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Why the United States could be the real winner of the energy wars

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Home » World » Why the United States could be the real winner of the energy wars

Why the United States could be the real winner of the energy wars

27/06/2022 11:32:33
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The Great Oil Shocks of the 1970s taught Western politicians a sobering lesson about the might of the world’s energy superpowers. Fifty years later, this lesson is learned again.

Russia is responding to Western sanctions by limiting gas supplies to Europe. The prospect of a complete Russian gas cut is causing near-panic in Europe as Germany and other major economies consider energy rationing this winter. Meanwhile, Joe Biden – worried about soaring oil prices ahead of the midterm elections – must have forgotten his campaign rhetoric about treating Saudi Arabia like a pariah. The US president is going to Riyadh next month to ask the Saudis to pump more oil.

The lesson seems to be simple and daunting. In 2022, as in 1973, the world’s major oil producers can still make the world’s greatest political powers dance.

But look beyond the immediate headlines and the geopolitics of energy is much more complex. Russia has a strong hand in the short term, but its position will deteriorate significantly over the next three years. America has a big problem in the short term but is in a strong position in the long term.

It is the EU that has the biggest problems in the short and medium term. Despite the courageous talk of diversification and decarbonisation, Europeans are still far from finding a viable new energy strategy.

Russia and the EU are in a race against time. The Russian objective is clearly to cause an economic crisis in Europe this winter, thus weakening EU support for Ukraine. The Hungarian government, known for its lenient attitude towards Putin, is already pushing for a quick ceasefire in Ukraine, citing the threat of economic disaster.

The Europeans have several months before winter to prepare for the coming Russian pressure. But even if Moscow’s pressure tactics work in the short term, in the long term Putin is destroying one of the main pillars of Russian power.

Europe has now learned a bitter lesson about the dangers of energy dependence on Russia and is determined never to be so vulnerable again. A senior German official says: “Before the war, Russia was looking at another 30 years of guaranteed oil and gas revenues. Now they are considering three.

Even in the short term, cutting off gas exports from Europe is a dangerous game for Russia. About 1 billion euros a day continues to flow into Russia’s coffers, mainly from Europe. If Putin sacrifices this revenue, his ability to wage war would quickly diminish.

Russia can find alternative markets for its oil relatively easily – evidenced by the eagerness with which India and China are increasing imports of its oil at discounted prices. But its gas is exported by pipeline and the big pipelines go to Europe. Building new ones in China will take years, so Russia could soon be faced with a stranded asset.

The seriousness of European efforts to break free from dependence on Russian energy can be seen in the travel schedules of its leaders. Ursula von der Leyen, President of the European Commission, has just traveled to Israel and Egypt to sign a new gas contract. Olaf Scholz, the German chancellor, recently visited Senegal and gave his support for the development of a new gas field there.

There remains, however, a big question about how quickly and easily Europe can replace Russian energy. Some energy industry figures are privately skeptical. The situation over the next five years is expected to leave Europe in an uncomfortable position – with the need for Russian energy reduced, but not eliminated, while consumers face ever higher prices and industry faces to precarious supplies.

America, on the other hand, is in a much more comfortable long-term position. According to Dan Yergin, a prominent energy analyst, America has overtaken Russia as the world’s largest energy exporter.

Rising energy prices are a pain for American consumers, but a boon for the American shale gas industry. One of the lessons of the war in Ukraine is that it is dangerous for a country to depend on a geopolitical adversary for its energy. America is now a major net exporter of energy, while China remains heavily dependent on imports.

But US production alone cannot protect US consumers from rising global oil prices. The American desire to isolate not only Russia but also Iran and Venezuela has strengthened Saudi Arabia’s position. It is impossible for even the United States to treat all of the world’s major oil producers as pariahs at the same time. And unlike Russia or Iran, Saudi Arabia is a longtime US ally.

The real threat to the Saudi position is not geopolitical but environmental. Decarbonization could eventually mean that the world no longer buys what the Saudis are selling.

In the short term, however, the global energy crisis caused by the war in Ukraine is increasing demand for non-Russian fossil fuels, including coal, the dirtiest of the lot. Germany reopens mothballed coal-fired power plants. And China is clinging even further to its most reliable form of domestic energy production: coal.

Russia’s invasion of Ukraine is bad news for the world. This may be worse news for the planet.

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