Oil and National Security
BY PHILIP AUERSWALD
In the past century of dramatic political and technological change, the centrality of oil in foreign policy has been a constant. Political leaders and governments of all types have been compelled to ensure the reliability of oil supplies for military use, to reduce the potential vulnerability of their economies to fluctuations in oil prices or availability, and to protect the interests of national companies engaged in the production and distribution of oil. Yet, while foreign policy has been universal in the most general terms, the relationship between oil and foreign policy has neither been highly variable across countries nor constant over time.
For the United States in particular, a domain of concern that was for decades primarily military in nature has, in the course of the past century, shifted to one that is primarily economic. At every juncture, technological and organizational innovations have defined, and subsequently redefined, the nature of risks, opportunities, and suggested actions. Public pre-occupation with energy prices has made oil and foreign policy a recurrent theme in the political discourse within the United States. The interests of US companies involved in the production and distribution of oil has provided a backdrop, and at times a direct motivation, for the foreign policy actions of the US government. Recently, intensified concerns over human-induced climate change and other adverse impacts of oil consumption have served to intensify and to redirect the political and diplomatic discourse related to oil and foreign policy.
Today the assertion that dependence of the United States on foreign oil constitutes a threat to national and economic security is perhaps the most widely believed and least scrutinized proposition in American political life, unifying disparate interest groups and political leaders from both sides of the aisle. The topic was a recurrent theme in the 2008 presidential election. In accepting the Democratic nomination, then-Senator Barack Obama made the following statement: “For the sake of our economy, our security, and the future of our planet, I will set a clear goal as president: in 10 years, we will finally end our dependence on oil from the Middle East.” Speaking in the vice presidential debate, Governor Sarah Palin stated the case even more strongly: “Energy independence is the key to this nation’s future, to our economic future, and to our national security.”
This consensus among political leaders has invited remarkably little scrutiny from policy analysts and scholars. Rarely are the following questions asked: How do we know that dependence on foreign oil constitutes a national security concern of the first order? Where is the evidence of this vulnerability?
On October 17, 2008, on the occasion of the 35th anniversary of the Arab oil embargo, the Center for Global Studies co-sponsored with the Middle East Institute, Innovations journal, and The American Interest an event at the Carnegie Endowment that sought to redress this imbalance of inquiry by addressing exactly the above questions.
In other work on the topic of oil and national security I have sought to consider the validity of the relationship between oil imports and national security economic grounds.1 Here I add to that analysis by placing current policy debates in a historical context.
OIL IN THE TWO WORLD WARS: 1911-1945
While the internal combustion engine came into commercial use at the end of the 19th century, it was not until World War I that its significance for the conduct of warfare became apparent. For all of the world’s powers at the time, oil was on the national security agenda as soon as the conduct of war required gasoline. For the United States, however, this change in the requirements of war did not make oil availability a foreign policy concern until the second half of the century. During the first World War and through the inter-war years, the prominence of the United States as an oil-producer ensured adequate fuel supplies in time of conflict. Concerns over the depletion of oil stocks were recurrent, but never realized.
To the extent that oil was a foreign policy consideration prior to World War II, the US government sought to support the interests of US oil companies seeking to maintain or extend their reach in markets around the world—particularly in the Middle East.
The situation was entirely different for Japan, which pursued an agenda of aggressive military expansion through the 1930s. As an island nation with few natural resources, including oil, Japan saw territorial expansion as a means to securing the requirements for continued industrialization. Particularly as it came to supplying Japan’s growing, and increasingly assertive, military, oil was a critical requirement. Throughout the 1930s, as Japan first invaded Manchuria, and then attacked mainland China, Japan continued to import oil from the United States on a large scale.
As concern mounted in the United States regarding Japan’s aggression and its strengthening ties with Axis powers in Europe, an active debate arose within the Roosevelt administration over the advisability of instating an embargo on oil exports to Japan. Concerned that the imposition of an embargo would leave Japan no option but to push forward across Southeast Asia to secure additional resource riches, President Roosevelt and some of his advisors initially resisted. Yet as the months wore on, the evidence of Japan’s determined belligerence mounted. By July 1941, just six months prior to the attack on Pearl Harbor, an embargo was in place.
