March 22, 2007)
The United States is the largest oil importer in the world,
bringing in 13.5 million barrels per day (mbd), which accounts for
63.5 percent of total U.S. daily consumption (20.6 mbd). Oil
from the Middle East--specifically, the Persian Gulf--accounts for
20 percent of U.S. oil imports, and this dependence is growing. By
2017, the U.S. will be importing approximately 68 percent of
its oil needs. Oil consumption represents 40 percent of America's
energy needs, primarily used in ground and air transportation.
The dependence of the U.S. and the global economy on oil is
growing, which can have dire consequences for the economic
well-being of the United States, our national security, and the
American way of life.
Securing the stability of our oil supply to the best extent
possible in cooperation with traditional U.S. allies, while
bringing on board the emerging major oil consumers, such as India
and China, should be the key diplomatic strategy for the
intermediate term. At the same time, the U.S. needs to deter those,
from Tehran to Caracas, who are seeking to harm and
destabilize the world energy supply chain.
Working with suppliers and consumers to expand the transparency
of, and international access to, existing oil supply by
international oil companies, is a policy for the longer term.
Vast U.S. domestic oil and gas reserves cannot and should not be
outside of the reach of our consumers and our energy corporations.
Expanding our energy mix to include non-traditional oil sources,
such as oil sands, oil shale, deep off-shore oil, and heavy crude
is another important component in diversifying supply, as is
producing more transportation fuel from coal and
"gas-to-liquids." Finally, encouraging investment and
innovation in truly competitive alternative fuels and technologies,
from sugar cane ethanol to plug-in hybrids--which will eventually
compete with and possibly replace the current 19th century
automotive technology--may be the best long-term answer for
enhancing our energy security in the 21st century.
Securing the U.S. Energy Supply
The security and availability of global energy resources
directly affects the U.S. economy. U.S. policies should enhance the
security, stability, and economic development and the rule of law
in oil-producing countries to ensure that energy resources remain
readily available, ample, affordable, and safe--for everyone's
In his 2006 State of the Union address, President George W. Bush
said, "[W]e have a serious problem: America is addicted to oil,
which is often imported from unstable parts of the world."
Recognizing the problem is laudable; however, relatively little has
been done to solve it. There is a broad consensus in America, from
the President to the man on the street, that the current situation
is detrimental to the country's economic health.
The world, both developed and developing, is dependent on
unstable or otherwise inhospitable regions for its oil supply. This
social and political instability characterizes all of the major oil
provinces: the Middle East, Venezuela, and Africa. Russia
presents a separate set of issues which will be dealt with below.
Dealing with security and political factors limiting the
development of oil and gas production needs to be a high priority
for any Administration--Republican or Democrat. This is
particularly challenging because there are so many moving parts in
this complex system.
One of the most important avenues for dealing with the oil
shortage is through conservation. Another is developing substitute
and alternative fuels, such as ethanol, methanol, and
gas-to-liquid. Higher oil prices are likely to dictate new engine
and car designs that will work more efficiently and/ or run on
different fuels. The plug-in hybrids and other technological
breakthroughs may eventually wean the world from the internal
combustion engine and oil dependence. However, such
technological and structural transformations are, like many
things, likely to take longer than many expect, are certain to
require massive investments, and are beyond the scope of this
For the near term, let us focus on the principal avenues of
securing our oil supply, which include:
Deterring anti-status quo players, such as Iran, Venezuela,
and the global radical Islamist movement with its terrorist
Cooperating with local governments to enhance the protection
of critical shipping choke points, such as the Suez Canal, the
Bosporus, Bab-el-Mandeb, the Strait of Hormuz, the Strait of
Malacca, etc., and developing contingency plans for sea-borne
terrorism/piracy aimed at tanker ships;
Boosting an international coalition of oil consumers by
bringing aboard India, China and other major emerging markets, such
as Brazil and Turkey; and
Securing open access and a level playing field for
international oil companies and national oil companies.
