October 15, 2012 | Foreign Policy

How Oil Dependence Undermines America’s Effort to Stop the Iranian Bomb

October 15, 2012 | Foreign Policy

How Oil Dependence Undermines America’s Effort to Stop the Iranian Bomb

Energy issues have figured prominently in Governor Romney's campaign. Achieving “North American energy independence” has been a central pillar of the 5-point economic plan that he's been touting — including at last week's first presidential debate. A bit surprising, then, that in the governor's October 8th foreign policy speech, with its heavy emphasis on the Middle East, energy didn't even merit a mention.

Let's face it. Ensuring the free flow of oil has been the main driver of American strategy in the Middle East for decades. Our nation's economic wellbeing depends on a well-supplied global oil market, and countries in the Middle East account for a significant portion of the world's production. The cartel they dominate, OPEC, today controls between 30 and 40 percent of the international market while possessing the vast majority of the world's proven reserves.

As a result, America and the global economy are incredibly vulnerable to what happens in the region. Every U.S. recession but one since World War II has been preceded by an oil price shock. And in the majority of cases, those shocks have been triggered by events originating in the Middle East. Think the 1973 Arab oil embargo, the 1979 Iranian revolution, or Saddam's 1991 invasion of Kuwait.

But you don't have to go back that far to appreciate the problem we face. Last year's revolution in Libya, along with broader unrest across the Arab world, sent oil prices skyrocketing. Ditto Iran's threats in January to blockade the Straits of Hormuz. And concern about an eventual war with Iran continue to impose a significant risk premium on global prices, a reality Americans confront every day at the gas pump. Even short of tipping the economy back into recession, the effects of this kind of price volatility are highly negative: our trade deficit rises; disposable income and consumer spending decline; and economic growth takes a significant hit.

Concerns about oil prices have often badly distorted U.S. policy toward the Middle East. The most acute example is the effort to pressure Iran to give up its nuclear weapons ambitions. U.S. policymakers have long known that the most effective step we could take against the mullahs is to cut off Iran's oil sales and starve them of the enormous revenues they need to keep their repressive regime afloat. Yet for years, first President Bush and then President Obama fiercely resisted sanctioning the Islamic Republic's petroleum sector. The reason? Because they quite legitimately feared that removing Iranian crude from the market would disrupt global supplies and trigger a devastating price shock. Only in late 2011, with Iran rapidly approaching the nuclear threshold, did Congress finally steamroll the administration by forcing through legislation that targeted Iranian oil.

Even then, implementation of the sanctions was watered down. The administration was given a six-month grace period to assess the possible impact that sanctions would have on the global oil market. And rather than demanding that customers of Iranian oil end their purchases entirely, countries were granted waivers from U.S. sanctions if they only “significantly reduced” their buy — which in practice required them to cut back between 15 and 20 percent. While the U.S. effort, together with complimentary EU sanctions, have no doubt had a major effect on Iran's economy — reducing its oil exports by as much as 50 percent — a full embargo would have been far more impactful and the obvious course of action for Washington to pursue if not for the countervailing concern about oil markets. In the meantime, the Iranian regime continues to pocket perhaps $3 billion per month from the million or so barrels of oil that it still exports daily, all the while pressing ahead with its nuclear program.

America doesn't have a higher national security priority than stopping the world's most dangerous regime from going nuclear. And yet the sad reality is that our dependence on oil has for years, and to our great peril, systematically deterred us from fully deploying the most powerful tool in our arsenal — all-out sanctions on Iran's petroleum sector — for resolving the crisis peacefully. Not surprisingly, that underlying logic applies in spades when it comes to any discussion about the possible use of force against Iran, where predictions of oil spiking to an economy-crippling $200 per barrel are commonplace.

The fact that our oil vulnerability has put such severe constraints on our freedom-of-maneuver to address the most pressing national security threat we face is deeply troubling. The big question is whether we can do anything about it. Admittedly, history doesn't offer much reason for optimism. For almost 40 years, successive U.S. presidents have promised to tackle the problem with very little to show for it.

Of course, what's different today is that the United States is experiencing an oil and gas boom that promises to transform our energy landscape in very fundamental ways. Thanks to American ingenuity and technology, U.S. production is poised to increase dramatically over the next decade, after years of steep decline. As Governor Romney has correctly emphasized, through close cooperation with democratic allies in Canada and Mexico, the goal of energy self-sufficiency for North America may well be within reach — an unthinkable prospect just a few years ago, and one whose benefits in terms of job creation and economic growth could be quite profound.

In addition to the potential economic windfall, however, we also need to be thinking hard about how we can best exploit the coming energy boom to really enhance U.S. national security. That's a much more difficult task. The fact is that because there's a global market for oil, Middle East crises are likely to threaten the U.S. economy with major price spikes no matter how much of our own crude we produce. Just look at Canada and England. While both are oil independent, they remain exposed to the same price volatility that currently afflicts the United States. Their economies will be no more insulated than ours if a war with Iran sends the cost of oil through the roof.

It seems that what really needs to be part of the mix is a viable, bipartisan, market-driven strategy for reducing the monopoly that oil has over our transportation sector. If a sensible way could be found to begin moving some significant portion of U.S. cars and trucks to run on cheaper, domestically produced alternative fuels — natural gas, methanol, electric — it would largely eliminate the sword of Damocles that Middle Eastern tyrannies like Iran now hold over the West's economic wellbeing and its strategic decision-making. That would put us on the path toward true energy independence, and restore to the United States a degree of flexibility, leverage, and strength to pursue its interests and values abroad, especially in the Middle East, that we have not known for at least a generation.

All much easier said than done, I know — especially in an environment where energy issues, like the national budget, have become so politically charged. Nevertheless, hope springs eternal. Perhaps once the upcoming election is over, a new administration will be prepared to look seriously at developing a bipartisan, comprehensive energy strategy that both fully exploits America's new oil and gas bonanza while taking meaningful steps to reduce our vulnerability to extortion by hostile, repressive dictatorships in unstable parts of the world.

If it is, one place that a new president should definitely look to mobilize ideas as well as political support is Securing America's Future Energy (an organization that I'm proud to advise), which has brought together an extraordinary group of American business and military leaders to highlight both the economic as well as national security dangers posed by our dependence on oil, and to recommend possible solutions. Co-chaired by Fred Smith, CEO of FedEx and General P.X. Kelley, former commandant of the Marine Corps, the group includes such luminaries as General Jack Keane, former vice chief of the Army; Admiral Dennis Blair, former director of national intelligence; David Steiner, CEO of Waste Management; Herb Kelleher, founder of Southwest Airlines; and John Lehman, former undersecretary of the Navy. A pretty hard-nosed bunch, to be sure, that has decades of experience operating on the front lines of the global economy and national security, and is convinced that America can and must get after this challenge as soon as possible.

For the country's sake, we should all hope that they're right.

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