GEN. JAMES CONWAY: Oil dependence limits U.S. military options

General James Conway is a former commandant of the United States Marine Corps and president of the Marine Corps University. As the senior operations officer on the Joint Chiefs of Staff, he was the principle advisor on the Iraq and Afghanistan wars to the president of the United States, the National Security Council and the secretary of defense. The general (now retired) commanded 90,000 British and U.S. forces to invade Iraq. Gen. Conway has three children: two sons who are Marines and a daughter who is married to a Marine. He is a member of the Energy Security Leadership Council at Securing America’s Future Energy, a group of military and business leaders pushing for wider alternatives in U.S. energy policy. For more information, see secureenergy.org.     

Decker: You’re on the leadership council of Securing America’s Future Energy, which seeks to lessen the country’s dependence on oil. What’s the problem with oil?

Conway: The problem is the global oil market. The fact is there is no free market for oil. The global market is heavily influenced by anticompetitive forces that are far removed from traditional market principles. National oil companies (NOCs) – many within the OPEC cartel – control nearly 90 percent of the world’s proved oil reserves. Many NOCs do not make investment decisions based on market forces and instead essentially function as an arm of the central government, diverting oil revenues to social and military spending programs. And of course, OPEC serves as a classic market failure: a cartel of suppliers that actively manipulates global supply levels to achieve its desired oil price target.

Oil markets are also highly volatile because there is very little flexibility at any point in time. In a very real sense, oil dependence tethers the fate of our economy to the vacillations of the global oil market. Political instability, terrorism, war – even weather events – in a far-flung corner of the globe can send shockwaves that affect Americans at home.

Because we lack substitutes to oil (particularly in the transportation sector, which relies on oil for 93 percent of its fuel), U.S. consumers and businesses have no choice but to pay higher energy prices when the volatile price of oil moves higher. Needless to say, being forced to pay higher energy costs is extremely damaging to our economy. It breaks budgets, costs jobs and even worsens our fiscal nightmare because it dampens overall economic growth. It is no coincidence that every U.S. recession for the past 40 years has coincided with a spike in oil prices.

This economic vulnerability directly weakens national security. Because of America’s dependence on oil, the U.S. military is forced to shoulder the tremendous burden – both in dollars and military resources – of guarding against oil supply disruptions across the globe. 

Decker: Can’t most of the complications and consequences related to oil dependency be mitigated by sourcing it domestically and from reliable allies like Canada? Isn’t there enough here to last a long time so we can forget about the unstable Middle East region and OPEC troublemakers? Or isn’t that possible? What’s the political context of the oil debate?

Conway: There are many reasons why the Energy Security Leadership Council (ESLC) supports expanding domestic oil production: Drilling for oil in America spurs job creation and economic growth and helps reduce the trade deficit. However, increased domestic oil production will not make us less vulnerable to high and volatile oil prices, which are determined by factors outside of our control. For example, consider the current domestic oil boom. Despite record increases in American oil production, American households, businesses and public agencies spent a record $900 billion on petroleum fuels in 2012.

The fact is that, despite the success of our industry here, global oil markets remain essentially tight. The past few months have seen supply problems in Nigeria, Iraq, Libya and a number of other key suppliers. I would argue that these problems are endemic and unlikely to fade much in the near future. And so American consumers haven’t seen a break in the price they pay at the pump. Again, in the middle of the boom, fuel prices in 2011 and 2012 were the highest in history.

On the subject of drilling, also consider the examples of Norway and Canada. Both of these nations produce more oil than they consume – they are effectively self-sufficient. Yet, because of the global oil market, these exporting nations still pay the same global price for oil as everyone else. This all explains why the term “energy independence” is a misnomer when it comes to oil. Rather, our goal as a country should be to become energy secure, which requires displacing oil with domestic fuels whose price and supply are not so heavily influenced by foreign factors.

Decker: Securing America’s Future Energy (SAFE) advocates the development of more diverse energy options for the nation. Wouldn’t this necessitate significant government spending to jumpstart now minor industries and unproven technologies? If there were a promising market for these alternatives, wouldn’t the private sector make it happen?

Conway: If one agrees that both the costs of oil dependence are great and the manipulated nature of oil markets prevents an effective free-market response, then the use of government policy should be considered. Failure to act will ensure the country continues to carry the enormous burden of oil dependence, especially as global demand for oil continues to rise and instability in many international oil-producing regions persists or increases.

SAFE is not quick to advocate for government intervention in the private sector. Too often, supporters of such involvement have asserted the presence of a market failure when one does not truly exist. In the case of oil, however, global production is openly being manipulated to destroy free market dynamics. This creates a national-security and economic crisis, and requires a response.

Decker: What are the military and national-security implications of the energy debate?

Conway: To provide more depth on this question, which I touched on above, I would categorize the military and national-security implications of oil dependence as direct and indirect.

First, there is the direct cost to our military of mitigating the risk of oil supply disruptions, a tremendous burden that we have been forced to shoulder because of oil dependence. A RAND Corporation study estimated the cost at between $67.5 billion and $83 billion annually. Also, as global oil prices have increased, Defense Department spending on petroleum fuel has risen from an average of $3.75 billion between 1999 and 2003 and $17.5 billion in 2011. It goes without saying that this has been a disaster for defense budgets.

Second, oil dependence has a negative impact on foreign and defense policies because it distorts priorities and limits options. It also empowers hostile foreign actors. Further, it provides members of the OPEC cartel and other major producers – and even lesser producers and non-producers in critical regions, such as the Middle East – with leverage over the U.S., as they know that any actions causing oil prices to spike will hurt America.

For instance, in the case of preventing a nuclear Iran – one of our top national-security priorities – it is clear that our dependence on oil weakened the resolve to impose crippling sanctions to deprive the regime from acquiring nuclear capabilities. The recent oil boom in non-OPEC countries and relative slowdown in global oil demand has strengthened this resolve to a certain degree, but it’s unambiguously clear that our oil dependence undermines our national security and limits our foreign policy options. Had we been less dependent on oil, we could have imposed devastating sanctions earlier and possibly not be in the position we find ourselves in now with regard to Iran.

When I was on the joint chiefs, we frequently discussed and weighed how our defense decisions could potentially impact the U.S. economy and oil prices for American consumers. Until we reduce our consumption and dependence on oil, that factor will continue to influence our foreign policy decisions.

Decker: What do you think is the most imminent threat facing America today, and what should be done to address the problem? In other words, what keeps you up at night?

Conway: Outside of pinnacle threats such as nuclear war or terrorists getting their hands on and using weapons of mass destruction, oil dependence is among the very most severe problems facing our nation right now. Our future prosperity and security will be significantly determined by how we handle the oil dependence crisis. We must implement a national, long-term strategy for achieving energy security. Congress should develop a plan to take advantage of our incredible supply of natural resources – and mitigate our over-dependence on imported oil.

 

Brett M. Decker is Editor-in-Chief of Rare. Follow him on Twitter @BrettMDecker

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