24. Keith Johnson, “U.S. Mulls Lifting Oil Export Ban, but a Tough Sell on the Hill,” Foreign Policy, October 2, 2015.
25. See European Commission, “EU Crude Oil Imports,” http://ec.europa.eu/energy/en/statistics/eu-crude-oil-imports; and Elizabeth Rosenberg, David Gordon, and Ellie Maruyama, “Crude Oil Export and U.S. National Security,” Center for a New American Security, May 14, 2015.
26. After the United States took Russia’s spot as the world’s largest gas producer in 2013, Moscow quickly began to focus beyond Europe in boosting exports to energy-hungry Asia. Alexandra Hudson, “U.S. Shale Gas Revolution Throws down the Gauntlet to Europe,” Reuters, February 3, 2013.
27. Ukraine’s gas company, Naftogaz, signed a deal with Gazprom in December 2014, transferring $378 million to the Russian gas giant as an up-front payment for 1 billion cubic meters of gas, a delivery that resumes Russian supplies of gas to Kiev. Natalia Zinets, “Ukraine Expects Russian Gas Supplies to Resume Monday,” Reuters, December 7, 2014.
28. Russia’s central bank projected the economy could shrink by 4.7 percent in 2015 if the low oil prices of late 2014 persist. See Neil MacFarquhar and Andrew Kramer, “As the Ruble Swoons, Russians Desperately Shop,” New York Times, December 16, 2014; Friedman, “U.S. Oil Prices Hit Fresh Six-Year Low, Dipping Below $40 a Barrel.”
29. Zachary C. Shirkey, “America Can’t Escape the Middle East,” National Interest, July 29, 2013.
30. “EM Oil Producers: Breakeven Pain Thresholds,” Deutsche Bank Research, October 16, 2014. Also see Institute of International Finance, “IFF: Lower Oil Prices Present Challenges and Opportunities for MENA Region,” March 16, 2015. KSA’s break-even price a decade ago was $20–25, and today Iraq, Iran, and UAE have break-even prices in the $80–100 range, according to IMF estimates; Javier Blas and Guy Chazan, “Saudi Arabia Targets $100 Crude Price,” Financial Times, January 18, 2012. It should be noted that although fiscal break-even oil prices give a useful overview of a country’s fiscal standing, there can be significant variability between estimates from different analysts. Inconsistencies can arise from a number of factors, including different forecasts for oil production and fiscal outturns. Standard and Poor’s, “How Do Middle Eastern Sovereigns’ Fiscal Breakeven Oil Prices Affect Credit Ratings and Oil Prices?,” February 1, 2013.
31. Anjli Raval, “Saudi Arabia Keeps the Oil Market Guessing,” Financial Times, October 20, 2014. Also see Meghan O’Sullivan, “The Saudis Won’t Let Oil Free-Fall,” Bloomberg View, December 3, 2014.
32. International Monetary Fund, “Saudi Arabia: International Reserves and Foreign Currency Liquidity,” November 6, 2015, https://www.imf.org/external/np/sta/ir/IRProcessWeb/data/sau/eng/cursau.htm.
33. Daniel Yergin, “The Global Impact of US Shale,” Project Syndicate, January 8, 2014.
34. Syed Rashid Husain, “Iran Nuke Deal Sends Ripples in Oil Markets,” Saudi Gazette, July 19, 2015.
35. Meghan O’Sullivan, “The Energy Implications of a Nuclear Deal between the P5+1 and Iran,” Geopolitics of Energy Project workshop report, June 23–24, 2015.
36. Calculations based on the table in International Energy Agency, World Energy Outlook 2013, 505. Since China and India spend heavily on oil subsidies each year, a prolonged decline in oil prices could translate into lower costs on oil subsidies and therefore greater budget space for Beijing and New Delhi to spend on other priorities, such as sorely needed social safety nets or intensified military modernization.
37. See U.S. Energy Information Administration, “China—Analysis,” February 4, 2014.
38. O’Sullivan, “North American Energy Remakes the Geopolitical Landscape.”
39. Africa experienced decreases when the United States took to fracking, losing $1.5 billion in gas revenues and $32 billion in oil revenues over a period of five years. Renee Lewis, “China Shale Gas Boom Will Hit Poor African Exporters Hard,” Al Jazeera America, May 7, 2014. Also see Zhenbo Hou et al., “The Development Implications of the Fracking Revolution,” Overseas Development Institute working paper, April 2014; Lucy Hornby and Ed Crooks, “China’s Shale Revolution: Will It Take Off?,” ChinaDialogue, January 17, 2014.
