Exclusive: Q&A with Jim Woolsey – Energy Security
Author: Jim Woolsey
Source: The Family Security Foundation, Inc.
Date: June 13, 2006
As gas prices climb ever higher, many Americans start to wonder about alternative fuels for their homes and cars. But the scarcity of energy resources in the world is not just a question of economic or environmental factors, but also plays a very real role in our nation’s security and stability. As FSM Advisory Board Member Jim Woolsey explains, with authority and insight, energy security is not only a matter that affects all Americans, but a subject on which every one of us can work to defend our country in the war on terror.
Q&A with Jim Woolsey – Energy Security
Interview 1
June 13, 2006
FSM: What is energy security? Is it just a question of eliminating our dependence on foreign oil?
JW: Energy security has many facets – including particularly the need for improvements to the electrical grid to correct vulnerabilities in transformers and in the Supervisory Control and Data (SCADA) systems. But energy independence for the US is in my view preponderantly a problem related to oil and its dominant role in fueling vehicles for transportation. For other countries, e.g. in Europe, energy independence may be closely related to preventing Russia from using against them the leverage that proceeds from its control of the natural gas they need for heating and electricity. In the US, however, we generally have alternative methods of producing electricity and heat, albeit shifting fuels can take time. Some of these methods are superior to others with respect to costs, pollutants, global warning gas emissions, and other factors. Technological progress continues to lead to reassessments of the proper mix – for example, there appears to be progress in affordably and reliably sequestering the carbon captured during the operation of integrated gasification combined cycle coal (IGCC) plants. And progress in battery technology to improve the storage of electricity may help us expand the use of renewables such as solar and wind, which are clean but intermittent. Change is not easy in generating electricity, but we are not locked in to a single source for it, for heating, or for most other uses of energy.
Powering vehicles is different.
Just over four years ago, on the eve of 9/11, the need to reduce radically our reliance on oil was not clear to many and in any case the path of doing so seemed a long and difficult one. Today both assumptions are being undermined by the risks of the post-9/11 world, by oil prices, by increased awareness of the vulnerability of the oil infrastructure (as illustrated in the al Qaeda attacks in February on the large Saudi oil facility at Abquaiq) and by technological progress in fuel efficiency and alternative fuels.
FSM: Dependence on petroleum, particularly foreign petroleum, certainly sounds like a bad thing in the abstract, but few commentators ever get specific about the dangers. Can you help us understand the real risks that go along with such reliance?
JW: There are at least seven major reasons why dependence on petroleum and its products for the lion’s share of the world’s transportation fuel creates special dangers in our time. These dangers are all driven by rigidities and potential vulnerabilities that have become serious problems because of the geopolitical realities of the early 21st century. Those who reason about these issues solely on the basis of abstract economic models that are designed to ignore such geopolitical realities will find much to disagree with here. Although such models have utility in assessing the importance of more or less purely economic factors in the long run, as Lord Keynes famously remarked: “In the long run, we are all dead.”
1. The current transportation infrastructure is committed to oil and oil-compatible products.
Petroleum and its products dominate the fuel market for vehicular transportation. This dominance substantially increases the difficulty of responding to oil price increases or disruptions in supply by substituting other fuels. With the important exception, described below, of a plug-in version of the hybrid gasoline/electric vehicle, which will allow recharging hybrids from the electricity grid, substituting other fuels for petroleum in the vehicle fleet as a whole has generally required major, time-consuming, and expensive infrastructure changes. One exception has been some use of liquid natural gas (LNG) and other fuels for fleets of buses or delivery vehicles, although not substantially for privately-owned ones, and the use of corn-derived ethanol mixed with gasoline in proportions up to 10 per cent ethanol (“gasohol”) in some states. Neither has appreciably affected petroleum’s dominance of the transportation fuel market.
