The Impact of Domestic Shale Oil Production on U.S. Military Strategy and its Implications for U.S.-China Maritime Partnership

Kris Michaud, Joe Buccino, and Stephen Chenelle

Abstract

Since the end of World War II, the employment of the U.S. military has been linked to Middle Eastern oil and its exportation lanes. From President Franklin Roosevelt’s deal with Saudi Arabia to the Carter Doctrine, U.S. military policy hinged largely on the requirement to secure the flow of U.S. oil from the Middle East. Due to shale oil, however, the U.S. is projected to be a net oil exporter by 2030. By providing energy independence, shale oil enables the U.S. military some freedom to shift assets away from the Middle East and toward the Asia-Pacific in support of the strategic rebalance there. Domestic production also allows the United States to share responsibility for ensuring access to maritime straits with Asian-Pacific countries that have grown dependent on external oil. The economic and military elements of national power and their implications on our force and nation are manifest in shale oil.

From the conclusion of the Second World War to American military presence in the Arabian Gulf today, the U.S. military is historically linked to oil and its global exportation lanes (Clemens, 2012). While the U.S. maintains an interest in the Middle East, U.S. domestic shale oil production has the capacity to meet America’s future oil demands. Therefore, instead of serving as the lead global force that ensures worldwide safety of oil trade, the U.S. and its military can develop and leverage Partner Nation interests with respect to global security imperatives. In order to facilitate a new global paradigm and a strategic rebalance to the Asia-Pacific region in the face of decreasing U.S. military funding, the U.S. should partner with China to secure the maritime straits.

“Sorry, No Gas:” A History of Dependence

Since the mid-1940’s, America has been largely dependent on oil from the Middle East and has employed its military to ensure unfettered access to oil from the region, a pattern that developed toward the end of World War II. An essential commodity to the Allied campaigns around the world during the war, refined petroleum was used across the spectrum of military operations (Klare, 2004). On February 14, 1945, with the war coming to a close, President Franklin Delano Roosevelt and Saudi King Abdulaziz Ibn Saud brokered a deal whereby the United States would receive consistent access to oil in exchange for military protection for the Kingdom. President Roosevelt understood that access to inexpensive and dependable oil was critical to America’s new role as a world superpower. The requirement to support the House of Saud in exchange for an oil supply would serve as an underpinning for the employment of the military for the next six decades (Lippman, 2005). This policy, while never developed in national security strategy documents, is manifest throughout the second half of the 20th century in Presidential addresses to Congress and the American citizenry, such as the January 1957 Eisenhower Doctrine and President Richard Nixon’s November 1973 address to the nation (Klare, 2004).

America’s alliance with Israel collided with its reliance on Middle Eastern oil in October of 1973, when Iran and the Arab members of the Organization of Petroleum Exporting Countries (OPEC) cut off all oil exports to the United States in retaliation for U.S. support of Israel during the Yom Kippur war. Oil prices quadrupled in months and Americans waited for hours in line at gas stations only to be greeted with signs reading, “Sorry, no gas.” The embargo was an international embarrassment for America; without oil, America was seen as a paper tiger. (Luft & Korin, 2013).

The embargo had both short and long-term impacts on national security strategy, with immediate plans to place more naval assets in the Arabian Gulf. The embargo’s impact on the military lasted more than 35 years. U.S. military policy in the Middle East hinged largely on the requirement for the United States to secure its flow of oil, ensuring the world’s shipping chokepoints remained secure. This policy remained largely undocumented until 1979 with the codification of the Carter Doctrine, which underpinned the employment of strategic military assets for two decades. The doctrine, as articulated during President Jimmy Carter’s 1980 State of the Union Address, made clear that the U.S. would employ military force to secure oil from the Arabian Gulf region if necessary (Carter, 1980).

The U.S. Department of Defense forward presence, facilitated by the U.S. military force structure, secured oil in fear that at any given moment a foreign country could interrupt America’s supply. Throughout conflicts in Iraq and Afghanistan, assured access to reliable and sustainable supplies of energy was critical to meeting operational requirements (Voth, 2013). Within the last five years, however, shale oil extraction around the country created the potential to engender American energy independence and facilitate some freedom of military assets. Shale oil allows the U.S. to continue to evolve its economic and military position based on world oil dependence dynamics.

Drill, Baby, Drill: The Shale Oil Revolution

While every president from Nixon to Barrack Obama publicly espoused the notion of ending American reliance on foreign oil as a means of strengthening our strategic position in the world, drilling for shale oil was only recently widely implemented. While much of the technology required for capturing shale oil existed in some form since the early 1900’s and the first recorded act of hydraulic fracturing—a rather complicated and environmentally messy process necessary for extraction of shale oil—occurred in 1947. Shale oil, however, was neither economically nor politically viable until the late 2000’s.

