A colleague of mine from Jupiter Research (now merged with Forrester) recently authored a blog post about whether the US could actually declare "energy independence" in the foreseeable future. The post comtained some interesting comments about geopolitics, which I'd like to expand upon here.
Specifically, I'd like to add another geopolitical dimension for consideration -- the global economics of energy independence. *If* a major energy importer like the US were to eliminate its need for outside energy, the oil and natural gas industry could be a major economic bubble waiting to happen. Think about it -- the basic reason for the credit crisis is that for several years, everybody was buying homes, and so real estate and construction firms were going crazy trying to keep up with demand. Then, suddenly, everyone stopped buying homes. The spike and crash in demand might still crash the whole system.
Now think about the global market for energy. The economices of many of today's developing nations -- Russia, Iran, Iraq, UAE (including both Dubai and Abu Dhabi), Venezuela, etc. rely very heavily on oil and/or natural gas. If you take this away, their economies would be obliterated almost overnight. Just think of the problems that this will unleash on the world's economy. Enough commerce already goes through places like Dubai and Moscow that it would be a BIG problem. And when those economies crash, just imagine what kind of terrorism we'd see in their wake. Lots of people with no jobs and no hope -- in economies that crumbled when the US pulled out its money. It could get really ugly. Especially in continental Europe, where many middle-Easterners live already -- much more than in the US. Because Europe is often lumped together with America to comprise "the West," London, Paris, Berlin, and other major cities would likely have heightened ethnic unease, perhaps even rioting. Expats might have trouble returning home to see their families. Foreign policy stances would stiffen. Turkey might literally be ripped in half as a country. And lots of other bad things might happen. And that's just in Europe, leaving aside the implications for the US.
Even further, non-energy-rich developing nations like China and India are severely dependent on oil and gas imports. In one sense, this might be good – acting as a buffer against a global market crisis from a sudden US "energy independence" policy. Hopefully their demand could fill the gaps left behind by an energy-independent US. But if not -- if a sudden drop in US demand is enough to immediately shock the system into freezing up -- then the economic virus would extend far beyond the "petro-autocracies." China and India would suddenly lack the fuel (literally) for their economic growth, and I can guarantee you that their economies would derail as a result. And because China's and India's economies have been growing at blistering speed, the carnage would be as if a Tokyo-bound bullet-train had derailed -- at high velocity and with massive numbers of casualties.
This is much closer to a doomsday scenario than a US credit crisis could ever create. The credit crisis – especially given that it didn't unfold overnight -- is actually good for the global economy in the long term. This is because the finance system will now re-jigger itself for an Information Economy. Essentially, it will force a global software upgrade for the rhythm of business -- one that suits a post-Cold-War kind of global economy that has been waiting to emerge anyway. But if the energy markets freeze, then the train wreck will stall the very economic progress that would propel the world into a stable post-Cold-War world order. It would be VERY BAD.
In my mind, the best strategy for energy independence is to slowly and deliberately ween the entire world off of archaic means of fueling our livelihoods -- our buildings; our modes of transportation; and our industrial production. And here's the silver lining: This weening process is already happening -- in places like Germany, Israel, and some of the Nordic countries, promising markets are surfacing for renewable energy. And if Congress ever lifts some of the regulations that are preventing this from happening in the US, then a similar thing is likely to emerge in Silicon Valley and the 128 corridor in Boston. Over time, these markets will grow and prove their merit on their own terms -- without the kind of dangerous geopolitical machismo that can bring the whole system crashing down before the system upgrade is fully "baked."
At the same time, of course, regulation is necessary and useful. But it is NOT the instrument of economic change or growth -- which almost by definition must come from the bottom-up. The function of good (and yes, *necessary*) govt regulation is to shape and steward the grassroots innovations percolating up from entrepreneurial interests in the private sector. This is the government oversight that was lacking when the real-estate bubble was forming; and THIS is the kind of policy tool that the next US president should be interested in wielding. Trying to use geopolitics instead as a direct instrument of economic creation is an abjectly BAD idea. This is what used to be referred to as fascism -- and as history has shown us, it's how World Wars get started. To avoid fascism in the US, we need policy makers to guide and supervise our economy, not create the economic engine themselves.
Hi Chis,
I missed your comment on my blog post because it was flagged as spam. Here's my reply: http://greenresearch.wordpress.com/2008/09/29/can-the-us-eliminate-its-dependence-on-foreign-oil/#comment-6
Thanks for writing!
Posted by: David Schatsky | October 05, 2008 at 07:55 PM