2. The Greater Middle East will continue to be the low-cost and dominant petroleum producer for the foreseeable future.
Home of around two-thirds of the world’s proven reserves of conventional oil -- 45% of it in just Saudi Arabia, Iraq, and Iran -- the Greater Middle East will inevitably have to meet a growing percentage of world oil demand. This demand is expected to increase by more than 50 per cent in the next two decades, from 78 million barrels per day (“MBD”) in 2002 to 118 MBD in 2025, according to the federal Energy Information Administration. Much of this will come from expected demand growth in China and India. One need not argue that world oil production has peaked to see that this puts substantial strain on the global oil system. It will mean higher prices and potential supply disruptions and will put considerable leverage in the hands of governments in the Greater Middle East as well as in those of other oil-exporting states which have not been marked recently by stability and certainty: Russia, Venezuela, and Nigeria, for example. Deep-water drilling and other opportunities for increases in supply of conventional oil may provide important increases in supply but are unlikely to change this basic picture. If world production of conventional oil has peaked or is about to, this of course further deepens our dilemma and increases costs sooner.
Even if other production comes on line, e.g. from unconventional sources such as tar sands in Alberta or shale in the American West, their relatively high cost of production could permit low-cost producers of conventional oil, particularly Saudi Arabia, to increase production, drop prices for a time, and undermine the economic viability of the higher-cost competitors, as occurred in the mid-1980’s. If oil supplies have peaked or are peaking in Saudi Arabia this tactic could be harder for the Saudis to utilize. But in any case, for the foreseeable future, as long as vehicular transportation is dominated by oil as it is today, the Greater Middle East, and especially Saudi Arabia, will remain in the driver’s seat.
3. The petroleum infrastructure is highly vulnerable to terrorist and other attacks.
The radical Islamist movement, including but not exclusively al Qaeda, has on a number of occasions explicitly called for worldwide attacks on the petroleum infrastructure and has carried some out in the Greater Middle East. A well-planned attack could take some six million barrels per day off the market for a year or more, sending petroleum prices sharply upward to well over $100/barrel and severely damaging much of the world’s economy. Domestic infrastructure in the West is not immune from such disruption. U.S. refineries, for example, are concentrated in a few places, principally the Gulf Coast.
Last summer’s accident in the Texas City refinery points out potential infrastructure vulnerabilities, as of course does this past fall’s hurricane damage in the Gulf. The Trans-Alaska Pipeline has been subject to several amateurish attacks that have taken it briefly out of commission; a seriously planned attack on it could be far more devastating.
In view of these overall infrastructure vulnerabilities policy should not focus exclusively on petroleum imports, although such infrastructure vulnerabilities are likely to be the most severe in the Greater Middle East. It is there that terrorists have the easiest access, and the largest proportion of proven oil reserves and low-cost production are also located there. But nothing particularly useful is accomplished by changing trade patterns. To a first approximation there is one worldwide oil market and it is not generally helpful for the U.S., for example, to import less from the Greater Middle East and for others then to import more from there. In effect, all of us oil-importing countries are in this together.
4. The possibility exists, both under some current regimes and among those
that could come to power in the Greater Middle East, of embargoes or other disruptions of supply.
It is often said that whoever governs the oil-rich nations of the Greater Middle East will need to sell their oil. This is not true, however, if the rulers choose to try to live, for most purposes, in the seventh century. Bin Laden has advocated, for example, major reductions in oil production and oil prices of $200/barrel or more. As a jihadist Web site stated: “[t]he killing of 10 American soldiers is nothing compared to the impact of the rise in oil prices on America and the disruption that it causes in the international economy.”
Moreover, in the course of elaborating on Iranian President Ahmedinejad’s threat to destroy Israel and the US, his chief of strategy, Hassan Abbassi, has recently bragged that Iran has already “spied out” the 29 sites “in America and the West” which they (presumably with help from Hezbollah, the world’s most professional terrorist organization) are prepared to attack in order to “destroy Anglo-Saxon civilization.” One can bet with reasonable confidence that some of these sites involve oil production and distribution.
