Although their efforts to prevent a U.S.-led invasion of Iraq failed, at least some of the millions of protest participants must now hope that the new energy abundance will discourage future “oil wars.” Those who believe the United States invaded Iraq to control oil likely anticipate Washington will refrain from such wars now that its thirst for oil can be nearly sated by domestic or continental sources. These people, however, will be disappointed, once again.
To understand why, it is important to distinguish between commercial interests in oil and strategic interests in oil. Commercial interests might best be understood as seeking to physically control the production or sale of oil, while strategic ones pertain more to ensuring that such resources are not controlled by one’s adversaries. The Axis powers of World War II did perceive commercial gains or physical control over oil resources to be the key to their energy security. They aimed to expand the areas over which they had outright control and from where vital resources could be directly extracted. Hilter’s generals once presented him with a cake decorated with a Baku oil rig, reflecting his earlier comment that “unless we get Baku’s oil, the war is lost.” Japan was equally fixated on the oil-producing Dutch East Indies—and was more successful in gaining control of them than Hitler was in getting control of Baku.
In contrast, when it comes to the resources of other countries, the United States has generally taken a different approach, prioritizing access to the energy produced, rather than direct control of those resources. U.S. military power has rarely, if ever, been used to advance commercial gains by securing the physical control of oil. Both Iraq wars actually support this premise, rather than refute it. Had the United States sought actual possession of oil in the 1991 Gulf War, it could have refused to relinquish control over some of the most oil-soaked territory in the world that it had acquired in southern Iraq while pushing Iraqi forces out of Kuwait. Or it might have restored sovereignty to Kuwait only with provisions giving American companies preferential treatment in investment in or operation of that country’s massive oil fields. Instead, the United States did neither. Foreign investment in the development of Kuwaiti oil fields is virtually prohibited even to this day.
In the wake of the second Iraq War, the American-led coalition in charge of governing Iraq from 2003 to 2004 might have demanded favorable terms for U.S. companies looking to invest in post-Saddam Iraq. Serving in Baghdad throughout the occupation, I worked directly with the Iraqi Governing Council—an Iraqi body intended to serve as the counterpart to the coalition until sovereignty was restored. Although the coalition proposed and prepared many draft ordinances for the council to debate, sign, and promulgate, we intentionally steered clear of any directives relating to the disposition of Iraqi oil. Rather, we determined that the fate of Iraq’s oil could only be decided, later, by an elected Iraqi government. Even more compelling, had the United States really sought commercial benefit for its oil companies above all else, it would not have needed to go to war. In the early 2000s, shortly before the invasion, Saddam Hussein was happily trading sweetheart oil deals with Russia, France, and China in exchange for political support for the lifting of U.N. sanctions on Iraq. The United States—the main holdout on the sanctions—could have easily struck such a lucrative deal, thereby getting control of Iraqi oil without sending a single soldier to that country.
While commercial gains surrounding oil have not been a major motivator of U.S. military action, strategic ones have. When Iraq invaded Kuwait in 1990, Baghdad gained control over one-fifth of the world’s proved oil reserves. A large part of the rationale for subsequently going to war against Saddam Hussein was to reverse the leverage that a ruthless, unpredictable dictator had by holding such a huge percentage of the world’s oil. There was also the additional risk that Iraq would continue its march into neighboring Saudi Arabia. If it had, such an invasion would have given Iraq’s regime sway over more than 40 percent of the world’s oil reserves at the time. In the 2003 war, oil figured less prominently at a strategic level, although policymakers were concerned about Saddam’s ability to translate his country’s oil wealth into the pursuit of weapons of mass destruction and other nefarious activities.
