The New Energy Geopolitics, with Meghan O’Sullivan

Notable Quotes

• “That kind of energy independence is really not a sensible pursuit for the United States … the kind of energy independence I like to think about is one that just leaves us independent from having energy dominate our foreign policy.” (8:42)
• “As long as we’re connected to global markets—as we are today, even more so than ever—changes in Saudi Arabia or Iran or Iraq are going to affect global prices, and that will affect the price that American consumers pay at the pump.” (11:24)
• “Essentially the [energy] boom in the United States … has made it more difficult for OPEC to influence oil markets in the ways that it used to.” (24:07)

References and Recommendations

• Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power by Meghan O’Sullivan
• “Rethinking Saudi Arabia” by Karen Elliott House

The Full Transcript

Daniel Raimi: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host,

Daniel Raimi. This week, we talk with Dr. Meghan O'Sullivan, the Jeane Kirkpatrick Professor of the Practice of International Affairs at Harvard Kennedy School and author of the recent book, Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power. I'll talk with Meghan about the book, touching on topics including energy independence, the US-China relationship, energy ties between Europe and Russia, and much more. Stay with us.

Daniel Raimi: Meghan O'Sullivan, thank you so much for joining us today on Resources Radio.

Meghan O’Sullivan: Thanks Daniel. It's my pleasure to be with you.

Daniel Raimi: Meghan, we're going to talk about your recent book, Windfall, which largely deals with geopolitical issues related to increased energy production in the US. But before we get into details on the book, we like to ask all of our guests a brief background question on how they got interested in energy topics. And for you—you have a long and distinguished career as a scholar in government, including time that you served in Iraq during some of the most difficult periods during the insurgency. You studied geopolitical issues around the world. Why did you want to write a book about energy now?

Meghan O’Sullivan: Sure. It's interesting even that that's a question on people's minds—why a foreign policy person would write a book on energy—but I really, over the course of my career, had many instances where I've just seen these two things as inherently linked. So I really wanted to write a book that made the case to people that if you wanted to understand the world today, you really needed to understand energy markets to understand foreign policy.

My interest in this intersection between energy and foreign policy really began, actually, in the 90s, when I was a young scholar at the Brookings Institution and I was writing on economic sanctions as a tool of American foreign policy. In the 90s, we had sanctions on all, or not all, but many of the big oil producers: Iran, Iraq, Libya. And so understanding how those sanctions were going to work—we're going to achieve foreign policy success or not—I really had to understand energy markets. So that was more from an academic perspective.

But, as you mentioned, I spent a lot of time in Iraq. I spent two years in Iraq after Saddam was overthrown and there I saw it on a daily basis, how energy was linked to foreign policy and international affairs. And then I returned home and worked at the White House and continued to see that link. It wasn't because I thought the war was about oil, but oil did influence Iraq's ability to achieve every single one of its goals.

It influenced its relationship with Saudi Arabia. It influenced its ability to deliver services and have the new governments be legitimate. Pipelines were a big zone of conflict. Revenue-sharing from oil proceeds was a big part of writing the constitution. So, all of these things really reinforced that view, that energy and politics are inherently linked, and that is really the impetus for Windfall.

Daniel Raimi: Yeah, that makes sense. And there are so many questions about that period that I am fascinated by and I wish we had three hours to talk so I can ask you questions about your time in Iraq—

Meghan O’Sullivan: Another time, another time.

Daniel Raimi: Right. We're going to focus instead on the more recent time period, and things certainly have changed quite a bit since the 1990s in the world of energy production as well as consumption. In Windfall (tell me if you think I'm characterizing this correctly)—one of the main theses (or perhaps the main thesis) in the book is that the increased oil and gas production that has occurred in the US over the last 10, 15 years means that the world has largely entered a period of energy abundance rather than scarcity.

And you described that as a strategic boon to the United States. So can you talk about what you mean by that strategic boon? What are some of the key points that it entails?

