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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