In 2008, as global oil prices rose to an all-time high, "Drill, baby, drill!" became the Republican campaign slogan introduced at the Republican National Convention by then-Maryland Lieutenant Governor Michael Steele (Carnevale, 2008). The wholesale price of oil was an incredible $150 per barrel, a 12 percent jump in less than one year. To put this in perspective, the previous record was $96 per barrel in 2003, a 14 percent increase over the previous year spurred by the onset of the war in Iraq and the Venezuelan coup attempt (Kliesen, 2008). At a cost of production at approximately $86 per barrel, shale oil was now economically feasible and America found itself shifting to a new energy paradigm (Francu, et al., 2007). By 2012 the gap between U.S. oil production and oil consumption reached its smallest level in two decades, with 92 percent of the increase in production resulting from shale oil drilling, as demonstrated in Figures 1 and 2 (Ratner & Tiemann, 2014).

Figure 1: U.S. Petroleum Supply, 1970 – 2040 (U.S. Energy Information Administration, 2014).

Figure 2: U.S. Production of Crude Oil from 1860 to 2013 (U.S. Energy Information Administration, 2014).

This trend should continue as extraction from vast shale oil reserves in the U.S. becomes increasingly profitable for private companies (Maugeri, 2013). In 2012 the Energy Information Administration (EIA) estimated the four largest oil fields in the U.S. contain approximately 58 billion barrels of crude oil, an increase of its 2011 estimation of 33 billion barrels (United States Energy Information Agency, 2014). Without a reliance on Middle Eastern oil, the U.S. is less inclined to conduct military intervention within the region, as domestic oil production allows the U.S. to serve other interests.

It is worth noting that the extraction of shale oil is politically and environmentally complex with many considerations for its evolution over the next several decades. With impact on air quality, water consumption, water contamination, and local communities, shale oil’s future within the U.S. is a subject rife with contention. Controversy and environmental impact notwithstanding, the more oil the U.S. produces domestically, the less the country is required to rely on oil from outside its borders. Shale oil is promising and the current American oil boom is the initial manifestation of its potential. America is, after all, in the midst of a debt crisis and shale oil has the potential to improve the U.S. balance of trade and generate job growth and revenues in producing states.

Strategic Considerations

Perspective on the role of oil globally is critical to an understanding of the context of America’s position relative to the Middle East given increased U.S. domestic production. Oil is a fungible commodity, having equal value independent of source and demand destination. A decline in global demand by the U.S. can be offset by an increase in global demand by another country. Over the past decade, with an eye toward removing assets from the Middle East upon completion of the conflicts in Iraq and Afghanistan, America reduced consumption and imported most of its oil from Canada, Venezuela, and Nigeria rather than the Middle East. This has not impacted the price of global oil as declining U.S. demand has been offset by increased demand from Asian-Pacific countries for the same oil source. This global nature of the oil market requires a credible military presence, U.S. or otherwise, to ensure access for all nations to benefit. Since 1957, Saudi Arabia’s global role has been to pump as much oil as necessary to keep prices moderate and stable in return for security guarantees. Therefore, ensuring freedom of movement through the Strait of Hormuz, as prescribed though the Carter Doctrine, is the main reason the U.S. allocated forces to the Middle East.

As the U.S. grows less dependent on the Middle East for oil, the fungible nature of oil means the U.S. must still ensure a stable price for itself and allies who do not have domestic production. Assured access to oil therefore reduces energy supply shocks, which is key to the U.S. energy strategy of affordability. The global nature of the oil market and the impact of supply insecurity within other major energy markets influence the globalized economy and ensures the United States must retain a keen eye on the Arabian Gulf and, by extension, the entire Middle Eastern region. Further, Iran and threats to Israel will likely require continued U.S. military focus on the area even as U.S. oil imports from the region wither.

The problem, then, cuts both ways; domestic production frees the U.S. military force structure to align with and be shaped by strategic objectives outside the Middle East, but there is a limit to that freedom. The oil market necessitates an American strategy that includes supervision of the global commons, specifically maritime space. Maintaining free passage of energy products through maritime choke points is an explicit national interest of major global powers and the U.S. continues to commit naval resources to the most significant of these chokepoints, specifically the Straits of Hormuz, Malacca, and Singapore (Emmerson and Stevens, 2012). Since the U.S. cannot completely abandon the Middle East, leveraging its shale oil reserves to encourage more dependent countries to assist in the role of global policeman becomes increasingly attractive. China, with its expanding military and growing demand for Middle Eastern oil and militaries is an obvious choice to assist in securing these choke points.