Meghan O’Sullivan: Sure—let me just make three points here. The first has to do with the [...] You're exactly right that I'm talking about a shift from perceived energy scarcity to, now, what I call a reality of energy abundance. And the three points I would make are: First, when we think about oil, if we went back even 10 years and we were talking about this link between oil and international affairs, there was a lot of concern about something called “peak oil”—the idea that the world would actually run out of oil before it found alternatives.

And that shaped a lot of strategic decisions on the part of the United States, on the part of militaries, on the part of companies, and others. So what I'm saying is that this really is no longer a major concern. The concern really has shifted to the fact that if the world does use all of its known oil and gas resources, we'll be in a whole world of hurt related to climate. The second point I would make about energy abundance—in my book I do really focus on oil and gas because the link with geopolitics is most obvious there. And that's largely because 81 percent of the world's energy consumption is still met by fossil fuels and virtually all of the international trade and energy has to do with fossil fuels.

So the link with geopolitics is the strongest there. But I really think the shift to energy abundance is more than about oil and gas. It obviously has a lot to do with alternative sources of energies, and growing viable renewable energy as well. Certainly, the growing usage of renewables, particularly in the power sector, is part of this broad shift. And then the third point I'd make is just about what you called “strategic boon.” And I do really make that distinction in the book—that this is a strategic boon for the United States.

There I'm really trying to emphasize that it's not that America is just producing more oil and gas, which has a lot of benefits strategically in itself. America is less dependent on foreign sources of oil—that's obvious. But the case I'm making throughout the book (and I imagine we'll talk more about it) is that this also is strategic for the United States because it has changed the way that energy markets work. And it has changed the strategic environment in a way which is, on the whole, beneficial to US strategic interests.

It's not just about producing more oil and gas—it's about changing the strategic global landscape in a way which is, on the whole, beneficial to the US.

Daniel Raimi: Right. It's not just about numbers and production and consumption—

Meghan O’Sullivan: Exactly.

Daniel Raimi: [...] It's about the broader implications of those changes. Let's get into some of those implications. One of the chapters in your book, I believe it's Chapter Four, focuses on what you call a misguided pursuit of so called energy independence. I imagine listeners of this podcast will know that energy independence, this is a recurring motif in presidential campaigns. Today, the Trump administration talks a lot about “energy dominance.”

Why, in your mind, was it or is it misguided to pursue the idea of energy independence? And with this new rhetoric of energy dominance, is that any different from the old categorization or the old trope of energy independence?

Meghan O’Sullivan: In my book, I call energy independence "America's unrequited love." That thing that politicians have always pined for and really American consumers as well, but if we ever were to attain it, it probably would be a big disappointment. And the reason that I talk about it in this way is because I think most Americans think about energy independence as meaning that the United States would meet all its own energy needs completely. Basically, it would be an energy island.

I think we could have an interesting debate, and I talk about this in the book, about whether or not that would be achievable. And my guess is it would be, particularly in this age of such a boom in oil and gas—but that it really would be not very efficient and probably quite expensive for the United States. We'd have to incentivize more production. We'd have to cut off pipelines from Mexico and Canada and divert energy to one part of the country from the other part of the country, when it makes a lot more economic sense just to import from a closer producer.

It would probably require a lot of subsidies and things that would otherwise be costly for the United States. I think that that kind of energy independence is really not a sensible pursuit for the US and, really, the kind of energy independence I like to think about is one that just leaves us independent from having energy dominate our foreign policy. For energy—circumscribing what we can do on the international stage. And we want to be free from energy determining our relationships, be they in the Middle East or in Europe or with Russia or China.

We want to have enough of our own energy security that we can pose our own foreign policy questions and relationships free from those types of responsibilities or constraints. So that's what I think about energy independence. There are other forms of energy independence such as North American energy independence—and actually (in 2018) the continent reached or reach the ability for the US, Mexico, and Canada to meet all of its energy needs collectively as a continent if it so chose. That would be interesting, but the reality is having a free functioning global market for oil and for natural gas is really the best way to ensure energy security in this day and age.

