This year, America’s most powerful foreign-policy tool won’t be bombs, soldiers or diplomats. It will be energy.
America is in the midst of an unprecedented oil and gas production boom. Thanks largely to the invention and widespread adoption of hydraulic fracturing — or “fracking” — our country has grown into the top oil producer on the planet, generating nine million barrels every day.
The resulting dip in global energy prices isn’t just saving drivers at the pump and reducing energy costs for industry and domestic consumers alike. It’s also devastating the economies of some of the world’s most dangerous anti-Western regimes.
By eliminating antiquated restrictions on oil exports, policymakers can advance U.S. foreign-policy aims by further destabilizing America’s adversaries and provide our allies, especially the Europeans, with an alternative to the energy blackmail of the likes of Vladimir Putin’s Russia.
History has already shown that low oil and gas prices devastate Russian autocrats. Cheap oil contributed to the downfall of both Mikhail Gorbachev and Boris Yeltsin. Today, it’s doing the same to Putin. The energy sector supplies at least half of Russia’s federal-budget revenues, one-third of its GDP, and 70 percent of its exports.
Today’s low prices have supercharged the effects of the sanctions slapped on the Kremlin as punishment for the annexation of Crimea and its illegal and direct intervention in Ukraine. The Russian ruble is in a historic tailspin, dropping about 50 percent over the last year. Bank of America has already predicted that the Russian economy will contract by 1.5 percent over the next year. Russia’s own central back is even gloomier, forecasting a shrinkage of nearly 5 percent.
Plunging oil prices have also pinched Iran’s theocracy. Since 2012, the country’s energy revenues have dropped nearly 50 percent. Today, oil prices are costing Iran $1 billion each month.
Iran’s budget depends on oil prices being well over $100 per barrel to stay solvent. So this price dip has devastated the fiscal health of the government. “We are on the eve of a major crisis,” one prominent Iranian economist said in December. “The government needs money badly.”
Cheap energy is also causing problems for Venezuela. Petroleum accounts for nearly 95 percent of the country’s total exports. Just a dollar dip in the price costs Venezuela $700 million. Barclays estimates the country could lose $16 billion over the course of this year.
The expansion of America’s energy sector has generated huge foreign-policy benefits. It may take time, but economically crippled regimes are less likely to lash out at their neighbors and more likely to come to the bargaining table. They will also lose popular support at home, which can and has led to regime change from within.
But there is still a risk that perpetually rock-bottom energy prices could eventually undermine American industry. If prices stay too low for too long, many local producers won’t be able to make a profit and will go under. Already, the global market is witnessing a surplus of as many as 1.4 million barrels a day.
OPEC’s recent decision to leave production levels steady will flood the markets even further. Even Saudi Arabia cannot survive historically low oil prices indefinitely.
We must therefore enact measures that allow us to outlast the Saudis and force them to blink first.
The United States should allow American producers to take their oil to the international marketplace. Congress enacted a ban on crude oil exports 40 years ago to shelter U.S. consumers from price volatility. But this policy has been rendered antiquated by our domestic energy boom.
Repealing the ban would open up new economic opportunities for American producers. They could sell their excess product to eager foreign consumers, and plow the new profits back into job creation and development at home. Meanwhile, our allies could use new American oil exports to further decrease their dependence on oil supplied by anti-Western regimes.
The American energy boom has struck a huge blow against the most dangerous regimes on the planet. Rescinding the crude oil ban would help protect American companies and jobs. It would also enhance positive foreign-policy effects, punishing rogue states and forcing their leaders to productively engage with the West.
Andrew Garfield is a senior fellow in the Foreign Policy Research Institute’s national security program.