, efficient, low-cost petroleum exploration, extraction, processing and distribution should be an overwhelming policy priority of any rational US Administration (meaning one not lead by someone name “Obama”). Which (finally!) brings us to the title of the article, three of the President’s men. The foregoing discussion fully lays out the case supporting the pro-energy nominations by President Trump (yes!) to head the EPA (Scott Pruitt), and the Department of Energy (Rick Perry). Totally get it. Drill, baby, drill. Make it so.
But then there’s the oil man, now-former Exxon-Mobil CEO Rex Tillerson… for Secretary of State? If oil is no longer a significant issue in American international affairs why would Trump nominate a CEO from Big Oil to head the State Department? On the surface it seems so last-century. Backward looking, not forward looking. Reactive, not proactive. Fighting the last war, not the next war. Oil doesn’t matter anymore, so why put an oil man at the tiller?
But it seems like Tillerson is making a rapid, thorough, principled transformation to the needs of tomorrow, if in fact it is a transformation he even needs. Maybe it shouldn’t be surprising that such an accomplished individual can walk and chew gum, at the same time no less. Maybe Tillerson is not someone who views the world exclusively through the lens of Big Oil. Maybe Tillerson is not a one-trick pony, the possessor of a one-track mind that thinks always, only, ever about oil, who nostalgically sees the world exclusively through the obsolete petroleum supply and demand paradigm of yesteryear.
Okay, let’s give him the benefit of the doubt. But it does beg the questions, though – if oil is no longer the 800 pound gorilla in the US diplomatic room, what is? And why Tillerson?
To those questions the first answer would be “nuclear player proliferation”. The expansion and enhancement of the North Korean weapons program, and the fruition of the Iranian weapons program, represent the most significant strategic threats to the United States in the world today. Not oil, not terrorists. Compared to any player armed with nuclear weapons or material, a conventionally armed ISIS truly is junior varsity, at least Obama got that much right – and then did the exact opposite logical thing by entering into a nuclear weaponization fast-track agreement with Iran.
Conventional weapons in the hands of any actor, whether world powers, rogue states, asymmetric entities or a lone wolf, do not represent strategic threats to the United States. At all. They can harm individuals, but can do no damage to America. Conventional terror attacks are little more than mosquito bites compared to the destruction and havoc that could be wreaked by a nuclear attack, regardless of who delivers it.
Fewer nuclear weapons in the world would be a good thing, but not nearly as important as having fewer entities with weapons. It makes little difference whether Russia or China have ten weapons or 10,000; but it makes an enormous difference whether weapons are possessed by ten countries or twelve. Limiting the proliferation of nuclear weapons is important; but reducing the proliferation of nuclear players is crucial.
The elimination of the northern Korean entity, and the elimination of the Iranian nuclear weapons program, must be viewed as the urgent American strategic objectives of our time, of far greater urgency and importance than even final victory in the global war on terror. No terrorist, conventionally armed, represents as grave a threat as a single nuclear weapon, irrespective of who wields it. Our obsession with terror under the Bush administration was shortsighted; but the Obama administration’s accommodation rather than opposition to the Kim and Iranian nuclear programs was outrageous.
So we gladly welcome Tillerson’s recent comments on North Korea, that the military option is “on the table” saying, “Let me be very clear: The policy of strategic patience has ended.”
The reintegration of the northern territory into a single united free Korea has always been the lone tolerable geopolitical outcome on the Korean Peninsula. For twenty years the policy of “strategic patience” has been a rolling, ongoing failure and only a precious few have stood up to say so. Now is the time to decry the small-minded unwillingness to take advantage of our overwhelming military advantage to defeat the north.
We need people like Ronald Reagan, a man with vision, who saw the Soviet Union not as something to get along with, but as something to be eliminated. The Kim regime and its northern fiefdom is a disease that needs to be eradicated, not co-existed with. It is the Soviet Union of our day, a threat that could plunge Asia into full scale war and do nuclear damage to America.
We need long term vision, a commitment to strategic victory. A free united Korea would be a peaceful economic powerhouse, a regional power that could play an even bigger role in neutralizing whatever threats Communist China may pose in the future. China fears a unified Korea; they believe a divided distracted, unstable Korean peninsula better suits their interests than a strong, democratic, united Korea that works with its allies to resist Chinese expansionism.
Perhaps business people like Trump and Tillerson have more in common with the military, while conventional politicians are more like career diplomats. The latter try to avoid war, seemingly at the expense of failure to pursue a long term strategic vision; they seem more interested in avoiding controversy, getting past the next election, preserving the status quo. Business and military people are different – they have vision, they make plans, they take the initiative, they secure objectives, they work with strategic partners to disrupt, neutralize and eliminate potential threats and competitors.
Maybe Rex Tillerson needs no transformation from “oil man” to something else. Maybe the real Rex Tillerson is not at all an “oil man”, but someone quite different, an experienced, incisive person who understands the world and understands its players; who understands the risks and threats America faces, on many dimensions. Maybe Rex Tillerson is a visionary with commitment to strategic victory.
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