In 1979 there was a serious attempted coup in Saudi Arabia. Much of what the outside world saw was the seizure by Islamist fanatics of the Great Mosque in Mecca, but the effort was more widespread.
Even if one is optimistic that democracy and the rule of law will spread in the Greater Middle East and that this will lead after a time to more peaceful and stable societies there, it is undeniable that there is substantial risk that for some time the region will be characterized by chaotic change and unpredictable governmental behavior. Reform, particularly if it is hesitant, has in a number of cases in history been trumped by radical takeovers (Jacobins, Bolsheviks). There is no reason to believe that the Greater Middle East is immune from these sorts of historic risks.
5. Wealth transfers from oil have been used, and continue to be used, to fund terrorism and its ideological support.
Estimates of the amount spent by the Saudis in the last 30 years spreading Wahhabi beliefs throughout the world vary from $70 billion to $100 billion. Furthermore, some oil-rich families of the Greater Middle East fund terrorist groups directly. The spread of Wahhabi doctrine – fanatically hostile to Shi’ite and Sufi Muslims, Jews, Christians, women, modernity, and much else – plays a major role with respect to Islamist terrorist groups: a role similar to that played by angry German nationalism with respect to Nazism in the decades after World War I. Not all angry German nationalists became Nazis and not all those schooled in Wahhabi beliefs become terrorists, but in each case the broader doctrine of hatred has provided the soil in which the particular totalitarian movement has grown. Whether in lectures in the madrassas of Pakistan, in textbooks printed by Wahhabis for Indonesian schoolchildren, or on bookshelves of mosques in the US, the hatred spread by Wahhabis and funded by oil is evident and influential.
It is sometimes contended that we should not seek substitutes for oil because disruption of the flow of funds to the Greater Middle East could further radicalize the population of some states there. The solution, however, surely lies in helping these states diversify their economies over time, not in perpetually acquiescing to the economic rent they collect from oil exports and to the uses to which these revenues are put.
6. The current account deficits for the US and a number of other countries create risks ranging from major world economic disruption to deepening poverty, and could be substantially reduced by reducing oil imports.
The U.S. borrows about $2 billion every day from the world’s financial markets to finance the gap between what we produce and what we consume. The single largest category of imports is the approximately $1 billion per working day, or $250 billion a year, borrowed to import oil. The accumulating debt increases the risk of a flight from the dollar or major increases in interest rates. Any such development could have major negative economic consequences for both the U.S. and its trading partners. For every billion dollars of this $250 billion spent at home to produce alternative fuels, Senator Richard Lugar and I estimated (in a 1999 article in Foreign Affairs, “The New Petroleum”) that 10-20,000 American jobs would be created, principally in rural areas. This would mean that replacing $200 billion of the $250 billion that we borrow to import oil with alternative fuel production in the US would create something on the order of 3 million American jobs.
For developing nations, the service of debt is a major factor in their continued poverty. For many, debt is heavily driven by the need to import oil that at today’s oil prices cannot be paid for by sales of agricultural products, textiles, and other typical developing nation exports.
If such deficits are to be reduced, however, say by domestic production of substitutes for petroleum, this should be based on recognition of real economic value such as waste cleanup, soil replenishment, or other tangible benefits.
7. Global-warming gas emissions from man-made sources create at least the risk of climate change.
Although the point is not universally accepted, the weight of scientific opinion suggests that global warming gases (GWG) produced by human activity form one important component of potential climate change. Recently in the Wall Street Journal the Nobel-Prize winning economist, Thomas Schelling, surveyed the data and concluded that we should, if effect, buy “insurance” against climate change by reducing our emissions. Oil products used in transportation provide a major share of U.S. man-made global warming gas emissions. The substitutes discussed below would radically reduce these emissions.
FamilySecurityMatters.org Advisory Board member Jim Woolsey has served as Director of Central Intelligence, Under Secretary of the Navy, and has participated extensively in arms control issues. He is currently the Vice-President for Global Strategic Security at Booz Allen Hamilton.
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