Even though that's an option, it's not necessarily one that makes the most sense for Canada, Mexico, or the United States to double down on.

Daniel Raimi: Right. Recently, there was some data, preliminary data out of the US Energy Information Administration that for one week in late November, the US actually exported more crude oil and petroleum products than it imported. And so some saw this as the dawning of a new age of energy independence when, in reality, I think most people who study this issue see it the way you do—that even for the United States or North America or any nation, it's not desirable or practical to be an island when it comes to the world of energy because of the interconnectedness of global oil markets, in particular.

Meghan O’Sullivan: Just on that point, because it really did get a lot of attention—America being a net energy exporter for short amount of time, and I imagine that will happen again in the not too distant future—I think what people also tend to misunderstand is being a net exporter means that we are still importing from a lot of other places. And so we're connected to global markets and as long as we're connected to global markets, what happens in other parts of the world really matters to us. That's where I think a lot of people misunderstand the notion that we don't need to import oil from the Gulf—or certainly we wouldn't have to if we didn't want to and therefore we shouldn't care that much about what happens in the Middle East.

Why that's so misplaced is because as long as we're connected to global markets as we are today (even more so than ever), changes in Saudi Arabia or Iran or Iraq are going to affect global prices and that will affect the price that American consumers pay at the pump.

Daniel Raimi: Yeah, absolutely. And so what about this question of energy dominance and this new term that's coming out of the Trump administration—do you see that as any different than previous strategic aims when it comes to energy? Or is it just kind of a change in messaging?

Meghan O’Sullivan: No. If given the choice between these two things, I would rather my leaders talked about energy independence than energy dominance. Just because I think energy dominance (although it hasn't been particularly well defined), but I think it has all the attributes of energy independence with kind of an overlay of using energy to make others do things they don't want to do. And I think that that's sometimes the case and that's actually what a lot of sanctions are about.

It's when a consumer uses energy as a foreign policy tool. It's one of the ways in which consumers actually have foreign policy leverage. But I think energy dominance really highlights that in a way that is unfriendly to other countries unnecessarily. I think there is a rhetorical difference, which is not probably particularly helpful.At the heart of it, I think it's about developing, in this case, I think primarily America's fossil fuel capacity, which I think has some downsides on the environmental side, but also has a lot of strategic benefits.

I think it's a complicated cost–benefit analysis, and not all of the downsides or not all of the effects on the environment are negative. Because, as you know, we've seen a big switching from coal to natural gas, which is positive for the environment. But I would say, energy dominance is probably unnecessarily an aggressive way of talking about American energy prowess, which in fact benefits many other countries around the world (our European allies, our Asian allies). It creates opportunities for cooperation—a lot of positive things that I don't think are captured by the word “dominance.”

Daniel Raimi: Yeah. It implies that there are subservient partners out there rather than allies.

Meghan O’Sullivan: Partners. Exactly.

Daniel Raimi: Yeah. You mentioned in your last answer, talking about the relationship between producers and consumers—one really important relationship between a major producer and a major consumer that you spend a lot of time on in the book is that relationship between Europe and Russia and the consumption of Russian natural gas that is so important for the European economy, or at least has been over the last several decades.

Can you talk a little bit about how increased US energy production has affected that relationship between Europe and Russia in terms of energy and geopolitics and how that might affect the United States' calculus with regard to intervening or not intervening in that relationship?

Meghan O’Sullivan: Sure. It's a great question and a really important one because that relationship is one of the most obvious linkages between energy and international politics. And I would say that if we're really looking at how Russia's ability to use energy as a foreign policy tool has been affected by this energy boom, we need to separate out oil and gas. Perhaps we'll talk about oil a little bit later. But you focused primarily on natural gas (and that makes sense because of the nature of natural gas)—it has been the commodity that Russia has used most heavily in the European realm as a foreign policy tool.