Specifically, consumer countries should make as their top foreign
policy priorities openness of investment regimes; stable,
predictable, and transparent energy regulatory systems based on the
rule of law in producing countries; and fighting corruption.
The Middle East
The Middle East's Persian Gulf is the richest and most important
oil province in the world. Forty percent of the daily shipment
of oil passes through the Gulf. Approximately 20 percent of U.S.
oil comes from the Gulf.
Currently, the security and stability of Middle East oil is
threatened by ongoing conflicts in Iraq; an aggressive and nuclear
Iran; and radical Islamist movements, with their terrorist arms,
whose goals include toppling regimes throughout the Gulf, including
the swing producer of oil, Saudi Arabia.
Islamist movements, nurtured to a great extent by oil revenues
from Gulf states, aim to eventually create a global Islamic
empire--the Caliphate. These movements ultimately strive to
subjugate and convert non-Islamic countries to their brand of
Islam. This is a very long-term project, and ultimately, it
will hopefully be a futile one. However, in the meantime, the
existence and the goals of these movements pose an immediate threat
to the security of some of the most crucial sectors of the
world oil supply.
Sellers' Market. Today's global oil market is operating
without the benefit of additional production capacity or
significant strategic petroleum reserves beyond the U.S. reserves.
The Saudi spare capacity has deteriorated over the past decade by
one-half, from 3-4 mbd to 1-1.5 mbd. To make matters worse, some
experts question reserve estimates provided by national oil
companies in the Gulf and elsewhere, as these numbers are not
independently audited. Without a clear understanding of how
much oil is available, the world may be up for more nasty
Terrorist attacks that have been carried out to date on the oil
infrastructure have clearly caught oil producers unprepared. For
example, al-Qaeda's February 24, 2005, attack on the Aramco
facility in Abqaiq, Saudi Arabia, sent shock waves through the
world's financial markets. On the same day, the price of oil on
international markets jumped nearly $2 per barrel, despite the
attack's complete failure (the terrorists and two security guards
Most analysts agree that the February attack, an additional
attempt on March 28, 2005, and a 9/11-style assault in April 2007,
all of which were successfully averted, were merely trial runs
in a much longer campaign designed to disrupt the global economy in
general, and the oil and gas industry in particular. As the
September 11, 2001, World Trade Center attacks demonstrated,
al-Qaeda tends to return to the scene of the crime, so another
strike on Abqaiq and other oil targets is likely.
Both Osama bin Laden and Ayman al-Zawahiri have repeatedly
called for attacks on key Western economic targets, especially
energy sources. In a tape aired by Al-Jazeera in February
2006, Zawahiri said:
I call on the mujahideen to concentrate their attacks on
Muslims' stolen oil, most of the revenues of which go to the
enemies of Islam while most of what they leave is seized by the
thieves who rule our countries.
The unfortunate reality is that the Middle East remains the
strategic center of gravity of the global oil market--a position
that is not likely to change in the medium term. As long as radical
Islamists, China, Russia, India, and Europe continue the struggle
for the world's limited oil supply, the region will remain
unstable. If the U.S. is to protect itself from these economic and
political threats, it must use all the tools at its disposal to
protect energy assets around the globe, while decreasing the
world's dependence on Middle Eastern oil as quickly and
efficiently as possible.
Oil as a Weapon. Many Arab leaders understand the dynamic
of the world's oil dependence. For example, as early as 1990, the
late Yassir Arafat said:
When the North Sea oil dries up in 1991, the United States will
want to buy Arab petroleum. And when the American oil fields
themselves run dry and oil consumption in the United States
increases, the American need for the Arabs will grow greater and
This observation has not been lost on the current
generation of politicians and terrorist leaders. However, bin Laden
and Zawahiri are not satisfied with the unwieldy weapons of oil
boycotts and buying political influence in the West. Instead, they
are clearly zeroing in on the oil-rich kingdoms of Saudi Arabia and
the Persian Gulf as their principal targets. They also appear
increasingly interested in attacking the entire global oil
industry, from wells to wheels.