Among the many determinants of the outcome of World War II, access to oil was among the most important. By the end of the war, both Germany and Japan were severely hampered militarily by their lack of reliable fuel supplies. Shortages intensified suffering among the citizenry as well. Even in the United States, rationing of fuel and other resources defined the wartime experience on the home front.
1945-1978: OIL FUELS A POST-WWII BOOM AND TRIGGERS COLD-WAR RIVALRIES
If World War II demonstrated the importance of oil in military conflict, then the post-World War II boom soon established its importance to economic growth. As early as the late 1940s, concern developed over the new vulnerability of the US to disruptions of supply from overseas. One school of thought held that the United States should intensify imports in times of peace in order to build up stocks of oil usable in times of war.
Through the 1950s and 1960s both demand and supply grew. At the start of the 1970s, a critical shift took place: US imports of oil began to grow rapidly. From 1970 to 1973, US oil imports nearly doubled, going from 3.2 to 6.2 million barrels per day.
At the same time on a global scale, oil exporting nations—with their national budgets heavily dependent on oil revenues—grew increasingly assertive of their rights. Agreements granting foreign oil companies concessions to operate were repeatedly challenged and renegotiated. Some countries nationalized their oil businesses outright. A delicate balance came into play, with oil exporting nations at least as dependent on oil revenues as importing nations were on oil supplies. The two-way equation became apparent in July of 1956 when Gamal Adbel Nasser abruptly closed the Suez Canal. All indications were that oil prices would surge, but the opposite occurred.
With global demand continuing to grow, the negotiating edge slowly shifted to producers. Seeking to increase their leverage in negotiations with major oil companies, Saudi Arabia, Venezuela, Kuwait, Iran, and Iraq—five countries comprising 80% of the world’s oil exports—joined together in the fall of 1960 to form the Organization of Petroleum Exporting Countries (OPEC).
From the standpoint of the United States, the primary concern with regard to oil supplies during the late 1950s and early 1960s related not to the market power of oil exporting countries themselves, but rather to the military power of their neighbor to the north. In January of 1957, responding in part to the Suez Crisis, President Dwight D. Eisenhower articulated the position of the United States with regard to the projection of Soviet interests in the region. “The reason for Russia’s interest in the Middle East is solely that of power politics…. This region…contains about two thirds of the presently known oil deposits of the world…. The action which I propose would…authorize such assistance and cooperation to include the employment of the armed forces of the United States to secure and protect the territorial integrity and political independence of such nations, requesting such aid, against overt armed aggression from any nation controlled by International Communism.”
In the early 1970s, oil shifted from the fringe of national concerns to the center. As price pressures intensified throughout the US economy in the summer of 1971, and with an election upcoming, President Nixon announced on August 15, 1971, the imposition of consumer price controls. “The time has come for decisive action—action that will break the vicious circle of spiraling prices and costs,” Nixon stated. Gasoline was among the affected goods and the measures remained in effect after the election. Soon thereafter, the concerns some had expressed over US oil vulnerabilities were suddenly validated. In October of 1973, a group of Arab oil producing nations, acting in response to US and other nations’ support for Israel in the course of the Six-Day War, announced an embargo of unfriendly states. With global supplies tight and spare capacity all but exhausted, the move made some economic as well as political sense—if the embargo could cause an increase in prices that more than offset the loss in quantity sold, then the embargo would not be costly.
The combination of sudden restriction of oil supply on a global scale and domestic consumer price controls created the image of the period most remembered: long lines of cars at gas stations, evidence of the sometimes futile quest for a full tank of gasoline that marked the era. Over time, the memory of price controls would dim, and the shortages that characterized the aftermath of the Arab oil embargo would be remembered as evidence of a national vulnerability to the disruption of vital energy supplies.
