Monday, November 20, 2006

Energy Inter-Dependence and the Arrow of Globalization

The current California Magazine, published for the University of California's alumni association, features an article on the foreign policy challenges facing the next administration. Towards the end of their interesting analysis, Steven Weber and Michael Zielenziger raise concerns about the inevitability of globalization and its future direction, "There could be at least 3 billion people who believe, rightly or wrongly, that they have nothing to lose, and probably something to gain, from a decline in American influence and a backward trajectory of globalization." If they are right, this would have profound implications for energy, along with the rest of the US economy. Although pundits and politicians of every persuasion are calling for energy independence, our current energy strategy is inter-dependence, and is thus highly vulnerable to upheavals in global trade patterns and markets.

Dr. Weber and his colleague also provide some cogent thoughts about the evolving US relationship with China and offer worrying reminders about how previous emerging powers, such as Germany, were accommodated into the international system. In any case, as the authors point out, China now has as much influence on energy prices as Saudi Arabia. Along with the US, it has benefited enormously from the last twenty years of globalization, but that does not mean it shares our commitment to the mechanisms of globalization. China competes in the global market for access to the same oil supplies that we seek, both at the resource level and at the commodity level. But it is clear that their preference is for long-term bi-lateral agreements, effectively government to government, over the free market trade in oil that has been the backbone of US energy strategy since the 1970s.

If the world retreats from globalization and the smooth, transparent markets it creates-- whether led by the 3 billion disenfranchise people that Dr. Weber worries about, or as a result of populist-inspired protectionism in the developed world--then energy suppliers will default increasingly to the model that favors China, rather than us. That would diminish the ability of the global oil market to rebalance after a hurricane or some other event disrupted our oil supplies, forcing us to rely more on our Strategic Petroleum Reserve, which, as we saw recently, cannot support the West Coast. Until we can turn all of the recent rhetoric of energy independence into reality--a task requiring great patience--we need to shore up, rather than tear down, the global economic system that keeps our energy lifeline flowing.

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