The failed February 2005 strike and the prevented March
2005 attack on Abqaiq, mentioned earlier, were not the first times
that al-Qaeda has targeted energy assets in the region. In October
2002, al-Qaeda attacked the Limbourg, a French oil tanker,
off the coast of Yemen with a suicide boat filled with explosives.
In 2002, American and Saudi intelligence agencies uncovered a
plot by al-Qaeda sympathizers inside Saudi Aramco to destroy
key Saudi oil facilities. In 2003-2004, al-Qaeda attacked the Saudi
port of Yanbu and murdered five Western engineers working there.
Some analysts have warned that a carefully targeted
terrorist attack on oil facilities in Saudi Arabia could reduce
Saudi oil production to 4 million barrels per day or less for
up to three months, which would have disastrous results for the
The leadership of the Islamic Republic of Iran is engaged in
operational planning to intercept the flow of oil in the Gulf.
Despite Iranian President Mahmoud Ahmadinejad's earnest and ongoing
attempt to project the image of an irrational leader of what
international relations theorists have called a "crazy state," many
analysts have yet to recognize fully the dire ramifications of
Iran's professed intention to develop a nuclear weapons
If diplomacy fails, Iran's pursuit of nuclear weapons will
leave the U.S. and its allies with few choices, all of them
In June 2006, Iran's oil minister cautioned, "If the country's
interests are attacked, we will use all our capabilities, and oil
is one of them." Perhaps most alarming are the remarks of Iran's
Supreme Leader Ayatollah Ali Khamenei in the same month: "If the
Americans make a wrong move toward Iran, the shipment of energy
will definitely face danger, and the Americans would not be able to
protect energy supply in the region."
The economic consequences of a military strike on Iran's nuclear
facilities to the world energy market would likely be
significant, if not disastrous. Immediately following military
action, according to a Turkish assessment, uncertainty about Iran's
ability to sustain oil production at the current level of 4
mbd could drive oil prices above $80 per barrel. If Iran retaliated
and escalated by shutting down the Strait of Hormuz, which would
merely require placing anti-ship mines in the strait,
the temporary loss of more that 15 million barrels of oil to the
international market could drive oil prices above $83 per barrel,
the historic height of the 1970s (adjusted for inflation). In
fact, a recent Heritage Foundation war game and economic study
speculated that oil prices could go as high as $120/barrel for
a limited time.
On the other hand, Iran's aspirations in the region are
far-reaching. Allowing Iran to join the nuclear club introduces the
possibility of Iranian interference throughout the Middle East,
especially given Iran's proximity to so many of the world's
largest oil fields. The large Iranian military, if amply
supplied by Russia and China, would be in a position to
dominate the Persian Gulf under a nuclear umbrella, particularly if
U.S. ground forces were pinned down in Iraq.
Currently, Iran enjoys the support of some Shi'a forces in Iraq,
especially Muqtada al-Sadr's Mahdi Army, and in the
Shi'ite-populated Ash Sharqiyah (Eastern) Province of Saudi Arabia.
This could facilitate a pro-Iranian Shi'a takeover of some of
the largest oil fields in the world. In a worst-case scenario,
a nuclear Iran could threaten the United Arab Emirates and
Kuwait. If this were to happen, the Islamic Republic could quickly
secure a sizable part of the world's oil supply, bringing the
nuclear-armed militant Iran close to a virtual monopoly over
the world's energy market.
Iran's Dangerous Arsenal. Since the 1990s, Iran
has been upgrading its military with a host of new weapons from
China, Russia, and North Korea, as well as with weapons
Today, Iran boasts an arsenal of Iranian-built missiles based on
Russian and Chinese designs that are difficult to counter both
before and after launch. Of particular concern are reports that
Iran has purchased the SS-N-22 Moskit/Sunburn anti-ship missile.
