Changing the geopolitics of energy

Changing the geopolitics of energy

Two developments have occurred in the Western Hemisphere in the past six months which will have profound geopolitical significance for the entire world for many years, writes Dr Joseph S. Tulchin.

The first, a dramatic increase in oil and gas production in the United States which will make the US a net exporter of energy within a decade. The second, an equally dramatic about face by the Venezuelan government to give foreign oil companies control over joint ventures with the national oil company (PDVSA), and to settle all disputes within established international dispute resolution guidelines.

Together, the two raise the possibility of changing the geopolitics of energy which have held more or less stable since the OPEC price shocks of the 1970s.

US energy exports will open the way for two major shifts in thinking around the world in the next two to three years.

Firstly, America will be dependent no longer upon Saudi oil. That suggests the US could change the way it deals with Saudi financing of certain radical groups in the Middle East, or change the way it builds alliances to counter threats from ISIS or other terrorists groups.

We will begin to see the effects of this change in the way US President Barack Obama deals with the multiple layers of crisis in Syria, Iraq, and Libya.

The US does not have many real friends in the region, but several countries fit the mould of US strategic objectives better than Saudi Arabia.

Perhaps more important, is the capacity to export energy, especially gas, to Europe. This will enable countries which are dependent on Russian gas supplies to think about what their policy towards Russia might be if they no longer depended on Russian energy.

Would German Chancellor Angela Merkel be more assertive in working with President Obama to pressurise Russia if Germany was warmed by American gas?

Venezuela’s shift could be even more significant, although the timing of the strategic impact will depend on how quickly Chevron can invest to increase production. It is more than five years since Chevron and the other international companies froze their investments in Venezuela.

If Venezuela’s production increased in two years that would fit perfectly with US strategic planning, because Venezuela sits on the world’s largest oil reserves and supplies a quarter of America’s oil. The prospect of increasing imports from Venezuela would undermine further any sense of US dependence on the Saudis.

Venezuela’s policy shift also carries a powerful message for Argentina, Brazil, and Mexico. They are all trying to reverse five years of stagnating production, which has forced Argentina to actually import oil.

Stagnation is not so dire in Brazil and Mexico, but if Venezuela increases its production by as much as 25 per cent in the next decade, it might well push its Latin American sister producers into a corner.

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