The new national security strategy, outlined in President Obama’s 2012 “Priorities for 21st Century Defense” adopts a strategic rebalance to the Asia-Pacific region (U.S. Department of Defense, 2012). This strategy is an outgrowth of the economic rise of China during the Cold War and the globalized economy’s linkage to the region. The policy is facilitated by, but not based on, America’s ability to sustain oil supplies domestically and deflate our reliance on Middle Eastern oil, along with our extraction from conflict in Iraq and Afghanistan.

To be sure the shift of resources to the Asia-Pacific is not directly linked to domestic oil production; Asia has been neglected strategically and is now a tinderbox with China and North Korea as strategic threats. The Asia-Pacific is the world’s center of gravity for population, military dominance, economic productivity, and technological advancements.

China is poised to replace America as the largest consumer on the global oil market (United States Energy Information Agency, 2014). This trend indicates a marked shift in the future of U.S. energy geopolitics, national security strategy, and foreign policy. China, which lacks domestic production capacity to keep pace with its economic expansion, has become an evolving power with concerns about sea shipping lanes, particularly the Strait of Hormuz and Strait of Malacca. China imports the majority of its oil from Saudi Arabia and Iran (United States Energy Information Agency, 2014). In 2011, of the 17 million barrels of oil per day that flowed through the Strait of Hormuz, 10.4 million were shipped through the Strait of Malacca, with almost half bound for China, as depicted in Figure 3 (United States Energy Information Agency, 2014).

Figure 3: 2011 Oil flow through the Strait of Malacca (U.S. Energy Information Administration, 2014)

China and the U.S. are amidst a global paradigm of financial interdependence. They are the primary and secondary economic actors in the world with great opportunity for international cooperation: China holds nearly 1.5 trillion dollars in U.S. Treasury bonds; China’s growth is due in some part to American investments and massive exports from China to America; American corporations reap benefits from the cheap labor force in China (Katz, 2014). One of the greatest opportunities is for China and America to share the policing of the global commons. America’s decreased reliance on foreign oil facilitates this option.

China’s current naval strategy is regionally focused and based heavily on coastal defense; however, it is evolving into a global strategy facilitated by the expansion and protection of sea routes, an effort aimed at protecting its shipping (Saez, 2013). Diplomatically, the United States can leverage or compliment China’s growing role in securing the commons, perhaps establishing an increased Chinese role. Militarily, U.S. and Chinese navies, operating under a collaborative agreement, can develop a relationship to protect shared interests in maritime energy shipments, both in Asia and along supply routes bringing energy to Asia from Africa, Russia, and the Middle East. The U.S. Army is establishing a dialogue and an exchange program with the Chinese People’s Liberation Army and such engagements may extend to other branches of the military (Wong and Jacobs, 2014). This coordination may galvanize security commitments from China while allowing U.S. military planners to better match available funds to feasible strategic objectives for maritime security operations.

Such cooperation with China would also reduce the potential for misunderstanding, confrontation and conflict with the U.S. To a limited extent, anti-piracy cooperation between the United States and China is already occurring. To be sure, the U.S. military does not historically employ forces toward mutual strategic objectives with a growing competitor or near rival. The fact that the U.S. military is getting smaller while the Chinese People’s Liberation Army is growing is both a concern and an opportunity. China currently lacks the naval capacity of the U.S. and America will remain the dominant force in the Pacific Ocean for the next decade, which means the U.S. military has the ability to facilitate the flow of energy to China, but this may not remain true in two decades. The U.S. is rapidly reducing its military across all branches, and an increased Chinese maritime hand in the region would not only ease the burden on the U.S. military as a global police force, but will ensure U.S.-Chinese national strategies grow dependent on each other (MacDaniel, 2012).

On the Korean peninsula, China and U.S. share the desire for stability and peace. North Korean instigation and a possible U.S. response is a major concern for China, which is reliant on stability on its periphery. The regional message facilitated by increased military cooperation between China and the United States could deflate North Korean saber-rattling. Chinese assertiveness in the seas could further mute North Korean aggression.

There is great risk associated with allowing security of the Straits of Hormuz and Malacca to fall to China and allowing an emerging power the capacity to shape the global oil market. This risk, however, is largely mitigated by the fact that China has a greater need for stability in these straits than any other nation. China must increase oil imports to keep pace with its growing economy and must therefore expand its regional maritime power to a global one. Further, China surely appreciates the U.S.’ history of force employment toward its strategic resources. There are, perhaps, greater risks for both nations in failing to partner to stabilize the maritime lines of commerce as their economies and national strategies grow dependent.

It is also worth noting that while the US has long supported open sea lanes, China shows some signs of wanting preferential access to, or control of, the sea lanes. The relationship the US builds with China must be one based on free maritime access for all. Both parties must reassure Japan and South Korea that they, too, can use the sea lanes. Any U.S./China agreement must ensure that if given a larger maritime role, China will not give itself preferential access, as this would pose problems for other importing nations.