My argument here is that this boom really has affected Russia's ability to use energy as a foreign policy tool in a couple of ways. I mean, on the one hand, we hear a lot in the United States about how natural gas exports (liquefied natural gas exports from the United States) are going to allow the Europeans a certain degree of breathing room or some people even think an ability to wean themselves off of Russian gas. On the other hand, we hear from Gazprom officials that last year (and maybe even this year when we get the numbers for the end of 2018)—it's been a year where Gazprom has sold the most gas to the European Union than it has ever done before.

And so, you try to square those two things and the reality is that there's truth behind both of them. That Russia is, I would say, almost certainly going to remain a significant supplier of natural gas to Europe—just because of the geography, because the infrastructure exists, because it's going to be cheaper just to pipe gas than it is to liquefy it, ship it, and gasify it. But Russia's selling that gas into a totally different market, a market whose workings have been transformed by the advent of American natural gas exports along with other countries like Australia and Qatar. Russia's selling natural gas into a European market, where it's no longer really the only or the primary alternative for Europeans.

In the past (say, 10 years ago), the Europeans didn't have a lot of viable alternatives or they were going to have to be bidding against the Asians, who were paying a lot more for the same amount of natural gas. So in this environment where there's more natural gas on global markets, where the Europeans have taken a lot of steps to make their infrastructure more flexible, and where Europe is building more terminals to import liquefied natural gas—it just means that they have another option besides Russian gas, and this has created leverage for them. It has made Russia have to negotiate about price, about pipeline access;it made Russia adhere to EC or European Commission rules and regulations.

So it's a different environment for Russia, even though they're still selling gas. I would say it's not as simple as displacing Russian gas, but it is very significant in curbing Russia's ability to use natural gas to advance its political agenda vis-à-vis Europe as a whole. There are still parts of Europe where Russia really has a lot of leverage,like in southeast Europe. Ukraine is still very heavily focused on what happens, but a lot of that has to do with transit rather than actually consuming Russian gas directly from Russia, which Ukraine basically doesn't do longer.

Daniel Raimi: Right,yeah. It doesn't completely flip the script on that relationship, but certainly does alter the calculus.

Meghan O’Sullivan: Exactly. It's a good way of putting it.

Daniel Raimi: Let's look at another really interesting strategic relationship that you spent some time on in the book,and that's the relationship between the United States and China. You talk about something called the “Thucydides Trap” in the book when it comes to the US and China, and then talk a little bit about how the change in the global energy landscape may affect the likelihood of the Thucydides Trap coming true. Can you explain what the Thucydides Trap is and how it applies and how energy fits into the story when it comes to the United States and China?

Meghan O’Sullivan: Sure—and in referring to the Thucydides Trap, I'm referring to a recent book by one of my colleagues, Graham Allison. And basically, he talks about the Thucydides Trap as simply—when you have a rising power challenging a dominant power, that often this can lead to war. I think he looks at 16 historical cases where you have a rising power challenging a status quo power. And in 12 of the 16 cases, he finds it leads to war. And so this raises the obvious question about whether or not the rise of China will end up challenging the United States in a way that leads to conflict.

I would say there's a lot of debate about that, but it's certainly an interesting question and one that all of us should think about seriously given the consequences of that scenario. Now, in the book I talk about how I believe energy can be an area of cooperation in an otherwise very fraught relationship. And I would say that [...] I wrote the book before the current trade tensions between China and the United States but it hasn't changed my view on this, or recent events haven't changed my views.

I still believe that energy and the environment are two areas where the US and China have common interests. And that—in a relationship where we can be certain there's going to be friction over the coming years (and probably decades)—that we should really look to capitalize on and to nurture any points where we can have cooperation, which is not a pollyanna-ish view of the relationship. I’m pretty clear-eyed about all the challenges that China does pose to the United States and to the international system that has been so much in the US interest and that of our allies and even others.