The supersonic Sunburn is specifically designed "to reduce the
target's time to deploy self-defense weapons" and "to strike ships
with the Aegis command and weapon control system and the SM-2
surface-to-air missile." Iran is also well stocked with older
Chinese HY-1 Seersucker and HY-2 Silkworm missiles and the more
modern C-802 anti-ship cruise missile (ASCM)--designs that Iran has
successfully adapted into their own Ra'ad ad Noor ASCMs.
Iran has a large supply of anti-ship mines, including modern
mines that are far superior to the simple World War I-style contact
mines that Iran used in the 1980s. They include the
Chinese-designed EM-52 "rocket" mine, which remains stationary
on the sea floor and fires a homing rocket when a ship passes
overhead. In the deep waters in the Strait of Hormuz, such a weapon
could destroy ships entering or exiting the Persian Gulf.
According to one expert, Iran "can deploy mines or
torpedoes from its Kilo-class submarines, which would be
effectively immune to detection when running silent and remaining
stationary on a shallow bottom just outside the Strait of
Hormuz." Iran could also deploy mines by
helicopter or small boats disguised as fishing vessels.
Mines are only one of a host of potential Iranian threats to
shipping in the Persian Gulf. The naval commandos of Iran's
Revolutionary Guards are trained to attack using fast attack boats,
mini-submarines, and even jet skis. The Revolutionary Guards
also have underwater demolition teams that are trained to attack
offshore oil platforms and other facilities. Finally, Tehran could
use its extensive terrorist network in the region to sabotage
oil pipelines and other infrastructure or to strike oil tankers in
port or at sea.
Consequences of a Supply Disruption in the Persian Gulf.
With supplies growing and the price of oil falling, there has been
a shortsighted tendency to underplay the threat posed by a major
disruption in the Persian Gulf.
Although oil prices fell precipitously after the outbreak of the
Iran-Iraq War, it is important to remember that global energy needs
are much different today from what they were during the 1980s.
Oil production is at record levels, but global demand has increased
significantly, especially in the past 15 years. Under today's
conditions, the slightest disruption could drive oil prices
back up toward historic levels.
The U.S. Deterrent?
U.S. military forces in the Persian Gulf could quickly establish
superiority over Iran's conventional ground, air, and naval
forces in any crisis, but Iranian mobile missiles, mines, commando
attacks, unconventional warfare, and terrorist sabotage would pose
more persistent threats that would be much harder to neutralize.
The United States and its allies could eventually defeat Iranian
attempts to close the Strait of Hormuz. Yet Iran could intensely
threaten Gulf shipping for short periods, deter commercial
ships from entering the Gulf, drive up insurance rates for Gulf
shipping, and boost world oil prices on nervous markets.
The Bush Administration is already maintaining a strong U.S. and
allied naval presence in the Persian Gulf. Washington should
also encourage its NATO allies, Japan, India, and Australia, to
deploy their naval forces periodically to the region. The Pentagon
should conduct naval, air, and ground exercises with the Gulf
Cooperation Council (GCC) states of Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia, and the United Arab Emirates-- particularly in
the areas of minesweeping, port security, and missile
defense--to demonstrate the capability and resolve to defeat
potential Iranian threats. In particular, the U.S. Navy's mine
warfare capability is potentially inadequate and under-prepared for
the increasingly sophisticated arsenal that Iran can deploy. The
U.S. should further upgrade its naval capabilities, including
minesweeping and anti-ship missile defense. Washington should also
encourage the GCC countries to invest in their own naval
The Bush Administration should work with allies to develop
contingency plans. The U.S. should encourage other nations to
develop or increase their emergency oil reserves. Washington should
also encourage Saudi Arabia and other Gulf oil producers to
stockpile materials and equipment needed to rapidly repair damaged
oil infrastructure and build new oil pipelines that bypass the
Strait of Hormuz. Any such efforts would take time to complete,
which is why it is imperative to begin now.
