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For three decades, the rich world has talked about
curbing its addiction to imported oil. But, despite the anxious
rhetoric, the oil-supply problem has become worse and energy
security more complex. Notwithstanding politicians’ repeated calls
for energy independence, over the past 30 years the United States,
for example, has doubled its dependence on imported oil, which now
accounts for nearly two-thirds of its oil needs.
Threats to cut oil supplies in
order to change a country’s foreign policy have a long history,
particularly where the Middle East is concerned. Arab members of the
Organization of Petroleum Exporting Countries called for an embargo
at the time of the 1967 war, but it had little effect because the US
was then largely self sufficient.
But by the 1973 Yom Kippur war,
the Arab oil embargo had a greater effect, owing to America’s
growing demand for imported oil. The embargo drove up prices and
unleashed a period of inflation and stagnation worldwide. It also
demonstrated that oil is a fungible commodity. Even though the
embargo was aimed at the US and the Netherlands, market forces
shifted oil among consumers, and in the long term all consuming
countries suffered shortages of supply and the same price shock. Oil
embargos turned out to be a blunt instrument that hurt many besides
the targeted countries.
In the aftermath of the oil price
shocks, energy security policy has had four components. By
liberalizing energy prices, governments allowed markets to encourage
conservation and new supply. In addition, governments introduced
modest subsidies and regulations to encourage conservation and
renewable energy sources. Some governments began to store oil in
strategic petroleum reserves that could be used to for short periods
in a crisis. Rich countries also helped to create the Paris-based
International Energy Agency, which coordinates policies (including
strategic reserves) among consumer countries.
Such policies still make sense.
They would probably not be adequate, however, to deal with a
prolonged disruption of supplies. The world is not running out of
oil, but two-thirds of oil reserves are located in the politically
unstable Persian Gulf region.
The US imports only a small
portion of its oil from the Persian Gulf. Its largest supplier is
its stable neighbor, Canada. But the lesson of 1973 is that a
disruption of Gulf oil supplies would raise prices and damage both
rich and poor economies, regardless of how secure their own sources
of supply might be.
Moreover, new dimensions of the
problem of energy security have emerged in the last few years. One
is the great increase in energy demand from the rapidly growing
economies of Asia, particularly China.
China appears to believe that it
can secure its energy imports by locking up oil contracts with
pariah states like Sudan. However, while this short-sighted
mercantilist approach creates foreign policy problems over issues
like Darfur, it will not really protect China in a time of supply
disruption. It would be far better to bring China (and India) into
the IEA, and encourage normal Chinese participation in world
markets.
Another new dimension of the
energy security problem is the manner in which high prices and
increased reserves have transferred power to energy producing
countries. State-owned companies now control far more oil and gas
reserves than do the traditional private energy companies once known
as the seven sisters. Many of these state-owned companies in
countries like Russia and Venezuela are not responding merely to
market forces, but are using their newfound pricing power for
political purposes.
Finally, the energy security
problem has been complicated by the problem of global climate
change. As the science has become increasingly clear, climate change
is now a major political issue at the global and national levels.
Rising sea levels, drought in
Africa, and increasingly turbulent storms all pose a new type of
threat that must be taken seriously. So measures to deal with energy
security must address the demand side even more than the supply
side.
Measures that some legislators
favor, such as transforming coal into liquids, increase secure
supplies, but they imply more carbon dioxide emissions than imported
oil does. They should be avoided until technologies for clear coal
or carbon capture are perfected. On the other hand, reducing demand
through improved energy efficiency and conservation measures are
beneficial for both the security of supplies and the global climate.
But it is not enough for the US
and European Union countries to improve their energy efficiency
unless other countries do so as well. China and India can pursue
security of supply by using their large coal resources, but unless
they also have access to improved coal technology, the burdens they
impose on the atmosphere will be large.
This year, China will surpass the
US in emissions of greenhouse gases. It builds nearly two new
coal-fired electricity plants each week. In such a world, energy
security can no longer be summed up as greater energy independence.
Instead, we must find better ways to cope with energy
interdependence.
Copyright: Project Syndicate,
2007.
--www.project-syndicate.org
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