President Obama is scrambling to find some meaningful way to respond to Russian President Vladimir Putin’s blatant invasion of Ukraine’s Crimea region. He could start by announcing that it will henceforth be U.S. policy to produce as much oil and natural gas as possible in an effort to meet not only domestic energy needs, but the needs of Eastern European counties.
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Russia has long had an energy stranglehold over many of the former Russian satellites, as well as other European countries. About 84 percent of Russian oil and 70 percent of its natural gas exports go to Europe, according to the U.S. Energy Information Administration. Russia has not extensively tapped its coal reserves.
On a whim Russia can dramatically increase the cost or limit or cut supplies completely to any one of its energy dependents—as Putin did to Georgia a few years ago. Russia currently provides about half of Ukraine’s natural gas, and as a result of policy differences has curtailed supplies twice since 2006.
In years past, there wasn’t much the U.S. could do about Russia’s willingness to use energy supplies as a foreign policy hammer. But the explosion in U.S. oil and natural gas production has begun to loosen Russia’s energy grip.
Even though the U.S. is still a net crude oil importer, the expansion of oil and natural gas drilling, made possible by new techniques such as “fracking” and horizontal drilling, has freed up coal to be shipped to other countries for use in power generation (i.e., electricity).
That new competition has driven down the price that Russia’s natural gas monopoly, Gazprom, can charge and has begun to limit Russia’s ability to use natural gas supplies as a geopolitical weapon. Last December, energy competition forced Gazprom to discount natural gas prices from $11.50 to $8.10 per thousand cubic feet. That discount upset Putin because he uses the extortion money he gets from high energy prices to finance his international mischief. But Gazprom’s struggle points the way forward on U.S. foreign policy and Eastern Europe.
First, the U.S. needs to be drilling more, especially on federal lands and offshore—which are controlled by the federal government. For all his talk about growing energy production over the past five years, it has almost all come as a result of expanded drilling on private and state-owned lands. The Obama administration regularly rejects, delays or slow-walks drilling applications on federal lands.
Second, the federal government needs to end its ban on crude oil and natural gas exports. Given the opportunity to sell to the world, U.S. energy companies would dramatically ramp up production, which they are reluctant to do if there is an politically imposed limit to their markets. If a complete export-ban repeal is too big of a step for Congress, at least allow exports to any country under Putin’s energy thumb—which would be a lot of our friends and allies.
Obama is looking for ways to retaliate economically against Russian aggression. Energy is Russia’s bred and butter. Easing restraints against U.S. energy production and exports would be the best way to hurt the Russian economy while helping the U.S. economy.