TRUMP’S CODE: Making Money on Populist Disorder III
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Translation: Fairpress

Author: Munir Podumljak

A united Western response
In the aftermath of some of the worst security crises since the end of the Cold War, the US, the EU and key western powers (UK, France and Germany) joined forces to design a response that would curb Russia’s aggressive and destabilizing behavior. One of the key aims of this endeavor was to limit Russian economic power, in order to restrict Russia’s capacity to engage in military showdowns with the West. Yet as long as oil prices were high, Russia’s economic power would be great, and it was no easy task to change the equilibrium of oil production and demand or to reduce the energy dependency of the world’s biggest market (the EU) on Russian oil and gas.

These complex economic and security diplomacy games had three main elements.  First, the EU and key EU economies wanted to diversify their energy sources. A new NATO energy security policy had been framed in 2008 (following the Georgian crisis) and was reconfirmed and strengthened in 2014 in the aftermath of the Ukrainian crisis, finally being adopted as the EU Energy Security Strategy (EU ESS) in 2014.[1]  Most member states were heavily reliant on a single supplier, including some of the strongest EU economies, which relied entirely on Russia for their natural gas. In 2009, the gas dispute between Russia and transit country Ukraine had left many EU countries with severe shortages. Then NATO Secretary General Rasmussen drew a direct link between energy and security, stating “We must make energy diversification a strategic transatlantic priority and reduce Europe’s dependency on Russian energy[2].

However, for Europe, weaning itself from dependence on Russian energy would be a slow process, involving long and expensive investment in alternatives. Hence the second part of the strategy: US diplomats, accompanied by their EU allies, pushed for JCPOA as a parallel measure within the energy security strategic framework. Russia had been one of the key actors in Iran’s nuclear program since the early 1990’s as well as one of Iran’s key military equipment suppliers and trade partners. According to Russian press reports, quoting statements by officials, in 2014, Iran and Russia had allegedly sought to negotiate a USD 20 billion ‘Oil for goods agreement’. Although this agreement was never concluded, it served as additional leverage for Iran in negotiating the JCPOA.[3]

The western allies sought to integrate JCPOA with their wider strategy on energy and oil production and consumption so as to ultimately reduce oil prices and limit the economic power of Russia, in the hope that this would lead to less aggressive behavior by Russia in international spheres. As Iran was one of Russia’s key allies, Russia could not block such an agreement as any such ‘cooling off’ of Russia-Iran relations would undermine their strategic position in the Middle East. This created an opportunity for the West, which was seized upon by the US, France, UK and Germany and the EU in designing JCPOA. In the case of a breach,

the committee could restore UN sanctions within 65 days by a majority vote; this guarded against the possibility that Russia or China would invoke the veto.[4]

With the above in place, the third and most important component of the western response was introduced – changing global demand and supply for oil. If a major supplier was being removed, someone had to replace them. The United States would increase its own oil production so as to reduce its rate of oil imports and dependency on the OPEC countries. As shown in Figure 6 since the beginning of the deterioration in the relationship between Russia and the West in 2008, US net imports (US trade deficit in oil markets) have decreased significantly every year, reaching a record low of 3.73 million barrels per day in 2017, almost one-third their level before the crisis begun. In the same period, the US also halved its imports from OPEC countries, a significant blow to world markets on the demand side, depressing the price of oil globally (both the US and Europe’s Brent oil price) (see Figure 6).

Source: Statista[5]

Source: Statista[6]

From 2008 to 2017, US oil production doubled from approx. 4.5 million barrels per day to over 10 million barrels per day in 2017 (see Figure 7), as recorded by the US Energy Information Administration. The new technology of hydraulic fracturing or ‘fracking’ contributed to this increase, despite controversies over its climate and health impact.[7] However, the global importance of increasing US production (and thus changing the global balance of power) may have convinced the Obama administration to drop some of its pledges in the area of environmental protection[8].

Source: U.S. Energy Information Administration[9]

Read more in the next article

 

This article was created with the support of the Fund for the Promotion of Pluralism and Diversity of Electronic Media within the project “Media Reality” – Developing and Encouraging the Media Literacy Programme

Connected articlesTRUMP’S CODE: Making Money on Populist Disorder IITRUMP’S CODE: Making Money on Populist Disorder I

 

[1] Communication from the Commission to the European Parliament and the Council (2014) European Energy Security Strategy. [online]. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52014DC0330&from=EN [Accessed 10 Jul. 2018].

[2] NATO’s energy security agenda. [online]. Available at:https://www.nato.int/docu/review/2014/NATO-Energy-security-running-on-empty/NATO-energy-security-agenda/EN/index.htm [Accessed 10 Jul. 2018].

[3] Gazeta, R. (2014) Russia-Iran oil-for-goods deal may turn out to be a mirage. Russia Beyond, [online]. Available at: https://www.rbth.com/business/2014/05/28/russia-iran_oil-for-goods_deal_may_turn_out_to_be_a_mirage_36999.html [Accessed 10 Jul. 2018].

[4] Laub, Z. (2015) International Sanctions on Iran. Council on foreign relations, [online]. Available at: https://www.cfr.org/backgrounder/international-sanctions-iran [Accessed 10 Jul. 2018].

[5] Statista (2018) Total U.S. petroleum net imports from 2000 to 2017 (in million barrels per day). [online]. Available at: https://www.statista.com/statistics/191381/total-us-petroleum-net-imports-since-2000/ [Accessed 10 Jul. 2018].

[6] Statista (2018) U.S. petroleum imports from OPEC countries between 2000 and 2017 (in 1,000 barrels per day). [online]. Available at: https://www.statista.com/statistics/190966/petroleum-imports-into-the-us-from-opec-countries-since-2000/ [Accessed 10 Jul. 2018].

[7] Hurdle, J. (2016) New fracking reports clash over effects on health, environment, climate change. State Impact Pennsylvania. [online]. Available at: https://stateimpact.npr.org/pennsylvania/2016/11/18/new-fracking-reports-clash-over-effects-on-health-environment-climate-change/ [Accessed 10 Jul. 2018].

[8] Plumer, B. (2015) Obama’s controversial new fracking rules, explained. Vox. [online]. Available at: https://www.vox.com/2015/3/20/8265507/federal-fracking-standards

[9] U.S. Energy Information Administration (2018) Independent Statistics and Analysis, Petroleum and Other Liquids Data. [online]. Available at: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wcrfpus2&f=4 [Accessed 10 Jul. 2018].

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