Beyond these crisis-specific guidelines, it is crucial that
the U.S. follow through with these particular measures:
Boost efforts to roll back Iran's subversive ideological,
terrorist, and military threats;
Diversify the geographic sources of U.S. energy imports;
Diversify the energy basket by expanding the domestic
production of oil and gas, including drilling in ANWR (Arctic
National Wildlife Refuge) and off-shore, along both the
Pacific and Atlantic continental shelves, and in the Gulf of
Expand extraction from market-based, non-traditional oil
sources such as oil sands (tar sands), oil shale, and super-heavy
oil; expand gas-to-liquid fuel production;
Encourage expanded methanol and ethanol production and imports
based on market principles; and
Waive punitive importation tariffs on sugar cane
Since coming to power in 2000, President Vladimir Putin and his
entourage have doggedly pursued policies aimed at concentrating the
huge oil and gas assets of the Russian Federation and its pipeline
in the hands of the state. State prosecutors used tax evasion
charges to take over the YUKOS oil company, which has had its
highest market valuation--in excess of $43 billion. Other oil
companies are now merging with government-controlled entities,
albeit less violently. Russia is using state-owned energy assets as
tools of its foreign policy to make its neighbors in the former
Soviet Union and Europe more pliable. It is also actively seeking
to prevent or pre-empt pipeline routes from the Caspian to the West
that bypass Russia.
The natural gas sector is also at risk. These days Russia, Iran,
Venezuela, Qatar, and Algeria are reportedly pursuing the creation
of a "natural gas OPEC," an important strategic development in
energy markets in view of projections that liquid natural gas (LNG)
will quadruple its trading volume in the next 15-20 years or
Three major Eurasian energy developments in the month of March
made Washington policymakers jittery. First, Hungarian Prime
Minister Ferenc Gyurcsany announced that his country would prefer
Gazprom's Russian gas pumped via Turkey to the much-lauded, but
much delayed NABUCCO project. The NABUCCO pipeline, spearheaded by
the Austrians, was supposed to bring up to 30 billion cubic meters
of gas from the Caspian to Europe through Turkey, Bulgaria,
Romania, Hungary, and Austria.
Second, Russia, Bulgaria, and Greece signed an agreement to
construct a Burgas-Alexandroupolis oil pipeline to bypass the
Turkish-controlled Bosporus Strait, a dangerous oil transport
chokepoint. The project, which some call "the Orthodox
Pipeline," will neutralize Turkey's control of the vital oil
artery, and reduce the liability that could occur as a result of a
catastrophic event, such as a tanker fire or an explosion in the
middle of the populous (14 million people) city of Istanbul. The
Burgas-Alexandroupolis pipeline will have a 51 percent majority
control of three Russian government companies--Transneft,
Gazpromneft, and Rosneft--with the remaining 49 percent split
between Bulgaria and Greece.
On March 6, 2007, Vagit Alekperov, chairman of LUKoil, announced
that his company and Gazpromneft would create a joint venture
to develop future projects, which would be 51 percent
controlled by Gazpromneft--another step down the path of
Finally, British Petroleum hinted that its Russian partner,
TNK, may sell out its share in the TNK-BP joint venture to a
Russian state-owned company. At the same time, Russia is developing
plans to build the second Bosporus bypass from a port on the Black
Sea such as Samsun, or Trabzon, to the Mediterranean.
These strategic moves, which took place in just one month,
clearly indicate that the Russian state is pursuing a comprehensive
strategy that masterfully integrates geopolitics and
On the geo-economic side, Russia aims at pre-empting Caspian oil
and gas from being transported to world markets through countries
and pipelines which Russia does not control. Moscow viewed the
Western-controlled Baku-Tbilisi-Ceyhan oil pipeline and the
Baku-Erzurum gas pipeline with a jaundiced eye. Now it is dead-set
upon preventing the creation of trans-Caspian arteries--from
Kazakhstan and Turkmenistan--to enhance the viability of
either or both.