The United States will continue to have—and be motivated by—such strategic interests related to oil, even if its own import needs have changed dramatically. Who controls the world’s oil reserves will continue to be a legitimate U.S. concern. American tight oil production is not so great as to fundamentally change what is considered strategic amounts of oil. In 2015, U.S. tight oil accounted for less than 1 percent of the world’s total proved oil reserves—the oil that can be commercially produced with today’s technology. (The distribution of oil production, which often varies significantly from reserves, tells a similar story; in 2016, U.S. crude production from tight oil was 6 percent of global crude oil production.) Perhaps in the future, substantial unconventional oil production from China, Argentina, Algeria, Mexico, Canada, and Russia—in combination with U.S. production—could lessen the strategic significance of oil concentrated in any one part of the world. However, for the foreseeable future, due to its vast reserves, low costs of production, and collective output, the Middle East will remain the strategic heart of global oil. In fact, as we will explore in Chapter Eleven on the Middle East, a persistent low-price environment could actually lead to an even greater global reliance on oil from that part of the world.
Reducing Military Constraints
Rather than sparing the U.S. military from huge military missions, the new energy abundance could unburden it in lesser and more subtle ways. For instance, in a surprising fashion, new energy realities could create the circumstances for greater burden sharing of efforts intended to stabilize the Middle East. In the United States, America’s new energy prowess may create political pressures for it to do less in that part of the world (despite continued U.S. interests there), making the United States a less reliable guarantor of regional stability. At the same time, China will become more dependent on Middle Eastern oil and, therefore, further invested in the region’s stability. The combination of these two factors could lead to greater U.S.-Sino cooperation in the region, as explored in Chapter Ten.
More immediately, the new energy abundance diminishes the cost and reduces the difficulty of procuring the energy that, in the words of General David Petraeus, “is the lifeblood of our warfighting capabilities.” The Pentagon is the largest single consumer of oil in the world; as of 2013, its operations and the maintenance of its facilities consume more energy on a daily basis than all but forty-four countries in the world. The Pentagon’s oil intake constitutes more than 90 percent of all oil used by the federal U.S. government. In 2007, when American forces were in both Iraq and Afghanistan, the Pentagon gulped down a third more fuel than Israel consumed, almost twice as much as Ireland, and twenty times more than Iceland. In 2013, the Pentagon consumed virtually the same amount of oil on a daily basis as Nigeria—a country of 160 million people with the second largest economy in Africa at the time.
The Pentagon’s military operations are particularly oil intensive. Some of this is attributable to inefficient, if tried-and-true, equipment. For instance, the Arleigh Burke class destroyer, a backbone of the navy’s fleet, travels at 30 knots (roughly 35 miles an hour) and burns about 1,000 gallons of fuel an hour. The changed nature of warfare has also upped the Pentagon’s dependence on oil. During World War II, on average, the military consumed about 1.7 gallons of fuel a day per soldier. In Iraq, where heavy equipment was transported to remote areas and efforts were made to cool both soldiers and gear, sixteen times that amount was used per soldier in the field.
In the late 2000s, the Pentagon changed how it calculates the cost of fuel. Whereas previously it had only considered market charges, it now assesses what is known as “the fully burdened cost of fuel.” This more expansive assessment takes into account not only open market prices, but the full costs of transporting and securing the fuel. In some of the most remote and rugged terrai
n in the world, the cost of getting one gallon of fuel to soldiers “deep within a battlespace” could cost hundreds of dollars, according to the Defense Science Board.
Given its voracious appetite for fuel, the price of oil matters to Pentagon planners. In the fiscal year of 2013, the Pentagon consumed almost 103 million barrels of petroleum products, at a total cost of more than $15 billion. Two years later, the costs had gone down significantly to less than $9 billion, partially as a result of lower consumption but more due to the drop in price. The $6 billion saved equaled more than 1 percent of U.S. defense spending.