40. Keith Johnson, “Russia, China Finally Ink Landmark Energy Deal,” Foreign Policy, May 21, 2014; Richard Martin, “Russia-China Gas Deal Narrows Window for U.S. Exports,” Forbes, May 30, 2014; Jane Perlez, “China and Russia Reach 30-Year Gas Deal,” New York Times, May 21, 2014.
41. Along with Taiwan and China, these countries—which collectively purchase around two-thirds of the world’s LNG—met in 2013 to discuss ways of using their aggregate market power to drive down prices of LNG in Asia. O’Sullivan, “North American Energy Remakes the Geopolitical Landscape.”
42. IHS, “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy, Volume 3: A Manufacturing Renaissance,” September 2013, Executive Summary, 1; McKinsey Global Institute, “Game Changers: Five Opportunities for US Growth and Renewal,” July 2013; U.S. Energy Administration, “Growing U.S. HGL Production Spurs Petrochemical Industry Investment,” January 19, 2015, http://www.eia.gov/todayinenergy/detail.cfm?id=19771.
43. McKinsey Global Institute, “Game Changers.” IHS estimates that by 2025 total contributions to GDP will approach $533 billion. This report also estimates that the unconventional oil and natural gas value chain and energy-related chemicals activity will support almost 3.9 million jobs by 2025. IHS, “America’s New Energy Future.”
44. Matt Egan, “Oil Crash Cut My Pay and Killed over 86,000 Jobs,” CNN Money, September 3, 2015.
45. Vali R. Nasr, “Diplomacy Can Still Save Iraq,” New York Times, July 14, 2014.
46. According to the U.S. Energy Information Administration’s Short-Term Energy and Summer Fuels Outlook, April 2015, net imports of crude oil to the United States declined by 31 percent between 2005 and 2014, even as crude oil production grew by 68 percent over the same time period.
47. Bremmer and Hersh, “When America Stops Importing Energy.”
48. IHS, “America’s New Energy Future,” Executive Summary, 6.
49. Blackwill and O’Sullivan, “America’s Energy Edge.”
50. The oil and gas boom in the United States and elsewhere has meant that international sanctions and U.S.-allied efforts against the Iranian nuclear program removed over 1 million barrels per day of Iranian oil while minimizing the burdens on the rest of the world. See remarks by former U.S. national security advisor Tom Donilon delivered at the launch of Columbia University’s Center on Global Energy Policy, April 24, 2013. Energy expert Michael Levi argues that U.S. leverage with Iran hinged on the surprise factor of its newfound oil production: “The entire premise of talk about enduring geopolitical advantage, however, is that future production gains will no longer be surprising. Anticipating those gains, some producers will preemptively curb investment.… In that world, suddenly removing two million barrels a day from world markets through sanctions will send prices rapidly upward. Unexpected U.S. gains won’t be able to offset unexpected losses from sanctions because U.S. gains will not be unexpected.” Michael Levi, The Power Surge: Energy, Opportunity, and the Battle for America’s Future, reprint ed. (New York: Oxford University Press, 2014), 215. Also see Dan Eberhart, “Strong Arm or Upper Hand: The Shale Revolution and US Geopolitics,” Canary, May 1, 2014.
51. Lynn, “Shale Gas Revolution Will Create Winners, Losers.”
52. Mitchell A. Orenstein, “Six Markets to Watch: Poland,” Foreign Affairs, January/February 2014.
53. Marek Strzelecki and Isis Almeida, “Fracking Setback in Poland Dims Hope for Less Russian Gas,” Bloomberg Business, October 10, 2014; O’Sullivan, “North American Energy Remakes the Geopolitical Landscape.” A 2013 report from the U.S. Energy Information Administration downgraded its estimates of Polish gas reserves from 187 trillion cubic feet (2011) to 148 trillion cubic feet (2013). This reduction of estimates from Poland’s Lubin Basin was due to the more rigorous application of
the requirement that a shale formation have at least a 2 percent minimum total organic content. U.S. Energy Information Administration, “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States,” June 2013.
54. Erica S. Downs, “Implications of the U.S. Shale Energy Revolution for China,” Brookings Institution, November 8, 2013.
55. One of the major geopolitical benefits of the shale revolution vis-à-vis U.S.-China relations is that it provides China’s national oil companies with incentives to curb their business in countries less friendly to U.S. interests, such as Iran. See ibid.
56. “Fact Sheet: U.S.-China Joint Announcement on Climate Change and Clean Energy Cooperation,” White House, Office of the Press Secretary, November 11, 2014.
57. Michael Porter, David Gee, and Gregory Pope, “America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future,” Harvard Business School, June 2015.
