The Energy Transition And The Enduring Role Of Energy In Us Foreign Policy
Energy has been both an end and a means in American foreign policy. The heavy reliance of the American and global economies on oil and gas has shaped US foreign policy in distinct ways for nearly the last 100 years. As the world moves away from fossil fuels and towards a different energy mix and an alternative energy system, energy will continue to sculpt US foreign policy, but in a very different manner.
Energy as an Ends and Means of Foreign Policy in the age of fossil fuels
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For most of the past 50 years, America’s dependency on imported oil has meant that securing energy has often been an end or objective of America’s interactions with the world. Most obviously, the need to maintain access to oil at reasonable prices was the original foundation of the strategic relationship between the United States and many countries in the Middle East. America used its myriad of foreign policy and national security tools to help ensure that the country was not deprived of the oil supplies it and the world needed to continue to grow.
Military assets have been—and continue to be—deployed to the Gulf to ensure the passage of oil, and the extreme case of the 1991 Gulf War demonstrated the willingness to go to war to prevent one dictator from dominating the global oil market. At the other end of the spectrum, diplomacy produced trade agreements with America’s neighbours that included special provisions, such as the ‘proportionality’ clause of the North American Free Trade Agreement (NAFTA) that was in force until 2020, to prevent other governments from limiting US access to their energy resources.
America also found itself in a position, especially in recent years, to use energy as a means or instrument to achieve nonenergy-related foreign policy goals. This was largely on account of the unconventional oil and natural gas boom, which catapulted the United States into the position of being the largest producer of these resources in the world, and a very significant exporter of each commodity as well.
‘Energy dominance’ – the term used by then-US President Donald Trump to describe his administration’s energy policy and the country’s energy position – was commonly thought to simply reflect these high levels of oil and gas production. Yet on closer examination, what made Trump’s ‘energy dominance’ distinctive was that, for the first time in a long time (with the notable exception of the use of sanctions), the United States was both able and eager to use its energy advantage as a way of trying to achieve other, non-energy-related foreign policy goals.
Most notably, the Trump administration sought to use its energy exports to address the country’s large trade deficits, a high priority for the president. The Phase One agreement with China explicitly committed China to purchase $52.4 billion of American oil, LNG, refined products, and coal—an amount which constituted roughly a quarter of the total dollar value of the two-year arrangement.
American’s energy position also enabled it to advance one of its top aims in the Middle East: pressuring Tehran. Energy markets flush with US oil helped Washington to enact crushing sanctions on Iran aimed at reducing its oil exports to zero and creating pressure on both the country’s leadership and society. The Trump administration also sought to use its status as the third-largest exporter of LNG in the world to keep Europe from building stronger commercial ties with Russia; when European countries still preferred the cheaper gas from Russia, senior Trump officials did not hide their frustration. The president himself revealed that he saw energy and national security as inseparable when he publicly mused that it vexed him how Europeans could ask the United States to support their defence through NATO at the same time that they were creating new dependencies on Russia.
When Secretary of State Mike Pompeo announced $1 billion in energy financing to countries in Central and Eastern Europe, his words were illuminating: ‘Our aim is quite simple: It is to galvanize private sector investment in the energy sector to protect freedom and democracy around the world’ (https://useu.usmission.gov/secretary-pompeo-remarks-at-the-munich-securityconference/). Similarly, in May 2020, only a few months before Belarussian President Alexander Lukashenko came under intense domestic pressure to leave office, Secretary Pompeo announced that US oil was being sold to Belarus, declaring that the move purposefully ‘strengthens Belarusian sovereignty and independence’ (https://by.usembassy.gov/on-first-shipment-of-us-oil-to-belarus/).
Energy as Ends and Means in US Foreign Policy during the energy transition
Energy will continue to play a critical role in US foreign policy during the energy transition. The intersection of these two arenas, however, will be even more complex, given the ongoing geopolitics of oil and gas and the ever-growing foreign-policy complexities and opportunities associated with alternative sources of energy.
Oil and gas will remain important energy sources well into the transition, as is seen from the multitude of climate-friendly scenarios that still anticipate significant (if reduced) global consumption of these commodities. Nevertheless, oil and gas will diminish as both ends and means of American foreign policy over the course of the transition.
The extent to which US foreign policy continues to focus on securing oil will depend in part on the pace at which global oil demand declines and on how long American production remains competitive in a lower-priced oil environment. The United States is unlikely to be among the ‘last producers standing’ absent major (and inefficient) policy interventions, although its oil output may be sustained longer than that of some other high-cost producers, as investment could continue to flow to short-cycle oil even after investors are unwilling to make bets that would only pay off over a longer time period.
It is reasonable to assume that the United States will use much less oil and be able to meet most of its oil needs domestically. However, it is also possible that the United States may once again rely on foreign countries to meet its remaining oil needs, requiring it to again orient its foreign policy more towards this aim.