Thus, from Moscow's perspective pumping Russian gas via the Blue
Stream pipeline across the Black Sea to Turkey, and then through
connectors to Greece, Italy, and possibly via Bulgaria and Romania
to Hungary, makes a lot of sense. This would preclude or delay the
construction of a trans-Caspian gas pipeline that would transport
Turkmenistani or Kazakhstani gas.
Pumping more oil to the Mediterranean via the
Burgas-Alexandroupolis pipeline, or in the future, the
Samsun-Ceyhan pipeline, which will be supplied with Kazakh
oil, through the port of Novorossiisk makes sense as well, denying
Kazakhstan a viable trans-Caspian pipeline option to
connect to the Baku-Tbilisi-Ceyhan pipeline.
These proposed sea-pipeline routes are going to be problematic:
Tanker loading and unloading of crude in the trans-Black Sea leg,
or extending the gas route under the Black Sea and via Turkey and
Southern Europe make these pipelines very expensive and
environmentally challenging. By selecting these routes, Russia
clearly chooses strategy over economics.
Russian strategic goals are to prevent countries on its borders
from becoming pro-American. By locating pipelines and gas storage
facilities in Hungary, Bulgaria, Greece, and Turkey, Russia
connects them to Moscow by "ties that bind"--pipelines. Oil
projects tend to leak not just crude, but cash.
The elites in these countries have reportedly personally
benefited from Russian energy developments to the tune of
hundreds of millions of dollars. The opaque Russian-Ukrainian gas
marketing venture Rosukrenergo, former German Chancellor
Gerhardt Schroeder's chairmanship of Nordstream, Turkish
ministers' bribe scandals connected to the Russian Blue Stream gas
pipeline, and other scandals prove this point.
The best strategy, wrote the great Chinese general Sun Tzu in
the third century B.C., is to win a war without firing a single
shot. This also includes, according to Sun Tzu, penetration and
subversion of the enemy camp. To paraphrase another great strategic
theorist, the Prussian Carl von Clausewitz, foreign policy is the
continuation of war by other means, at least in the view of some
retired Russian colonels and generals who call the shots in the
Thus, there is no better way to "win the war" than to maximize
geopolitical clout without firing a shot--and making money as you
go. Russia is attempting to do so by building and extending a
network of politically influential pipelines to adjacent
countries. As the result, a Russian-influenced cordon
sanitaire appears along its borders.
When it comes to oil and gas strategy, the Kremlin is in a
league of its own. This is like watching a chess grand master
playing multidimensional chess with oil and gas fields and
pipelines over decades. Middle Eastern rulers would do well to
attend this master class.
The Bush Administration should be taking some diplomatic steps
to oppose this Russian gambit. It is already conducting
consultations with the European Union to coordinate energy
policy. Washington wants to raise awareness of Russia's energy
strategy and condition Moscow's access to downstream operations in
Europe on Western companies' access to Russian upstream energy
However, the EU, including its Brussels apparatus, is
split, since Germany is already deferential to Russia's energy
interests. German companies such as E.ON are in partnerships with
Gazprom to develop gas fields and downstream operations in Russia
and Europe. It is also possible that the U.S. State Department may
intervene with Bucharest to prevent a proposed Gazprom pipeline
from Turkey from crossing Romanian territory. Clearly, the two
small U.S. military bases in Romania and Bulgaria and the
proposed missile defense base and radar in the Czech Republic and
Poland are not going to stop Russian expansion. Pipelines are much
more effective tools of foreign policy than missiles.
Economic Freedom and the
Many oil fields around the world are headed for depletion.
National statistics are unreliable at best, or classified at worst,
and national oil companies control up to 80 percent of oil and
natural gas reserves. The main problem of oil shortages today is
not lack of reserves in the ground, but lack of access above
Over-regulation and a Poor Investment Environment.
Laws requiring the government to own and/or control significant
shares in oil ventures are common in many oil-producing countries.
