Since withdrawing from the Iran nuclear deal in May, the Trump administration has faced a serious dilemma. On one hand, with the upcoming re-imposition of oil-related sanctions in November, it hopes to bring maximum economic pressure to bear on the Iranian government by cutting its petroleum exports as close to zero as possible. On the other hand, in a tight global oil market already under threat from geopolitical disruptions in Venezuela, Libya, and Nigeria, the loss of Iranian crude could trigger a major price spike in coming months—potentially inflicting significant damage on both the U.S. and world economies.
In an effort to mitigate the danger, President Donald Trump has lobbied hard for Saudi Arabia and other oil producers with excess capacity, including Russia, to cover Iranian losses by increasing production. But the administration has also signaled that it may need to pare back its maximum pressure campaign by allowing a portion of Iran’s oil sales to continue past the November deadline.
The situation should make any national security expert uneasy. The United States has a clear goal: Starve Iran’s Islamic Revolutionary Guard Corps of the revenues they systematically use to spread terror and violence across the Middle East. But Washington’s ability to achieve that goal is heavily constrained by the U.S. economy’s continued vulnerability to oil market volatility. U.S. officials are left in the unenviable position of having to expend precious diplomatic capital pleading with the likes of Saudi Arabia, Russia, and other authoritarian petrostates to help salvage the policy. Or worse yet, the United States is forced to throttle back the policy’s implementation, reducing its effectiveness and leaving the Iranians better resourced to resist U.S. coercive diplomacy.
That U.S. dependence on oil frequently hurts national security decision-making is hardly new. During President George W. Bush’s second term, I can recall a number of senior-level conversations about the possibility of targeting Iran’s central bank and oil revenues—only to be shot down by economic advisors worried about the potentially detrimental effects on U.S. growth. And on more occasions than I can remember in my government career serving three administrations, talking points that proposed hitting the Saudis hard over their indulgence of Islamist extremists around the world were scrapped for fear of undermining efforts to advance objectives deemed more strategically important—including ensuring Saudi cooperation in stabilizing the global oil market.
Washington had high hopes that the U.S. oil boom of the past decade would fundamentally alter this dynamic. Less dependence on foreign oil, particularly from the Middle East, was supposed to give the United States much greater room to pursue its national security interests. To a degree, it has. Just a few years after the George W. Bush administration balked at sanctioning Iranian oil, the Obama administration (with a heavy nudge from Congress) pulled the trigger, successfully cutting Iran’s exports nearly in half while avoiding a major supply shortage. Similarly, today, the issue for the Trump administration is not whether to target Iranian oil sales, but by how much and how quickly. Surging U.S. production has almost certainly provided an important cushion to help manage extreme price shocks.
Nevertheless, it’s now clear that the shale revolution—perhaps the greatest oil supply surge in history—is still a long way from erasing the United States’ vulnerability to the global market’s vagaries. Even with U.S. production at an astonishing 11 million barrels per day, the Saudi-led OPEC cartel has not been rendered irrelevant. To the contrary, in collusion with Russia, OPEC production cuts since 2016 have successfully helped double the price of oil. And now the viability of U.S. strategy to maximize pressure against Iran is at least in part contingent on the Saudis and Russians agreeing to reverse those cuts.
Also apparent is the fact that record-setting domestic production has not immunized the U.S. economy from the effects of far-flung geopolitical disruptions. On top of existing outages in major producers like Venezuela and Libya, even the threat of cuts in Iranian exports has a growing number of market analysts foreseeing the possible return of $100-plus oil in the near future. The truth is that the U.S. economy remains one major unexpected crisis away from a devastating price spike. In that context, how confident should anyone be about the more than 3 million barrels a day that Iraq exports—especially in the wake of violent protests that have wracked its oil-rich southern provinces over the past month? And how would the market cope if Iran responded to new sanctions by successfully sabotaging critical Saudi infrastructure?
This all seems to underscore the continued need for a U.S. energy strategy aimed at ending acute vulnerability to the oil market’s extreme volatility. In the short term, the United States should adopt policies that support the continued expansion of domestic production. But in time, the real goal should be breaking oil’s de facto monopoly over the U.S. transportation sector—which accounts for over 70 percent of all U.S. oil consumption. Alternative fuels based on products entirely sourced in the United States—from corn to natural gas to electricity—are today increasingly viable and competitive. And unlike the oil market, they are largely immune from the chronic violence, chaos, and instability that afflict so many of the world’s petrostates. These fuels, no less than domestic oil production, merit the establishment of a well-considered and cost-effective regulatory environment that supports their ability to compete.
Real energy independence for Americans will come the day they can read about an Iranian effort to close the Strait of Hormuz in the morning without having to worry about a crushing spike in the cost of fueling up their cars that afternoon. It will come the day a U.S. president can choke off the oil revenues of the country’s worst adversaries without fear or favor of the OPEC cartel’s response. That’s a goal that the American people would likely rally behind if the president made it a high enough priority and was really prepared to lead. In the best sense, it would be putting America and its national security first.
John Hannah is a Senior Counselor at the Foundation for Defense of Democracies.
Follow the Foundation for Defense of Democracies on Twitter @FDD. FDD is a Washington-based nonpartisan research institute focusing on national security and foreign policy.