Analysis & Opinions - Oxford University Press

Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power

| May 01, 2018

The intersection between energy, technology and politics is the focus of Windfall, a new book by Meghan L. O'Sullivan, who draws on her experience in policy formulation and negotiation in the White House. O'Sullivan starts with the observation that the geopolitics of energy has been discussed from a number of perspectives. One implication of this is that people largely play up explanations they understand. For example, engineers highlight the disruptive role of technological advances, economists focus on demand and supply variables, and policy-makers emphasize the role of politics and policy. However, by separating these perspectives, much crucial information is lost.

Next to this, O'Sullivan highlights that the world has moved from the fear of energy scarcity—a few years ago—to the reality of energy abundance. New technologies have led to an oversupply of oil and an emerging natural gas glut. Thanks largely to fracking, the United States is now the largest combined producer of oil and gas in the world. These realities did more than just drive prices down, they have reshaped global affairs and allowed the US to maximize its influence. Energy is now an asset for the US rather than a vulnerability. This has shaken OPEC's grip on oil prices and weakened Russia, the US' adversary.

While energy abundance challenges traditional partnerships, it also creates new opportunities for cooperation—especially between the US and China, given the latter's growing dependence on the Middle East. The newfound energy abundance also offers hope for Europe which still heavily depends on Russian energy. The prospect of liquefied gas imports from the US, combined with internal energy market reforms, provides European countries with more options for sourcing their energy. Augmented supply options also make it more difficult to politicize the energy trade, which increases Europe's resilience to potential fluctuations of energy flows and shifts power from the seller to the buyer of energy.

O'Sullivan's Windfall brings more depth to the energy debate by looking at both foreign policy and energy markets. According to O'Sullivan, we can make no meaningful sense of energy geopolitics by focusing solely on the foreign policy dimension. She illustrates this through numerous contemporary and historical cases. For example, it is common knowledge that the Soviet Union's breakup was partly caused by the arms buildup spurred on by the US under President Ronald Reagan. However, O'Sullivan also draws attention to the insights of Yegor Gaidar—former Prime Minister of Russia—who attributes the collapse of the Soviet Union to persistently low oil prices. This is as, following the earlier collectivization of agriculture, the Soviet Union needed foreign exchange for grain imports to feed its people. The low oil prices throughout the 1980s created a regime-threatening crisis because the government had increasing difficulties financing essential food imports. Similarly, analysts looking at the current energy abundance solely from a foreign policy perspective would expect the US' newfound energy independence to liberate it from the Middle East. Nonetheless, President Donald Trump's visit to Saudi Arabia in May 2017 suggests the opposite seems to be the case. Tied together by the global energy market, events in the Middle East have direct implications for the US economy.

Through combining foreign policy and energy markets perspectives, O'Sullivan makes a number of somewhat counter-intuitive arguments. In contrast to conventional wisdom, O'Sullivan suggests that the shale revolution in the US does not necessarily lead to a decline of the Middle East. Low oil prices could, in the long term, lead to a situation where the Middle East becomes more important as a source of oil. For example, due to higher production costs outside the Middle East, it could stop being commercially viable for many companies outside the Gulf to produce crude oil. This, in turn, would mean that more of the oil that is consumed would actually come from the Middle East.

In conclusion, much has been written about the world's energy resources, but only a few books have been able to link energy realities to geopolitics. Windfall provides an important corrective to conventional wisdom on foreign and energy policies—and shows how the US can take full advantage of the new energy landscape. Thus O'Sullivan shows that by looking at both foreign policy and energy markets, businesses will make better investment decisions and policy-makers will make better strategic decisions.

For more information on this publication: Please contact Geopolitics of Energy Project
For Academic Citation: Braunstein, Juergen.“Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power.” Oxford University Press, May 1, 2018.