Overregulation and economic nationalism prevent
international oil companies from owning mineral rights, while
weak rule of law and insufficient protection of property rights in
many oil-rich regions make multibillion-dollar investments too
In many oil-producing countries, arbitrary laws, failing and
corrupt legal systems, selective taxation, conflicting legal codes,
and government failure to enforce contracts have created a murky
investment environment. Nationalization has a particularly chilling
effect. Venezuela destroyed tens of billions of dollars in
shareholder value. Russia frightened many investors away by
breaking up its major oil company, YUKOS; pushing Shell out of the
Sakhalin Island project; and suing British Petroleum's Russian
partner TNK for $790 million in back taxes. Saudi Arabia abandoned
its much-touted privatization of natural gas production.
Two-thirds of the world's oil reserves are concentrated in
the increasingly unstable Middle East and are controlled by members
of the quasi-monopolistic Organization of Petroleum Exporting
Countries (OPEC). Over the years, OPEC has been quick to
cut supply and slow to increase production, bringing oil
prices to today's high levels. Most OPEC member countries
and other oil producers have high levels of government economic
regulation and corruption, as documented in the Index of
Economic Freedom, published by The Heritage Foundation and
The Wall Street Journal. Thus, consumers are
effectively paying two premiums on oil--one for security and one
for suppliers' economic inefficiency and monopolistic
The U.S. needs to develop a comprehensive strategy to change the
oil investment climate. Such a strategy should involve the
Departments of State, Energy, and Treasury and be coordinated by
the National Security Council.
Consumer countries, including the G-8 and major oil consumers,
especially China and India, should join the G-8 to coordinate
positions of the buyers' club. Consumers should use diplomatic and
economic means to pressure OPEC and non-OPEC suppliers to
liberalize their foreign investment laws, break up state
monopolies, and phase out undue government intervention.
Efforts to promote such policies through international
financial organizations such as the World Bank and the European
Bank for Reconstruction and Development should be increased.
Economic assistance should emphasize economic freedom in potential
recipients, including a liberal investment climate similar to
Millennium Challenge Account requirements.
In many countries, lending institutions are weak, and excessive
taxation diverts oil revenues before appropriate investments for
future development are made. This limits the funds available to
develop new fields and tempers the profit motive to expand
production. These anti-business barriers have hindered
investors from expanding oil and natural gas supplies, even in
the face of surging demand. Oil buyers must coordinate policies to
reduce these barriers.
Arms and vital equipment sales should be conditioned on
improving the investment climate in the energy sector. The U.S.
should also condition accession to the World Trade
Organization on policy changes that facilitate foreign
The U.S. State Department and Departments of Energy and
Commerce, as well as international financial organizations
such as the World Bank, should champion property rights protection
to enhance access to resources and prevent expropriation,
unrestricted and fair competition, free markets, business and
governance transparency, and political accountability. If
applied, these principles will allow a significant increase of
oil supply. Specifically, the U.S. should seek full access for
international oil companies to mineral rights in OPEC and
non-OPEC countries, including the development of oil fields
and energy transportation infrastructure. The U.S. also should make
the privatization of national oil companies and economic
liberalization one of the pillars of the G-8 and the Organisation
for Economic Cooperation and Development foreign and energy
Energy independence, defined as competitive local production of
all the energy we need, remains a mirage. It is energy security
that we need to accomplish, in which abundant and affordable energy
supply is within reach of all Americans. Recognizing the
inherent, systemic, and long-term instability of the global oil
markets is the first step in addressing the problem the U.S. is
Ariel Cohen, Ph.D.,
is Senior Research Fellow in Russian and Eurasian Studies and
International Energy Security in the Douglas and Sarah Allison
Center for Foreign Policy Studies, a division of the Kathryn and
Shelby Cullom Davis Institute for International Studies, at The
Heritage Foundation. This testimony was delivered March 22,
2007, before the House Foreign Affairs Committee.