9. American Foreign Policy in an Age of Economic Power
1. Realists argue that force is a fungible tool of statecraft; their liberal critics see power resources as harder to strategically deploy across issue areas. Daniel Drezner, “Military Primacy Doesn’t Pay,” International Security 38, no. 1 (Summer 2013): 78–79. Also see Robert Keohane and Joseph Nye, Power and Interdependence (Boston, Mass.: Scott Foresman, 1978); Kenneth Waltz, Theory of International Politics (Long Grove, Ill.: Waveland Press, 2010); David Baldwin, Paradoxes of Power (New York: Blackwell, 1989); Robert Art, “American Foreign Policy and the Fungibility of Force,” Security Studies 5, no. 4 (Summer 1996): 7–42.
2. Drezner, “Military Primacy Doesn’t Pay.” Also see Michael J. Mazarr, “The Risks of Ignoring Strategic Insolvency,” Washington Quarterly 35, no. 4 (2012): 7–22. Unsurprisingly, Iran’s foreign minister, Mohammad Javad Zarif, echoed these sentiments: “Due to a number of factors—the substantially changed global environment, changes in the nature of power, and the diversity and multiplicity of state and nonstate actors—competition these days mostly takes a nonmilitary form.… [M]ajor powers and emerging powers alike are now loath to use military means to resolve rivalries, differences, or even disputes. This has led to the gradual rise of a revisionist approach to foreign policy.” Mohammad Javad Zarif, “What Iran Really Wants: Iranian Foreign Policy in the Rouhani Era,” Foreign Affairs, May/June 2014.
3. Localization requirements meant that there were far more U.S. and European corporate assets in Russia and thus potentially vulnerable to seizure in any tit-for-tat escalation. In some cases, these assets were jointly owned with potentially sanctionable Russian entities (Gazprom’s joint ventures with Shell or Exxon, for example). Matthew Philips, “Post Crimea, Exxon’s Partnership with Rosneft Feels Weird,” Bloomberg Businessweek, March 20, 2014; Jack Farchy and Ed Crooks, “Shell Suspends Russian Shale Oil Venture with Gazprom Neft,” Financial Times, October 3, 2014.
4. See, e.g., Robert Wright, “Is China Democratizing?,” New York Times, April 17, 2009; Suisheng Zhao, ed., China and Democracy: The Prospect for a Democratic China (New York: Routledge, 2000); Kevin J. O’Brien and Lianjiang Li, “Accommodating ‘Democracy’ in a One-Party State: Introducing Village Elections in China,” in Elections and Democracy in Greater China, ed. Larry Diamond and Ramon H. Myers (Oxford: Oxford University Press, 2000). Cf. Mary Gallagher, Contagious Capitalism: Globalization and Labor Politics in China (Princeton, N.J.: Princeton University Press, 2007); James Mann, The China Fantasy: Why Capitalism Will Not Bring Democracy to China (New York: Viking, 2007).
5. Peter Pomerantsev, “How Putin Is Reinventing Warfare,” Foreign Policy, May 5, 2014.
6. David Petraeus and Paras D. Bhayani, “North America: The Next Great Emerging Market? Capitalizing on North America’s Four Interlocking Revolutions,” John F. Kennedy School of Government, Harvard University, June 2015.
7. See, e.g., Ben Bernanke, in his final speech as chairman of the Federal Reserve, “The Federal Reserve: Looking Back, Looking Forward,” delivered at the annual meeting of the American Economic Association in Philadelphia, January 3, 2014. Richard Fisher, a conservative-leaning member of the U.S. Federal Reserve Board, argues, “The only thing holding the nation back from an economic boom was muddled fiscal policy”; Rob Curran, “Fisher Says Fed Has Overshot Mark on Stimulus,” Wall Street Journal, October 10, 2014. See also “Global Financial Stability Report,” International Monetary Fund, October 2014. Erskine Bowles, cochair of the bipartisan Simpson-Bowles Commission, reiterated that the 2011 sequester cuts to discretionary spending were counterproductive to the task of long-term debt and deficit reduction: “Instead of enacting a thoughtful, comprehensive fiscal plan that gradually reduced the deficit and put the budget on a fiscally sustainable long-term path, Washington allowed abrupt cuts from sequestration to take effect, harming the economic recovery and cutting important investments that could jeopardize future prosperity. And, for all that pain, the sequester does almost nothing to deal with the long-term drivers of our growing debt”; Erskine Bowles, “Urgency of Federal Deficit Remains,” USA Today, October 27, 2014. See also Lawrence Summers, “Why Public Investment Really Is a Free Lunch,” Financial Times, October 6, 2014.
