What are we to make of the Obama Administration’s unprecedented move to permanently ban offshore oil and gas drilling in the Arctic and the Atlantic coast? For the anti-oil ‘green’ lobby this action was publicly hailed as “an incredible holiday gift.” The ban was also good news for lawyers readying for years of litigation to combat another of the current Administration’s ever-creative use of ancient statutes. More importantly, the move was doubtless greeted with quiet delight in Riyadh and Bejing, and most of all in Moscow.
It is fitting that the Obama Administration began, and now ends with a gift for Vladimir Putin. Within months of being inaugurated in 2009, President Obama scrapped America’s plan to build a missile defense system in Poland, a program that Russia vigorously opposed. At the time Putin called the move “correct and brave.” After meeting with Putin for the first time earlier that year, the Obama Administration saw Putin as “a man of today and he’s got his eyes firmly on the future.” History since then has already been written with regard to Russia’s expansion on its western and nearby southern fronts. We might now expect Russia to more eagerly expand its activities on its northern front.
It is a simple fact that official Russian policy is to aggressively pursue Arctic oil and gas production, as well as to expand its territorial claims in that region.
But to gauge the Obama Administration’s move in the geopolitical framework that matters, and in time-frames that are meaningful to politicians and potentates on the world stage, we need to keep in mind a set of related and equally incontestable facts.
- Oil is the world’s largest traded commodity, greater than all minerals combined.
- Oil propels over 95% of all global land, water and air miles, despite hundreds of billions of dollars of grants, subsidies and inducements to change that fact.
- Oil demand will be greater in the future no matter what policies are enacted anywhere, a reality acknowledged not just by the DOE’s Energy Information Administration but also by the International Energy Agency.
- OPEC and Russia produce about 60% of the oil traded in the world.
- Nearly 70% of Russia’s export revenues and 50% of its economy—and derivatively its foreign adventures—come from selling oil and gas.
- Russia’s onshore oil and gas fields are in decline.
So, unsurprisingly, Russia is providing its companies tax incentives to develop the Arctic. And they are getting help from China, not just as a market but, critically, as major financier. The $27.5 billion Russian Yamal Arctic natural gas project is 50% financed by loans from China. And Norway—not known as an environmental laggard—is eager to provide Russia with technology and construction services there because of “substantial related economic activities and ripple effects locally and regionally.”
The Obama Administration’s collateral ban of offshore Atlantic drilling is also meaningful against the geopolitical backdrop. Almost one-third of all global oil production comes from offshore projects. Just five countries supply nearly half of all that offshore production: Brazil, Mexico, Norway, Saudi Arabia, and the United States. So we can add to the list of gift recipients, Brazil and Mexico.
It is true that America has a prodigious capacity to produce oil on-shore, especially now in the shale age. But the realities of future global hydrocarbon demands and the vicissitudes of future geopolitical events argues for leaving our options open, not least because of the message that sends to the world. In politics and especially geopolitics, symbols matter. Russia is likely happy to be granted the gift of hegemony in oil and gas production in the Arctic region while America, apparently in cooperation with Canada, steps back.
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Mark P. Mills is a senior fellow at the Manhattan Institute and author of Expanding America's Petroleum Power: Geopolitics in the Third Oil Era. Follow him on Twitter here.
This piece originally appeared in Forbes