American’s ability to use its oil and gas production as a foreign policy instrument will also diminish sharply as the energy transition progresses. In markets that are likely to become increasingly oversupplied, producers in general will be able to wield less political influence through the sale of their exports; US oil and gas will no longer shape the oil and gas markets as they have, and access to US exports will be less meaningful in a world with too much oil and gas.
What role natural gas will play in the transition is, however, an open question. For countries whose decarbonization plans include increases in natural gas use, America’s natural gas may prove critical for a time. But, on the whole, the geopolitical influence the Trump administration sought to harness through its ‘energy dominance’—as related to oil and gas—will drop sharply as the transition unfolds.
Nevertheless, energy will infuse US foreign policy in other ways. It will remain one of the largest drivers of US engagement with the world, but not in the sense that America will seek to obtain physical commodities. Instead, America will seek to use nonenergy foreign-policy tools to achieve other types of energy outcomes, such as access to markets and to the inputs and resources needed to enable climate-friendly technologies. Even more importantly, the United States will use its foreign policy instruments to convince and cajole other countries to decarbonize their economies—an energy outcome Washington will increasingly see as in its national interests.
President Biden has promised to make the decarbonization of other economies one of the highest priorities in American foreign policy (just as decarbonization of the US economy will be a high domestic priority). This will represent a major shift in US foreign policy. Even when climate-related matters were considered important, as they were in the Obama administration, climate was largely treated as a subject matter for specialists, and discussion of climate was largely handled in relation to climate forums.
What will the effort to infuse decarbonization into American foreign policy look like? It will involve diplomacy, as the United States seeks to regain a leadership role in international climate talks such as the UN Climate Change Conference taking place in Glasgow in November 2021. But it also means that climate and decarbonization will take a central place in America’s bilateral discussions, with countries from Asia to Europe. Some such discussions will be easy, as the parties share common goals and the political will to pursue them. But in other cases, promotion of decarbonization will run up against other, sometimes higher or more immediate, US policy priorities such as nuclear non-proliferation, counter-terrorism, and conflict resolution. America’s climate diplomacy will also extend into other international forums, such as the World Trade Organization, where the US will seek reform of the organization with an eye to climate, among other things. Climate will also become an organizing principle for the distribution of US aid, and in assessing threats that will need to be handled in some cases by the US military.
A climate-centric foreign policy could also involve tariffs, such as those which might be required under a carbon border adjustment mechanism that seeks to level the playing field between American manufacturers and those operating in economies that have no price on carbon. Both economic incentives and sanctions could also find a place in the US quest to prevent countries from taking actions that compromise the world’s ability to address global warming. For instance, the United States could spearhead an effort to make it economically sensible for developing countries heavily reliant on coal to switch to lowercarbon sources even before their investments in existing coal infrastructure become outdated.
Energy will also serve as a means for America to achieve other, non-energy-related goals in a decarbonizing world. If the United States makes the sorts of investments in energy research, development, and innovation that many of America’s business and public leaders are calling for, the country should emerge as a major source of technologies essential to realizing a successful global energy transition.
In many cases, America is likely to share these technologies with other economies simply to support global decarbonization. But in other cases, its provision of technology, financing, and other energy assistance to other countries will support important nonclimate foreign-policy goals—especially in its competition with China. Both countries are likely to use energy policy in their quests to extend their influence. Similarly, Washington will seek a leadership role in climate talks—in part to influence the outcome and advance climate goals it views as critical for the world, but also as a means of demonstrating to the world that the United States has the appetite and capability to lead again on the global stage.
Likewise, climate cooperation with Europe will have multiple objectives. Washington and Brussels will be in greater alignment on climate, which will both advance environment-friendly outcomes and serve as a basis for bolstering the frayed transatlantic relationship. Finally, Washington will use energy instruments as new ways to advance more traditional goals, such as addressing poverty and promoting peace and stability.
Conclusion
Although it is rarely articulated, some see geopolitics as at least part of the imperative to move to a cleaner energy system. These people assert that once oil and gas are no longer a source of economic or geopolitical power, geopolitics will be more peaceful and cooperative. The opposite, however, could be true. During the multi-decade energy transition, the world will continue to grapple with geopolitical realities associated with oil and natural gas use. But it will also see the rise of alternative energies, which will have their own distinct geopolitical features. And the steps that countries like the United States take to advance or thwart decarbonization will bring their own geopolitical implications. Ultimately, energy’s role in shaping international cooperation and competition during the transition may be more benign that its role during the age of fossil fuels, but it is too early to conclude that definitively.
What we do know with some certainty is that energy will continue to be both an ends and a means in U.S. foreign policy. American foreign policymakers, having a new sense of urgency around climate and perpetually frustrated by the limited nonmilitary tools in their toolkit, will continue to see energy as both an objective and an instrument of their efforts to shape the world during the energy transition.
Originally publishes by the Oxford Institute For Energy Studies.