But I do think that nurturing those common points of interest are important. On the environment, we saw that clearly when you had the US-China climate agreement, which was the precursor to Paris—

Daniel Raimi: The Sunnylands Agreement, I think that it was called.

Meghan O’Sullivan: Exactly. I still think that we share interests with China on climate. I don't think those views are shared by the Trump administration, but I think those common interests will be enduring and will last beyond the Trump administration. But also in terms of American energy exports—it happened very quickly—but up until these trade tariffs, China had emerged as one of the largest consumers of American liquefied natural gas and crude oil imports. And so that relationship was not one that was ever going to put China in a position of being beholden to American energy.

China is very focused on diversifying its energy supply. But you did have a nice relationship developing there, where you had a lot of American energy making its way to China—and so building yet another area where there was common interest. Now, those energy exports were really among the first to be subject to tariffs on the Chinese side in response to the American tariffs. Again, I think that there's a real question about to what extent those exports will continue. But, again, I think these interests will outlast the current administration’s, and they’ll be ones where the US and China will continue to have interest in working together if the politics cooperate.

Daniel Raimi: Right. Yeah, that makes sense. We've talked mostly about how increased energy abundance is likely to benefit the United States in its geostrategic interests over time. Are there any geopolitical risks that might stem from increased US energy production? And, particularly, you mentioned climate change earlier and how natural gas has displaced coal in the United States and that's reduced CO2 [carbon dioxide] emissions (which is certainly true)—but as we look out over the longer term, as the US continues to be a powerhouse when it comes to producing oil and gas, does that add any new risks to relationships that the US might have around the world?

Meghan O’Sullivan: I do think it's important to underscore that while, on the whole, the geopolitical benefits of this strategic boon have been positive for the US, there are some ways in which they are also negative. Let me just mention two—and you, of course, mentioned the environment.It's important to note that, well, there are some benefits to more natural gas for climate. There's also the very real challenge of greater consumption due to lower oil and natural gas prices,and certainly the world is experiencing that.

In the last couple of years we've definitely seen demand for oil, in particular, go up and that has led to an increase in carbon emissions. We've seen that in reports that have been recently released, that carbon emissions are growing and a lot of that is due to the fact that the consumption of oil is growing at a greater pace—and of course that has a lot to do with the price being cheaper. There are certainly some negative environmental consequences there. But I'd also say there are some unexpected geopolitical consequences and I, for one, didn't anticipate this one, but it's pretty significant—and that is that while Russia's ability to project political power has been hampered on the natural gas side, it has been quite strategic in enhancing its geopolitical power due to the changes in the oil market. And so to make a long and complicated story short, essentially the boom in the US (for a lot of ways we could discuss) has made it more difficult for OPEC to influence oil markets in the ways that it used to. Basically you have a new business model—that shale oil or tight oil employees in the US—and it just makes it a lot harder for OPEC to have the impact that it used to have, for the duration that it used to have, in oil markets.

And so, surprisingly (or perhaps not so surprisingly), Russia has come in and has become a really critical ally to Saudi Arabia, to other Gulf countries, and other producers in helping manage the oil market. So we saw, just at the beginning of December, there was a new deal by OPEC. And basically that deal would have not occurred if it were not for Russian involvement, for two reasons. One, OPEC in itself needs Russia and other non-OPEC producers if it's going to make cuts to production that are substantial enough to have an impact on global markets over a sustained period of time because of the growing dominance of the US in these markets that didn't exist 10 years ago.

Secondly, Russia has demonstrated that it's really the only player in the Middle East, in particular, that talks to all parties. Russia got in there and brokered an agreement between Iran and Saudi Arabia. This change in oil markets that has diminished OPEC has actually enhanced Russian geopolitical power in a way that I don't think any American strategists foresaw.

Daniel Raimi: Right. That's fascinating. When people talk about “OPEC plus” these days, Russia is the main part of that plus, to be sure.

