The following op-ed by Ambassador John Bolton and T. Boone Pickens ran at Politico.com on August 4, 2014.
The ongoing Israel operations in Gaza, combined with the continuing, brutal sectarian fighting in Iraq and the prospect of that country’s disintegration, have driven oil prices up and will likely keep them high for some time. Combined with Libya’s well-advanced state of anarchy, Syria’s grinding civil war and terrorist attacks elsewhere (in Algeria, Nigeria and Sudan), the entire Middle East and major parts of Africa could be descending into chaos.
How can America fight back? One necessary response is to begin to break the dependence on foreign oil that has long threatened our national security and compromised our economic viability. Although Iraq’s near-term problems are deeply troubling for oil markets, the longer-term implications for increased Iraqi oil production may be worse. Fortunately, however, America remains secure as the most important source for oil-supply growth worldwide. We should act accordingly now, not later when inadequate supply growth drives oil prices up.
Americans are practical people. They understand the integral relationship between foreign and domestic policy. They understand that resolute U.S. foreign policies are directly linked to domestic economic growth and more American jobs, and that a strong U.S. economy is critical to a vigorous international presence. It is not American strength that provokes our adversaries and fosters conflict abroad, but American weakness.
Nothing more vividly demonstrates this linkage than energy. Enhancing the most productive use of our natural resources (as well as Canada’s and Mexico’s) requires focusing on key strategic and economic issues rather than day-to-day headlines. In doing so, America’s need to protect foreign oil supplies could diminish substantially.
Advanced-recovery technologies such as horizontal drilling and environmentally sound hydraulic fracturing (“fracking”) have unlocked previously inaccessible oil and gas reserves, allowing substantially increased energy production. Reducing regulatory obstacles (particularly on natural gas); promoting better transportation solutions such as additional pipeline infrastructure like Keystone XL; and allowing the export of crude-oil products and natural-gas production technology can significantly benefit America, domestically and internationally.
The United States is actively exploiting its unconventional and shale resources, as should other countries with the capacity to do so. But increasing oil production alone is not enough. America should also welcome moving natural gas into the transportation market, thus divorcing ourselves from oil’s perpetual price-cycle volatility. This new source of fuel could truly separate us from events in dangerous parts of the world.
Together, these steps will substantially enhance America’s international geostrategic position. Although actual U.S. exports might not increase dramatically in the near term, the mere prospect of such increases would have an immediate psychological impact. By analogy, while it’s true that President Ronald Reagan took years to reverse his predecessor Jimmy Carter’s hollowing-out of the U.S. military, Reagan showed from the outset that a strong America was back.
Most immediately, boosting our domestic production would reduce America’s reliance on the chronically unstable Middle East. Although rising demand worldwide means that Middle East oil and gas will remain a factor in the foreseeable future, significant new sources of production here at home provide a critical hedge we have previously lacked. Some Arab oil-producing countries might even welcome a larger U.S. role in global hydrocarbon affairs, as the United States could give them political balancing options against troublesome regional neighbors, as Iraq’s current conflict underlines.
For Europe, U.S. oil exports would provide our allies a trustworthy, much-needed alternative to purchasing from Russia. Natural-gas exports are harder because we first need capital expenditures for liquefaction facilities, but the path for a North American alternative is clear. In Asia, U.S. allies like Japan, South Korea and Taiwan would substantially benefit by reducing their dependence on Middle Eastern production. They would have a steady source of supply, avoiding the ever-riskier transit through the South China Sea as Beijing attempts to assert sovereignty over these international waters. And we should sell to China; reducing our bilateral balance-of-payments deficit is entirely positive, as is encouraging a little Chinese dependence on American hydrocarbons.
The U.S. economy will benefit through an enormous, virtually instantaneous stimulus. By significantly increasing worldwide hydrocarbon supplies, growing North American production could exert a stabilizing effect on prices despite growing global demand. At a minimum, oil and gas produced here reduces the political-risk premium now priced into Middle Eastern hydrocarbons through circumstances like Iraq’s current hostilities. That, along with reducing critical production costs for our manufacturers, should permit both lower consumer prices and increased tax revenues and royalty payments, thereby reducing budget deficits.
The United States would benefit indirectly, too, by reducing the unsustainable current-account balance-of-payments deficits now caused by dollars flooding overseas to purchase hydrocarbons. In 2012, we imported 3.8 billion barrels of oil at a direct cost of $350 billion. Under conservative projections, those dollars would stay here, buying North American oil and gas. Eliminating outdated export restrictions would increase U.S. sales internationally, thus substantially improve our balance-of-trade position. Even the capital-account balance could benefit, as foreign investors see the greater security of U.S. energy production as an incentive to invest here rather than in riskier locales.
Who could oppose the win-win strategy we propose? America needs political leaders ready to seize the moment and mesh domestic economic growth and a stronger U.S. international position. Those leaders may not be present in Washington today, but aspiring politicians who understand our analysis could well be the leaders of tomorrow.
John R. Bolton, a former U.S. ambassador to the United Nations, is senior fellow at the American Enterprise Institute.
T. Boone Pickens is chairman and CEO of BP Capital, a hedge fund that trades in energy equities and commodities. He has interests in oil & gas.