DANIEL VAUGHAN: US oil boom is a chance to lead the world

December 14, 2018

DANIEL VAUGHAN: US oil boom is a chance to lead the world

For one brief week of November, the United States was a net exporter of oil for the first time in history. That week represents a seismic shift among the world powers when it comes to energy dependence and dominance.

For decades, the United States and other western countries were at the mercy of oil-rich states — but no more.

That one week in November doesn’t represent a momentary blip in the data, but rather, the future of oil and energy in the world. And because of power and potential of that future, the United States should use this new stature to retake control from Saudi Arabias, Russias, and Irans of the world, and instead dictate world energy policy.

Everyone is focusing their attention on the trade war with China — and that’s important — but there’s another trade war the U.S. has all the ingredients to win: oil.

OPEC, the once all-powerful body on oil prices worldwide, announced earlier this month that it was cutting production in a bid to save profits. Oil prices have since been dropping, creating a dangerous situation for OPEC countries: if prices sink much lower, they won’t make enough money on a barrel of oil.

But even though OPEC announced cuts to oil production, unrelenting pressure from the United States meant that none of the countries involved actually fulfilled their oil production cut promises.

It’s a prisoner’s dilemma for OPEC countries. They all agree they need to cut production to keep prices higher and to stay rich — but if they cut production, countries not bound to the agreement, like the United States, will step in and take more of the market for themselves. That leaves the OPEC countries left questioning each other and the market.

OPEC fears losing market share and market power — and most specifically, they fear the United States getting out from under their thumb.

A couple of years ago, you may recall that oil and gas prices dropped precipitously. Americans saw gas prices they hadn’t seen in decades, and the noise that we’d reached “peak oil” wilted down to a whimper. That price drop happened for a reason: OPEC, and more specifically the Saudis, looked at American oil producers as a threat that needed to be obliterated from the market.

So OPEC countries flooded the market with cheap oil in a bid to drive the price down so low, it would bankrupt the American oil industry. The ploy almost worked, but the Saudi’s underestimated one thing: American innovation.

In fact, The Wall Street Journal reported that not only had that plan failed, but it also backfired.

“Instead of killing shale it spurred a wave of innovation that transformed drilling in the U.S. into a highly efficient industrial process, dramatically lowering costs and boosting output,” the Journal reported. “During the next oil bust, it will be the Saudis who have to worry.”

According to the report, American producers looked at their Saudi counterparts after the onslaught and figured out how to survive in an even harsher environment. Not one OPEC country is capable of withstanding a pricing war that drops the price of oil below $40 a barrel — but American producers believe they can make oil profitable at just $33 a barrel.

If you’re a Russian or Saudi Arabian dictator, already struggling to stave off public rebellion due to rampant poverty, the prospect of $33 for a barrel for oil is terrifying.

On top of this, the IEA predicts the United States will become the world’s largest exporter of oil by 2023. That would make us larger than OPEC and Russia, the world’s two oil leaders — and it’s only five years away.

In short, OPEC and its Saudi leadership picked a fight with a sleeping giant. They tried killing American oil producers in the cradle, failed at that task, and are now facing a rising behemoth with the power to knock out not one country, but the entire OPEC oil cartel.

For Americans — Democrat or Republican — having the U.S. dictate world energy policy is a net positive. Russia, Iran, and OPEC countries would have less power in the world, and the environment would benefit: U.S. technology is cleaner and safer than anything the rest of the world uses.

And if Democrats truly want to prove they believe all the hot air they’ve spouted about Saudi Arabia and Russia being bad world actors, finally catching up with Mitt Romney, then they should happily jump on board with forcing these countries, whose economies are dictated by the price of oil, into a price war.

The U.S. is a highly diverse economy that can take whatever curve balls those countries throw our way. And in turn, we can use the prospects of cheaper energy to soften China up at the negotiating table.

For years, people called for American energy power to be unleashed. Now it’s time to wield that oil power like a club on the world stage.

We should move as Teddy Roosevelt advised: walk softly, carry a big stick. We have a bigger stick than anyone now — and it’s time to force them to play by our rules.


Daniel Vaughan

Daniel Vaughan is a columnist for the Conservative Institute and lawyer in Nashville, Tennessee. He has degrees from Middle Tennessee State University and Regent University School of Law. His work can be found on the Conservative Institute's website, or you can receive his columns and free weekly newsletter at The Beltway Outsiders. Connect with him on Twitter at @dvaughanCI.