Energy Security and future of US National Security

NS4053 week 10

Energy issues and technologiesnot covered in this course.

Baskets of energy security threats

• Energy scarcity

• Energy export dependency

• Climate change

• Resource conflicts

Different conceptions of energy security

• “Where you sit is where you stand”– Security of supply• Continuous and affordable sources of energy.• Avoid price shocks.

– Security of demand• Continuous and predictable amount of revenue.• Maximize revenue.• Minimize competition from other sources of energy.

Energy scarcity issuesmost relevant to USnational security in oil and transportationsectors.

Other energy sectors inUS are diversified intheir sources of supply.

US oil and transportation

Energy scarcity and price shocks

• Oil markets are robust and capable of responding to shocks:– Increase production.– Reduce demand.– Private and government energy inventories.– Reroute energy transportation.

• Oil scarcity is not a problem in an global integrated market.– Caveat 1: you need all three elements.– Caveat 2: politicians rarely behave as if this is true.

Economic sources of energy scarcity insecurity (Yergin)

• Limited spare production capacity.– Growing production in North America, but

demand is also growing worldwide.• Global shortage in refinery capacity.• Mismanagement of oil reserves and

production by some national oil companies.• Efforts by major consumer states (i.e. China)

to develop bilateral and non-market based relations to guarantee energy supply.

Geopolitical sources of energy scarcity insecurity

(Gholz and Press)

• Still the Middle East:– Consolidation of significant energy reserves under

single state hostile to United States.– Domestic instability in Saudi Arabia.– Interruption of tanker traffic in Straits of Hormuz.

• No other part of the world offers the concentration of supply and production necessary to create a threat.

Mitigating energy scarcityconcerns

• Diversification of supply sourcesfor energy.

• Strategic fuel reserves.

• Information and transparency

• Integrated global energy market.

Energy export dependency threat

• US will become energy exporter within 10-20 years.

• Unlikely to suffer resource curse:– Energy will below the critical percentage of total US

exports under any reasonable scenario.– Governance and rule of law are sufficient to prevent

negative consequences.• Local and regional economies may suffer a form of

‘dutch disease.’– Not a problem at national scale due to diversification.

Energy export dependency threat

• Resource curse is a problem for US national security in so far as it contributes to periodic supply-side shocks to oil markets.– Poor governance, civil unrest, political turmoil in

many oil exporters in developing world.• Venezuela, Nigeria, Indonesia, Ecuador, Libya, Iraq, Iran,

Saudi Arabia …

• Provides funding for governments unfriendly to United States.– Iran and (via arms sales to oil exporters) North Korea

Climate change and national security

• U.S. better positioned than most to mitigate some but not all consequences.– (+) Innovative financial markets create hedging

mechanisms.– (+) Innovative technology sector creates

mitigation solutions.– (-) Opportunity costs of mitigation.– (-) Periodic weather related disruptions in

regions unprepared for such events.

Climate change and national security

• U.S. may become magnet for human security refugees under worst scenarios.– Immigration already a challenging policy area.

• U.S. may be called on to respond to consequences in parts of the world less prepared to mitigate consequences.– Will most of it fall on DoD, or will there be a

‘whole of government’ response?

Resource wars

• U.S. not directly threatened by resource wars.• Indirect threats include:– Supply-side shocks from conflicts.– Human security concerns.– ‘Duty to protect’ interventions.• E.g. Libya

– China policies in developing world as it pursues its own energy security.• Future interventions or wars?• Supply arms to conflict states?• Ignore poor governance?

Challenges

• Protect market-based approach to energy.• Protect investment climate for energy.– Capital-intensive industry.

• Pursue diversification of energy sources.• Promote energy efficiency as alternative

‘source’ to meet rising demand.– China and India are again crucial due to

combination of population and economic growth.

Challenges

• Incorporate India and China into integrated global energy market.– China and India are largest new consumers.• Both have a history of state-centered, non-market, and

bilateral approaches to economics and trade.

• Arrive at understanding with China about future of energy markets and security.– Rising power: bring it into status quo or risk it

becoming a challenger?

Challenges

• Protect energy lines of communication.– Some estimates say 50% of oil exports projected to

pass through Straits of Hormuz by 2030.• Prevent energy supplies from falling under

control of single state in Middle East?– Little discussed possible consequence of Iran

nuclear program.• Prevent instability in Saudi Arabia?– How do we handle this? Do we even want to get

involved?