American Energy Exports Can Help Keep Russia in Check
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By Michael James Barton
Though a ceasefire appears to be holding in Ukraine, it's clear much more needs to be done if the international community hopes to permanently stop Russian aggression. So far the campaign of denouncements and sanctions has not given Russia pause.
There is something the United States can do that will be both effective and not risk a wider war: lift the economic blockade imposed against American exports of crude oil and liquid natural gas to Europe. European countries, including Russia's closest neighbors, depend heavily on Russia for their energy needs, and Russia uses this dependency as strategic leverage. Ramping up American energy exports to Europe stands a real chance of helping resolve the battles in the Ukraine, in contradistinction to our current strategy, which appears to consist of being mean to Russia on social media.
Since 1975, there has been a near-total ban on American crude oil exports. The Energy Policy and Conservation Act was passed as a means of preventing the energy price shocks U.S. consumers experienced in the 1970s. And while there's no official ban on liquid natural gas exports, the Obama administration's approval process is so slow it amounts to a de facto ban.
But new technological breakthroughs have enabled the United States to become the world's largest oil and natural gas producer. So American policymakers are not terrified of an oil embargo. America can now easily afford to export domestically produced crude oil and liquid natural gas.
Russia, meanwhile, can ill afford to see its share of the global energy export market shrink. In 2012, oil and gas revenues accounted for more than half of Russia's federal budget revenues and 70 percent of the country's exports. This is the real leverage the international community has over Russia. Without his energy monopoly to bully Europe, it will be much harder for Putin to continue his hobbies, which judging by his behavior seems to be invading neighbors and supplying missiles to shoot down civilian airliners.
If Russia suddenly had to compete in energy markets previously closed to the United States, the fiscal impact would be felt immediately in Moscow. David Montgomery, senior vice president of the consulting firm National Economic Research Associates, estimates that American competition could drive down Russian revenues from oil and gas exports by 30 percent in the next five years, and over 60 percent in the longer term.
"Since energy exports are the mainstay of the still inefficient and lagging Russian economy, this is a penalty with teeth," Montgomery told a Senate committee in March. If oil and gas revenues begin to slow, the Russian government will find it very difficult to pay the bills for continued military adventurism.
In June, the House passed a bill requiring the Energy Department to dramatically speed up the approval process for liquid natural gas exports. But until this bill becomes law, approvals for liquid natural gas exports remain sluggish to non-existent. And crude oil exports are still effectively banned.
The best way to rein in Russian imperialism is not temporary sanctions, but forcing the Kremlin to confront the reality of the end of its energy leverage over its neighbors. We can prevent further war in Ukraine by deigning to compete more directly with Russia in the global energy market.
Michael James Barton is the Director for Energy at ARTIS Research, and speaks around the country on energy and energy security matters. He previously served as the deputy director of Middle East policy at the Pentagon.