Over the medium or long run, a consistently lower energy bill could help the Pentagon put more resources into productive endeavors, such as research and development, the readiness of the forces, or modernizing equipment. As former Deputy Secretary of Defense Bill Lynn noted upon the release of the Department of Defense’s first Operational Energy Strategy in 2011, “A dollar spent on increased energy costs is a dollar not spent on other warfighting priorities.” Already, lower fuel costs have translated into small gains, such as increased training time. As Senator Jack Reed commented in 2015 when he was the ranking member of the Senate Armed Services Committee, “One of the benefits of the lower gasoline prices, for as long as they last, is they [military planners] can be buying fuel so they can be allowing pilots to fly more hours.”
The real boon to U.S. military operations, however, lies in the future. It will come from energy-efficient technologies that greatly reduce the demand for oil, or be realized when some other form of energy is found or devised that can replace oil-derived fuels on the battlefield. On June 7, 2011, General David Petraeus, then commander of forces in Afghanistan, wrote a memo to all American forces underscoring how the voracious appetite of the military for fuel creates real risks and opportunity costs for soldiers. In calling on his commanders to “take ownership” of the energy demands of their units, he stressed that “a force that makes better use of fuel will have increased agility, improved resilience against disruption, and more capacity for engaging Afghan partners.”
Some military studies were less diplomatic in their calls for conservation, explicitly linking casualties with operational fuel demands. With nearly half of all convoys in Iraq and Afghanistan devoted to hauling fuel, and a significant percentage of coalition casualties occurring on convoy duty, the math is stark. One study by the army concluded that there was one casualty for every twenty-eight fuel supply convoys in Afghanistan and one for every thirty-eight such convoys in Iraq. Given the number of fuel convoys in the two combat theaters, such calculations suggest that there were 170 American casualties attributable to securing fuel convoys in 2007 alone. Numbers in the same report indicate there was one U.S. casualty for every 55,702 gallons of fuel consumed in Afghanistan. A second study concluded that a 1 percent decrease in fuel consumption could keep 6,442 troops off convoy duty. Such statistics put in context the plea of then–Lt. General James Mattis to the Pentagon, after he commanded troops in Iraq, to “unleash us from the tether of fuel.”
Honing the Coercive Tool of Sanctions
Early one morning in January of 2006, Stuart Levey was having breakfast in Bahrain. A lawyer by training, Levey had just recently been appointed to the newly created role of undersecretary for terrorism and financial intelligence at the U.S. Treasury Department. Scanning the local newspaper, his eyes gravitated toward an article about a large Swiss bank that had cut off business with Tehran. Levey clipped the article and tucked it into his papers.
For much of his career, Levey had helped the U.S. government construct new legal obstacles to prevent countries and companies from doing business with regimes America viewed as nefarious. Iran was at the top of the list, given its perceived relentless efforts to pursue a nuclear weapon outside its commitments to the Treaty on the Non-Proliferation of Nuclear Weapons. The article from breakfast got Levey thinking. Perhaps his focus on legal mechanisms was too strict? Maybe there was greater scope to bring in the private sector and to build on its natural aversion to conducting transactions with questionable entities? This seed of an idea eventually blossomed into a multiyear effort spanning both the Bush and Obama administrations to convince the private sector to eschew doing business with Iran. Levey’s objective was to limit and ultimately terminate Iran’s ability to do business outside its borders. “That could spark the right internal debate in Iran,” Levey eagerly anticipated. With the backing of the highest echelons of government, Levey traveled to more than eighty countries in the first couple of years of his efforts. By 2008, he had successfully convinced scores of banks to curtail their business with Iran.
