US shift in attitudes over energy needs
Wednesday, 13 July 2005
The Australian Financial Review
The politics of oil and security are making for strange bedfellows,
writes Joshua Frydenberg.
Despite the terrorist bombings in London rightly seizing the attention
of the world, the global agenda at this year's G8 summit in Scotland was
not to be derailed. At the summit, US President George Bush faced a
concerted European push to reduce greenhouse gas emissions. While the
environmental imperative to do so is clear, to many there is an even
bigger agenda at play.
America's dependence on imported oil has galvanised a coalition of
national security heavyweights, among them former CIA director James
Woolsey and Ronald Reagan's national security adviser, Robert McFarlane.
They call for a one-third reduction in American oil consumption and a
one-third reduction in carbon dioxide emissions over the next 25 years.
In a recent letter to Bush, former senior US military and White House
figures warn of an impending crisis unless immediate action is taken to
develop alternative fuels and reduce oil consumption.
Quoting Sun Tzu's dictum "the art of war teaches us to rely not on the
likelihood of the enemy's not coming, but on our own readiness to
receive him", they stress that the future security and economic
prosperity of the United States, which has only 2 per cent of the
world's oil reserves but 25 per cent of the world's consumption, is
beholden to foreign interests.
This message is clearly getting through.
Only last week, Bush said in an interview with Danish media: "We're
hooked on oil from the Middle East, which is a national security problem
and an economic security problem."
With oil imports already comprising more than 50 per cent of US
consumption and scheduled to grow to 60 per cent by 2010, the capacity
of foreign interests to use the oil weapon against America for political
objectives will only grow with time.
The writer Thomas Friedman has described these national security figures
as the geo-greens. They have joined with scientists, environmentalists,
labour and industry to create a powerful grouping called the Energy
Future Coalition. This alignment of interests between the geo-greens and
the more traditional environmental lobby groups has created strange
bedfellows and offers a genuine opportunity for progress in the quest
for cleaner and more efficient sources of energy. New technologies such
as hybrid vehicles, the creation of biofuels through agriculture or
waste and tax credits for research and development are just some of the
options advocated by the coalition.
It has produced a long report focusing on innovation in transport,
biofuels, agriculture and the energy grid as a means to cleaner energy
and ultimately energy independence.
Recommendations are framed in the language of national security,
economic growth and job creation.
The diversity of the group is its strength. Within it there are clear
differences of opinion in relation to such matters as the science of
climate change. Nevertheless, the coalition has a common goal.
This conflation of circumstance may enable the bridging of the
traditional gap between industry and the environmentalists. This offers
the promise for meaningful change.
For the geo-greens, there is an imperative for urgent action.
The Economist recently pointed out that the security concerns focus not
on the scarcity of oil as such, but rather the concentration of its
ownership in the hands of a select group of countries. Of the 1 trillion
barrels in the world's estimated oil reserves, about two-thirds are
held in only five Persian Gulf countries.
National control of oil industries in major producing countries such as
Venezuela and Russia, combined with unpredictable political and security
environments in Saudi Arabia, Iran and Iraq contribute to America's
sense of vulnerability. Because of the mechanisms of the oil market,
simply diversifying the sources of oil production does not of itself
provide security. Clearly a serious disruption to the oil-producing
capacity of any of the major suppliers could have an immediate upward
impact on the global price.
Economists estimate that a rise of $US10 a barrel reduces annual global
gross domestic product growth by about half a percentage point. However,
the highly energy-dependent American economy would be affected
disproportionately. The price escalation in the oil market is unlikely
to go away in the short term. A combination of burgeoning demand, in
particular from China and India, oligopolistic practices by the
Organisation of Petroleum Exporting Countries to limit supply and
increase the price target range, and market speculation by hedge funds
against future holdings of oil firms are consistent with this scenario.
Many of the geo-greens have recently focused on China's growing energy
needs. (China has been responsible for about a third of the increase in
global demand over the past three years.) They argue that the
inevitability of the growth of China's energy requirements only
fortifies America's need to reduce its dependency on oil.
Former CIA directors Robert Gates and Woolsey have publicly expressed
their concern on national security grounds of the possible acquisition
by China's state-run National Offshore Oil Corp of American oil producer
Unocal. What this illustrates is that there is a fundamental shift
taking place in the way high-level US opinion makers are considering
their country's future energy needs.
The meeting of the minds between the geo-greens and the traditional
greens may well offer the best chance for progress. As is invariably the
case with the world economy, the outcome of the current American debate
may affect us all.
Josh Frydenberg, a former senior adviser to Alexander Downer and John
Howard, is a director of Deutsche Bank.
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