Those who believe that Biden’s massive “green” spending plan will overcome energy independence — achieved during Trump but lost by the Biden administration — do not speak knowledgeably about politics, economics, geopolitics or technology, but about ideology and voluntarism, or magical thinking.
The only thing that this wasteful proposal would achieve is a bubble of foolish investments that will drive the U.S. into a cycle of fictitious expansion, ultimately leading the nation into recession. We all know this.
The energy market of the 21st century
As the demand for energy was met in the last century in an overwhelmingly dominant way by petroleum-produced fuels, world economies grew critically dependent on crude oil for both transportation and electricity generation. This is why the demand for oil is in turn dependent on the demand for energy in the broadest sense.
Considering the oil market in terms of the energy market is important in the long term — to which the capital recovery of large investments in the sector and the rest of the economy is subject — because it is technically feasible to satisfy such demand in households, industry, commerce and transportation by generating energy from non-oil fuels.
The probability of the eventual reduction of the oil segment in future energy markets is an important variable, but it is still far from having the imminence and magnitude that would be inferred from the propaganda of the interests that favor the use of fiscal and regulatory mechanisms to force such a change.
This will not happen without costly subsidies — which would be paid, of course, by the taxpayer—- and regulations that divert investment from more efficient sectors to less efficient ones, under the dubious premise that it would no longer require subsidies and other special treatments. A promise that has always been made to favor special interests and has almost never turned out to be true.
Preceded by an industrial revolution whose enormous increases in production — and consequently population — were achieved with steam engine technology and coal as the main fuel, our oil age would emerge without declining coal reserves, simply by discovering ways of using oil that would transform it into a more cost-efficient fuel source.
From kerosene for lamps; gasoline for engines; and diesel for large engines, the replacement of coal would be a faster and happier process than its natural imposition as the dominant fuel was. At present, one of the factors influencing the market are the likely signs of the approaching — or already initiated — decline of oil production capacity (in the long term in a growing economy, at ever-competitive costs and without technological changes that modify cost structures. None of these conditions is really to be expected).
A market scenario politically interfered in price formation, both by governmental cartelization of supply by the main petro-states grouped in OPEC, and by state interference on demand — and non-cartelized supply — by public policies and ad hoc regulations of the State in the large consumer markets.
Oil geopolitics and the Trump administration’s push for energy independence
The global geopolitics of oil is currently determined by the multiple consequences of geographical separation between the oilfields and the major consumer markets. This was not always the case. The U.S. was the first and most important source of production, and at the same time the largest consumer for more than half of the last century.
During the last 25 years of the last millennium, the decline of new discoveries and the rising cost of its domestic production made imported oil a constraint on U.S. energy security.
That was temporarily broken during the Trump administration by the combination of the maturation of new exploitation technologies that allow cost-effective oil recovery in shale, together with new policies more inclined to opt for present energy independence by known and proven means—rather than betting on the future of technologies still under development.
The aforementioned geographical separation acquires a geopolitical significance of the first order when considering that the largest crude reserves in the world — from the Arab Light of the legendary Gawar field in Saudi Arabia, to the extra heavy and bitumen of the Orinoco in Venezuela — are located in economically underdeveloped territories, politically unstable and — to a different degree — hostile to the developed world in general and the USA in particular.
Iran has 15% of the world’s gas reserves and 12% of the world’s oil reserves, behind only Saudi Arabia’s capabilities, making this avowedly anti-Western power a key to the stability or instability of the energy market.
Venezuela is a country destroyed to its foundations by an unviable socialist economy whose “achievements” include the fact that its oil industry does not produce enough to guarantee domestic supply in an economy that has shrunk to less than 20 % of what it was just 20 years ago. Although its oil production continues to fall and its poverty to grow, it concentrates proven reserves of conventional crude oil, among the largest in the western hemisphere, and non-conventional reserves in the Orinoco oil belt in the order of 300 billion barrels of extra heavy oil and bitumen, much of which can potentially be exploited in a profitable manner by means of proven technologies.
But Venezuela is today reduced to a curious combination of the aspiration of its central government to a radically anti-US socialist totalitarianism and the reality of a failed state and the government of irregulars in a large part of its territory.
For all these reasons, what Biden did was undoubtedly disastrous by destroying — for the time being — the recently recovered and again lost energy independence of the United States.
Guillermo Rodríguez is a professor of Political Economy in the extension area of the Faculty of Economic and Administrative Sciences at Universidad Monteávila, in Caracas. A researcher at the Juan de Mariana Center and author of several books // Guillermo es profesor de Economía Política en el área de extensión de la Facultad de Ciencias Económicas y Administrativas de la Universidad Monteávila, en Caracas, investigador en el Centro Juan de Mariana y autor de varios libros