Levey was an important engine in the American—and subsequently international—effort to exert severe economic pressure on Iran in order to bring it to the negotiating table to discuss its nuclear pursuits. Central to Levey’s initiatives—and to the broader quest to limit Iran’s economic links with the world—was the passage of sanctions. U.S. and international sanctions on trade, investment, and financial transactions created enormous pressures on the Iranian economy, which shrank by 10 percent from March 2012 to March 2014. Iran’s oil exports fell 60 percent from 2011, slicing Iran’s revenues by more than two-thirds in 2013 and even more in 2014, as the falling oil price further diminished export earnings and exacerbated Iranian economic hardship. Tehran’s financial difficulties were compounded by the fact that, due to American financial sanctions, most of the payments for Iran’s dwindling oil sales could not be made in hard currency. Instead, China settled its accounts with Iran with goods, such as car parts. Iran effectively received Indian wheat, pharmaceuticals, rice, sugar, soybeans, and other products in exchange for much reduced volumes of oil. The rial, Iran’s currency, lost half of its value in the two years between January 2012 and January 2014, forcing inflation up to well over 50 percent.
In July 2015, after an interim agreement in 2013 and years of negotiations, China, France, Russia, the United Kingdom, the United States, and Germany (a group known as the P5+1) and Iran agreed to a deal to limit Iran’s nuclear program in exchange for the lifting of sanctions. This outcome is attributable to many factors, but the essential role of sanctions and economic pressure is undisputed. The economic hardship suffered by average Iranians permeated many walks of daily life, shaped the country’s domestic politics, and created the conditions for negotiations. Hassan Rouhani, a relative moderate, ran in the 2013 presidential elections on the themes of “hope and prudence.” He promised both to restore Iran’s standing in the international community and to free the country from economic strictures. A landslide vote in his favor not only brought him to power, but also helped provide him with a mandate to pursue a deal surrounding the nuclear program.
Before sanctions proved so critical to securing a deal with Iran, many policymakers, businesspeople, and academics were quick to dismiss these tools as little more than “chicken soup diplomacy”—a tool to be used to make one feel better, without a real expectation of it having any effect. What enabled sanctions to go from a home remedy to the foreign policy tool clinching what many consider to be President Obama’s greatest foreign policy achievement?
The new energy abundance lies at the heart of the answer to this question. While not the only factor to consider, the energy environment was critical in securing the necessary sanctions. Efforts by previous U.S. administrations to pressure Iran rarely were successful in securing the cooperation of others to impose sanctions. During the tenure of President William J. Clinton, the United States largely failed to convince other countries that the benefits of multilateral sanctions outweighed the potential costs. Efforts to corral others to impose sanctions in the 1990s had, in fact, led to diplomatic rows between the United States and its European allies, who resented U.S. efforts to use “secondary sanctions”—the imposition of sanctions on third parties, usually countries or companies doing business in the targeted country—where diplomatic entreaties had failed. Getting multilateral cooperation to limit Iran’s oil sales
in the mid-2000s was a Herculean feat. With global oil demand growth continuously outstripping that of global supply, prices edged upward, adding to the sense of resource scarcity and impending price spikes. Efforts to marginalize Iran, at the time the third largest exporter of oil, from global markets seemed nothing short of economic suicide. Some analysts even suggested that doing so would be counterproductive; decreasing supplies in a tight oil market would push up prices so dramatically that Iran might actually earn as much or more from selling a smaller volume of oil! As the perception of the threat posed by Iran grew, the administration of George W. Bush helped secure three sets of U.N. sanctions between 2006 and 2008, although none of them touched Iran’s oil.
As Tom Donilon, former national security advisor to President Obama, remembers, the conversations with customers of Iranian oil were still difficult in 2010 and 2011 even after unease about Iran’s nuclear pursuits had grown markedly. The late 2009 exposure of Fordo, a covert uranium enrichment facility near the ancient holy Iranian city of Qom, had largely ended earlier debates among Western countries about the intentions behind Iran’s nuclear pursuits. Despite Iran’s insistence that its program was purely peaceful, the country’s actions strongly suggested otherwise. But oil markets were still tight, and the global oil price was still high. To make matters worse, the United States was in the midst of a slow and very fragile economic recovery, while the European Union was tipping back into recession. While Donilon and his national security team debated options for putting the squeeze on Iran’s economic jugular, their economics counterparts in the administration continually reminded them of the high stakes for America’s economy.
Windfall Page 14