Five years ago, if one were to assert that by 2014 the United States would become the world’s top oil producer, the public would have chuckled. At that point, America trailed behind both Saudi Arabia and Russia in terms of oil production, while Barack Obama and Mitt Romney intensely debated how to stimulate U.S. energy production in the lead up to their 2012 bids for the White House. Obama emphasized renewable sources and pushed for increased investment to bolster large-scale distribution from these systems. Romney, on the other hand, advocated for the Keystone XL pipeline project and urged the elimination of government regulations that he believed were stifling fossil fuel extraction.
Both candidates were off the mark. In actuality, advances in oil and natural gas drilling and production — specifically, horizontal drilling and hydraulic fracturing — had already initiated the United States’ launch into the pole position in world oil production. The advances in drilling and production drastically increased recoverable reserves and spurred new, large-scale extraction activity. Within only a few years of the Obama-Romney debates, America landed on a mound of resources and production capabilities that positioned the country to be energy independent.
But the shale oil boom delivered much more than just energy security — it also provided the United States with a powerful new move in the dance that is international relations.
America’s oil glut came at an opportune time for its foreign policy needs. Oil revenue-dependent Russia had just turned European security on its head by annexing Crimea and instigating a civil war in Ukraine. Iran was also showing interest in negotiating the terms of its nuclear program. The United States needed an effective, non-violent way to respond to Russian aggression, increase Iran’s desire for a deal, and mitigate the financial capabilities of both countries to pursue foreign policies counter to American interests.
The shale oil boom did just this. Producers in the United States flooded the market with a surplus oil supply, driving down global prices and eventually tanking them. Between September 2014 and January 2015, the price of oil plummeted from roughly $90 per barrel to less than $50 per barrel. Although prices experienced a slight uptick around May 2015, today the price hovers around $45 per barrel.
These low prices have, in turn, cut into the revenues and budgets of both Russia and Iran. Despite Russia’s persistent belligerence in Ukraine, it is paying a heavier price for these actions than it would have if the current western sanctions were its only liability. Moreover, with the Iran nuclear deal now in place, low oil prices will, to a certain extent, reduce the value of lifted sanctions and increased trade, thereby marginally tempering Iran’s ability to influence the region.
Despite the shale oil boom beginning as an improvised dance rather than a precise tango, it proved itself remarkably advantageous in furthering U.S. interests. There are, however, ways in which it can be more clearly and presciently incorporated into and made a more effective instrument for U.S. foreign policy.
There is, of course, a glaring limit to the U.S. government’s ability to manipulate domestic oil production in pursuit of international interests. As compared to those of other top energy producing nations, the U.S. economy is less regulated when it comes to corporations and production – and this characteristic should not be compromised. Free market capitalism is at the core of America’s economic strength. The free market led to the shale oil boom by incentivizing unfettered innovation and the application of new ideas and technologies to potential-laden shale reserves.
That said, the United States could best integrate oil production into its foreign policy not through direct control of the market, but through strategic exports. The United States currently maintains a blanket ban on the export of domestically sourced oil, with some exceptions. To export oil, a producer must obtain a license from the Department of Commerce – limited to use in specific circumstances.
While the latter condition allows for a more strategic use of U.S. oil, its execution has been quite limited. President Obama should be more inclined to use oil exports as a tool to cultivate international relationships and divert the pernicious influence of other energy exporters. For instance, targeted exports to certain European countries could hedge their reliance on Russia and strengthen their relationships with the United States.
But strategic oil exports are not the only means by which the United States can best make its oil surplus a more powerful foreign policy tool. As previously noted, technological innovation is the primary reason for the shale oil boom, and U.S. firms overwhelmingly control these technologies. Furthermore, by limiting oil technology exports, the United States can greatly cut into the revenue prospects of energy-reliant states that it finds itself at odds with—such as Russia and Iran. In fact, this strategy has been initially implemented to great effect against Russia.
Russia is eager to plan for declines in its national oil production from more easily accessible reserves by capitalizing on reserves located in harder to reach areas — like shale rock. But because of western sanctions, Russia is being denied cutting edge oil extraction technologies. Prior to the imposition of sanctions, Russian state oil firms eagerly worked with U.S. companies to acquire the skills and technology necessary to tap into shale reserves. The sanctions, however, abruptly stopped the collaboration and have likely set Russian shale oil development back by several years. By strategically refusing to share its technological progress in accessing shale oil, the United States is ensuring that Russia pays a heavy and long-term price for its antagonistic behavior.
The shale oil boom has certainly benefitted U.S. global interests, but it has largely done so tangentially to current U.S. foreign policy. By more strategically incorporating American oil dominance into its international relations, the United States can make it an even more effective asset. With this new tool, when countries challenge America and ask, “Shale we dance?” it can respond with a more assured, “Yes, yes we shale.”
Andreas Kuersten is a Law Clerk with the US Court of Appeals for the Armed Forces (CAAF). He has previously held positions with the National Oceanic and Atmospheric Administration and both the US Navy and Air Force JAG Corps. Andreas holds a J.D. from the University of Pennsylvania Law School and an M.Sc. in International Relations from the London School of Economics.