Mills: The Dangerous Myth of Energy Independence

Robin M. Mills writes in an op-ed for IC

A pernicious myth has recently re-emerged: that oil is ‘running out’, that global production will soon peak and enter inexorable decline. What is the proper response to ‘peak oil’ – to attempt energy self-sufficiency, or to take military control of oil producing regions before the Chinese or Russians get there?

The current high energy prices emerge from a long period of low prices and under-investment, itself the fruit of the breakdown of international energy relationships in the oil crises of 1973-4 and 1978-80. Contrary to vocal ‘peak oil’ claims, high prices are not due to a lack of resources in the ground. There remains vast potential around the world for increasing recovery from existing fields, discovering new oil, as recently in deepwater Brazil, or in the largely untouched US offshore, and for ‘unconventional’ sources such as Canada’s famous ‘oil sands’, biofuels, synthetic fuels from natural gas and coal, and others.

Ideas about forestalling an oil crisis by ‘energy independence’, or by military action, are therefore mistaken. Indeed, such ‘solutions’ are likely to create the crisis they seek to mitigate. ‘Energy independence’ for the United States was touted by Nixon in 1974, by Ford in 1975, by Carter in 1977, by Reagan in 1981, by Bush Senior in 1991, by Clinton in 1992 and by Bush Junior in 2003, during which time American oil imports doubled. ‘Peak oil’ ideas, recent high oil prices and fears of Middle East hostilities seem to have made the quest more urgent. Campaigns encourage American consumers to boycott Middle Eastern ‘terrorist oil’, and laws are proposed to sue OPEC. When Arab countries, even staunch US allies, attempt to recycle their oil earnings into the faltering American economy, politicians whip up media storms to keep them out.

Such a climate, with elements of paranoia, racism and Islamophobia, is profoundly harmful to the proper objective of energy policy: not independence, but security. Energy security is achieved when suppliers find markets, and markets find supply, at prices permitting both of them economic stability and growth. This requires a complex web of inter-relationships between producers and consumers. As the oil company Chevron observes in its advertising, ‘There are 193 countries in the world. None of them are energy independent’, a fact well illustrated by the USA’s recent deal to supply nuclear power technology to the oil-rich United Arab Emirates. In a global market, like that for oil, no country can wall itself off – compare the flourishing state of energy-poor Japan or Singapore with the poverty of isolated Burma or North Korea. Attempts by a major nation to achieve energy self-sufficiency are very distorting to economic competitiveness, as is clear from the contradictory blunders of 1970s US energy policy.

It is even worse when bad relations with major energy suppliers, and conflicting messages about future energy policy, discourage much-needed investment. If one side believes they are buying oil from terrorists, and the other thinks they are selling to neo-imperialists, it is not surprising that oil prices are high, investment is lacking and most of world oil reserves are monopolised by state companies. In fact, the Middle Eastern nations have generally been very reliable suppliers, and use of a mythical ‘oil weapon’ is very unlikely – any régime would be reliant on its oil earnings to sustain the economy, while strategic reserves in the industrialised countries give some ‘staying power’ to outlast an embargo. Moreover, while terrorists might manage to penetrate the strong defences of an oil facility and mount a spectacular attack, it is unlikely that they could achieve major, long-running disruptions in global energy supplies.

Policies to encourage US domestic production, increase efficiency and introduce alternative energy sources are desirable, often for environmental rather than energy security reasons, but they have to be pursued with vigour and resolution. With its ‘pork barrel’ subsidies and the interminable, inconclusive debates over whether to open new exploration areas, build new pipelines and terminals for clean natural gas, extend support for renewable energy and increase mileage standards, United States energy policy has been more erratic and hostile to increasing output than most of the Middle Eastern countries. Promises to ‘jawbone’ OPEC into supplying more oil sit very oddly with the US’s uniquely comprehensive moratoria on offshore oil and gas production.

Because of the abundance of oil and other energy sources, an era of ‘resource wars’, predicted by some, is far from inevitable, and certainly not a desirable policy outcome even for the likely ‘winners’ of such wars. We should certainly not fall into the monomaniac trap of seeing every geopolitical conflict as rooted in oil policy. Military ‘control’ of oil is not achievable or cost-effective, as the Iraq war shows, and as we know already from the Japanese experience in World War II, and Saddam Hussein’s attack on Iran. The expenditure on such wars vastly exceeds the value of any oil ‘secured’, and while production can struggle along in war-torn areas, it is impossible to develop major new fields. ‘Police actions’ to deal with specific threats are entirely reasonable, as long as they are multi-lateral and proportional to the danger posed. It would be nice, although possibly a lot to ask, for them to be carried out competently.

Thus grandiose military adventures destroy the co-operation which is essential for global energy trade. ‘Energy independence’ is a chimera, expensive, unachievable, and swimming against the tide of greater global economic integration. The world is not running out of oil, but we need a rational and balanced dialogue about how to co-operate on bringing that abundant energy to consumers. If the profound misunderstanding of, and hostility towards, the Middle East, continues, the house of energy security is being built on sand.

Robin M. Mills, author of ‘The Myth of the Oil Crisis’ (Praeger, 2008)

ROBIN M. MILLS is an oil industry professional with a background in both geology and economics. Currently, he is Senior Evaluation Manager for Dubai Energy. Previously, he worked for Shell. Mills is a member of the International Association for Energy Economics and Association of International Petroleum Negotiators. He holds a Master’s Degree in Geological Sciences from Cambridge University

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