8. See, e.g., American Association for the Advancement of Science, “AAAS Report XXXVIII: Research and Development FY 2014,” June 13, 2013.
9. Michael Leachman and Chris Mai, “Most States Funding Schools Less than before the Recession,” Center on Budget and Policy Priorities, May 20, 2014. Sheryll Poe, “The High Cost of Doing Nothing on Infrastructure Investment,” U.S. Chamber of Commerce, September 23, 2014.
10. Jim Manzi, “The New American System,” National Affairs, n. 19 (Spring 2014).
11. U.S. Department of State, “The Department of State and USAID FY 2016 Budget,” Bureau of Public Affairs fact sheet, February 23, 2015; Office of the Undersecretary of Defense (Comptroller), “United States Department of Defense Fiscal Year 2016 Budget Request: Overview,” February 2015.
12. These high aspirations were echoed by national security advisor Susan Rice at a White House press briefing: “White House Briefing on Obama Asia Trip with Questions on Ukraine,” White House, Office of the Press Secretary, April 18, 2014.
13. Stephen Grenville, “The Trans-Pacific Partnership: Where Economics and Geopolitics Meet,” Interpreter, March 4, 2014; Samuel Rines, “Trans-Pacific Partnership: Geopolitics, Not Growth,” National Interest, March 31, 2014.
14. ASEAN’s Expanded Economic Engagement (E3) initiative began in 2013 under the directive of identifying specific cooperative activities that further facilitate U.S.-ASEAN trade and investment, increase efficiency and competitiveness of trade flows throughout Southeast Asian nations, and build greater awareness of economic opportunities in the U.S.-ASEAN relationship. Cooperation on E3 initiatives is seen as laying the groundwork for all ASEAN countries to join other trade agreements, including the TPP. “The U.S.-ASEAN Expanded Economic Engagement E3 Initiative,” U.S. Department of State Office of the Spokesperson, October 9, 2013.
15. Cris Arcos, “Keep NAFTA’s Momentum Going,” Miami Herald, February 22, 2014.
16. Details on these recommendations can be found in Robert A. Pastor, “Shortcut to U.S. Economic Competitiveness: A Seamless North American Market,” Council on Foreign Relations, Policy Innovation Memorandum no. 29, Renewing America Initiative, March 5, 2013.
17. Testimony of Eric Farnsworth, Vice President, Council of the Americas, in U.S. Congress, Senate Committee on Foreign Relations, Doing Business in Latin America: Positive Trends but Serious Challenges, 112th Congress, 2nd session, July 31, 2012, S.Hrg. 112-607.
18. Robert A. Pastor, The North American Idea: A Vision of a Continental Future (Oxford: Oxford University Press, 2011), 169–172.
19. Ben Bland and Geoff Dyer, “US Warns China over Disputed South China Sea,” Financial Times, September 3, 2012.
20. Robert Kaplan quote
d in “Sea Change,” New York Times, April 17, 2014.
21. For one such assessment, see Bonnie Glaser, “China’s Coercive Economic Diplomacy,” Diplomat, July 25, 2012.
22. The authors are grateful to Bonnie Glaser for an exchange expounding on this point.
23. Gary Clyde Hufbauer, Jeffrey J. Schott, Kimberly Ann Elliott, and Barbara Oegg, Economic Sanctions Reconsidered, 3rd edition (Washington, D.C.: Peterson Institute for International Economics, 2007). Brief available at http://www.iie.com/publications/briefs/sanctions4075.pdf.
24. For further discussion of these defensive geoeconomic options, see Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkley: University of California Press, 1945), 14–16; Zachary Selden, Economic Sanctions as Instruments of American Foreign Policy (Westport, Conn.: Praeger, 1999); Jean-Marc F. Blanchard and Norrin M. Ripsman, “Asking the Right Question: When Do Economic Sanctions Work Best?,” Security Studies 9, nos. 1–2 (1999): 219–220.
25. As noted by Chi-hung Wei, can the state implement these geoeconomic defensive policies without institutional connections to society? Can the state mobilize society, in a democratic setting, to garner support for the use of these instruments? See Chi-hung Wei, “China’s Economic Offensive and Taiwan’s Defensive Measures,” China Quarterly 215 (September 2013): 644.
26. According to James McGregor, the middle-income trap “can occur when export-led fast-growth through cheap labor and easy technology adoption runs out of steam.” The remedy is simple: the economy has to turn to domestic consumption and innovation. James McGregor, No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism (Westport, Conn.: Prospecta Press, 2012), 9.
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