Meghan O’Sullivan: Right, right—definitely.

Daniel Raimi: There are so many other fascinating parts of the book, Windfall, that I would love for us to talk about, but we're running short on time, so I'll just recommend to listeners that they pick up a copy—

Meghan O’Sullivan: Thank you.

Daniel Raimi: [...] and I think they're going to get a lot out of the book. Just to close up, what are you working on now? What's interesting you these days, and what's next on your research or publication horizon?

Meghan O’Sullivan: Sure. Well, I continue to be fascinated by this link between energy and international politics, but there are many different wrinkles of it. The one that I'm spending more time on is looking at this broad energy transition. So, the shift away from fossil fuels to a more sustainable global energy mix. And the real question about to what extent is that going to shape geopolitics? We know that every time there's a big change in the energy mix (whether it's from wood to coal or coal to oil or, now, oil to something else), it brings with it a change in international political relationships.

So, trying to look at how this growing use of renewables—and potentially over time, hopefully renewables being much more dominant in the global energy mix—what that will mean for international politics. And within that very large subsection or very large research agenda, the part that I'm perhaps most interested in is what China's pusheto decarbonize its economy will mean for the rest of the world. China's such a dominant actor in the global energy system—when it makes a big strategic shift, that's going to reverberate into the interest of many other countries.

So, trying to anticipate that a little bit more is certainly something that I'm spending some time thinking about and looking forward to writing on.

Daniel Raimi: Yeah. Fantastic. I can't wait to see what kind of insights you're able to draw out there. I think there's a lot to think about and an enormous amount of questions related to that topic.

Meghan O’Sullivan: Hopefully some answers as well.

Daniel Raimi: Hopefully some answers—yeah, I'm sure you'll give us some. To close out today, I want to ask you the same question that we ask all of our guests, which is—what's at the top of your literal or metaphorical reading stack? What have you read or watched or heard or just been thinking about lately that you think our listeners might be interested in?

Meghan O’Sullivan: Sure. I'm going to end on something that we just touched on very briefly, but I think is a really important geopolitical development (obviously, it's a big energy component)—and that is the US relationship with Saudi Arabia. There's a lot to read, a lot to watch about this, but we see that Congress is moving in the direction of trying to curtail US involvement or US support for Saudi Arabia in the Yemen war. And there are so many interesting things to read. One that I just recently read is by Karen Elliott House. It's a long piece in the Wall Street Journal called “Rethinking Saudi Arabia.” And how this relates to the topic that we've been talking about is just this question of—how important is oil in the bilateral relationship between Saudi Arabia and the United States? And obviously there's lots of rethinking of this relationship because [...] prompted (not exclusively because of),but prompted by the murder of the journalist, Jamal Khashoggi. And the real question about—does the US need Saudi Arabia in the way that it used to?

And here, I think oil is not the only factor that we need to think about, but certainly it's a pretty significant one. Karen Elliott House, she actually makes the argument that we don't need Saudi Arabia as much on the oil front. My view is that that relationship has changed a lot but we probably still have a lot of oil interests when it comes to Saudi Arabia, just because of the global market. But, certainly, we should have a little bit more leeway than we have in the past to rais[e] issues of human rights and of accountability—and having our foreign policy reflect those in ways that maybe we had less scope to do in a different energy age.

So that's one thing that I'm thinking a lot about and I'm sure your readers have touched on from one angle or the other.

Daniel Raimi: Yeah, absolutely. It ties back into how we started the discussion about energy independence and what that means, and what it means for US relationships.

Meghan O’Sullivan: Exactly.

Daniel Raimi: Fascinating. Well, Meghan O'Sullivan, thank you so much for joining us today on Resources Radio.

Meghan O’Sullivan: Well, thank you, Dan. It's been a pleasure and I look forward to listening to your other great podcasts.

Daniel Raimi: Oh, thanks a lot.

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