As potent as a weapon as it appeared initially, the Arab Oil Embargo ended with more of a whimper than a bang. As regional tensions diminished and producers saw an opportunity to benefit in the short term by exceeding their quotas, output slowly rose. The impact on the exporting countries net revenues is not known, but indications are that the experience was costly on both sides of the market. At the same time, the US and other importers made little concessions to the demands of the Arab countries, other than to intensify commitment to an Arab-Israeli peace process. Less than a year later, on March 18, 1974, Arab oil ministers agreed to end the embargo with Syria and Libya as lone dissenters.
1979-2000: THREE WARS AND A LONG SLIDE
The Soviet invasion of Afghanistan renewed fears in the US of Russian military aggression in the Middle East. On January 23, 1980, President Jimmy Carter reasserted the US commitment to the strategically important region: “It contains more than two-thirds of the world’s exportable oil. The Soviet effort to dominate Afghanistan has brought Soviet military forces to within 300 miles of the Indian Ocean and close to the Straits of Hormuz, a waterway through which most of the world’s oil must flow. The Soviet Union is now attempting to consolidate a strategic position, therefore, that poses a grave threat to the free movement of Middle East oil…. Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” The Carter Doctrine was born.
Over the following decade two wars in the region—first the Iran-Iraq war, which lasted eight years and caused half a million deaths, then the Gulf War of 1990-1991, involving an international coalition aligned against Iraq—brought turmoil and uncertainty. Yet, while the international embargo imposed on Iraq following the Gulf War did have a significant impact on the country’s oil supplies, elsewhere in the region (including Iran) oil output grew steadily, unaffected by the military conflicts. An oil price spike accompanying the start of the Iran-Iraq war was followed by two decades during which the price of oil (along with other globally traded commodities) gradually fell. OPEC weakened and talk of vulnerability to oil supply disruption abated. The collapse of the Soviet Union eliminated the military threat that was the basis for the Eisenhower and Carter doctrines, although the military presence of the United States in the Persian Gulf did not diminish accordingly.
A TURBULENT START TO A NEW CENTURY: 2001-2009
In the first decade of the 21st Century the driving force in global oil markets moved dramatically from the supply side to the demand side. Rapid growth in developing countries, particularly China and India, expended spare capacity among oil producers and drove a sustained increase in the price of oil from $20 in 2002 to $60 in mid-2007. When the crisis in the US sub-prime mortgage market began in August of 2007, global capital fled mortgage-backed securities into commodities markets, fueling a bubble that drove oil prices to $140/barrel in the summer of 2008. With the overall worsening of the outlook for the global economy, the demand-side pressures that have gradually pushed up prices earlier in the decade were relaxed, fueling a sudden and striking collapse in the oil price bubble. Current price levels of $40/barrel are far lower than the peak prices of less than a year ago; yet even now, oil prices have grown ten percent per year over this decade in real terms.
LOOKING AHEAD: OIL AND NATIONAL SECURITY IN A HISTORICAL CONTEXT
The historical retrospective offered above, combined with previous work on economic fundamentals, serves to illustrate three key points relevant to oil and national security:
• Markets for oil have always been global.
• The responsiveness of oil prices to market signals is greater today than ever in the past.
• While in the past, supply-side factors, such as the actions of OPEC, were presumed to be important in determining oil prices, today they are largely irrelevant when compared with the wide swings on the demand side.
The bottom line, with regard to oil and foreign policy, is that the economic and military threats that a quarter-century ago motivated an escalated US military presence in the Middle East—particularly the Persian Gulf—are now gone.
The challenge to the current consensus is obvious. Energy policies driven uniquely by the aim of energy independence are unjustified.2 As the winds of change continue to blow through the nation’s capital during the spring and summer, one can only hope that they will succeed in sweeping away outmoded fears of oil dependence that continue to plague decision-making about energy futures in the United States.
Phillip Auerswald (pauerswa@gmu.edu ) is Assistant Professor at George Mason’s School of Public Policy (http://policy.gmu.edu/) and Director of the Center for Science and Technology Policy.This article was first published in print and citations have been removed due to space limitations, but are available from the author.
- See in particular Philip E. Auerswald, The Irrelevance of the Middle East, 2007, The American Interest, 2:5 (May/June), pp. 19-37. [↩]
- I have not discussed climate change, conservation, or other energy policy priorities. [↩]