Indeed, China’s current pollution problem, resultant from its overreliance on coal, almost makes increased partnership with the U.S. more valuable. Chinese reliance on coal created pollution that now impacts economy and life expectancy and is perhaps the largest domestic problem within the country. The People’s Republic of China must move off coal and toward increased oil imports. Outside its borders, China’s major weakness is the Strait of Malacca, a geographic location that, if blocked, could suffocate the world’s second largest economy. The strait is the single point of failure for China and the country’s isolationist policy has placed it at risk there. America, projected to be one of the world’s largest energy exporters in the next two decades, will have a shared interest in keeping the strait open for its energy exports.

Japan and a Chinese-U.S. Partnership

A Chinese-U.S. partnership to provide access may make Japan question its long-standing relationship with the United States. Japanese perception represents element of risk within an American commitment to work with China toward maritime security. Japan, however, has very limited oil resources and relies heavily on imports from the Middle East. An increased Chinese hand in securing the global commons could enhance cooperation between the two countries in the coming decades.

The Treaty of Mutual Cooperation and Security between the United States and Japan supersedes any maritime security arrangement between the U.S. and China. China, Japan, and the U.S. have an interest in combatting piracy and a maritime security agreement to do so would not make these countries formal allies. Nor would such an arrangement solve Chinese/Japanese territorial disputes; the larger problems between China and Japan would remain unresolved but U.S./Japanese relations would continue unhindered.

Ultimately, China, Japan, and the United States have an interest in creating an environment wherein countries can exercise trade without coming into conflict. This, indeed, is the point at which all major players in the Asia-Pacific can cooperate.

Conclusion

The U.S. military will maintain a force posture in the Middle East to protect U.S. interests and allies from instability and to ensure a foreign hand does not restrict access to oil. However, the Carter Doctrine will no longer shape the alignment of the U.S. military. While the U.S. will maintain an interest in ensuring a free flow of oil to its allies, domestic shale oil is emerging as a powerful element in the global military-economic dynamic, one that allows American energy independence and facilitates the U.S.’ strategic rebalance to the Asian-Pacific region at a time of military force reduction. Further, shale oil may allow the United States to forge a military partnership with China, a growing power heavily reliant on imported oil, toward security of the global commons.

References

Bliddal, H. (2011). Reforming military command arrangements: The case of the rapid deployment Joint Task Force. Carlisle, PA: Strategic Studies Institute, U.S. Army War College.

Carnevale, M. L. (2008, September 3). Steele Gives GOP Delegates New Cheer: ‘Drill, Baby, Drill!’ Wall Street Journal. Web. http://blogs.wsj.com/washwire/2008/09/03/steele-gives-gop-delegates-new-cheer-drill-baby-drill/

Carter, J. (1980). The state of the union address delivered before a joint session of the congress. Retrieved from: http://www.presidency.ucsb.edu/ws/?pid=33079

Clemens, W. (2012). Why pick a fight with China. The Diplomat. Retrieved from http://thediplomat.com/2012/05/why-pick-a-fight-with-china/

Clinton, B., (1994). A national security strategy of engagement and enlargement. Retrieved from Historical Office of the Secretary of Defense http://history.defense.gov/resources/nss1994.pdf

Emmerson, C., & Stevens, P. (2012). Maritime choke points and the global energy system: Charting a way forward Chatham House. Retrieved from http://search.proquest.com.ezproxy6.ndu.edu/docview/1081890702?accountid=12686

Francu, J.; Harvie, B.; Laenen, B.; Siirde, A.; Veiderma, M. (2007, May). A study on the EU oil shale industry viewed in the light of the Estonian experience. A report by EASAC to the Committee on Industry, Research and Energy of the European Parliament. European Academies Science Advisory Council.

Geopolitics of U.S. energy independence. (2012). The International Economy, 26(3), 22- 28. Retrieved from http://search.proquest.com.ezproxy6.ndu.edu/docview/1069244137?accountid=12686

Katz, Ian. (2014, Jan. 15). China’s Treasury Holdings Climb to Record in Government Data. Bloomberg News. Retrieved from: http://www.bloomberg.com/news/2014-01-15/china-s-treasury-holdings-rose-to-record-in-november-data-show.html

Klare, M., T. (2004). Blood and oil: The dangers and consequences of America’s growing oil

dependency. New York: Metropolitan Books.

Kliesen, K., L. (2008, April). Oil and the U.S. macroeconomy: An update and simple forecasting exercise. Federal Reserve Bank. Retrieved from: http://research.stlouisfed.org/wp/2008/2008-009.pdf

Lippman, T., W. (2005, April-May). The day FDR met Saudi Arabia’s Ibn Saud. The Link, 38(2), 1-12. Retrieved from: http://www.ameu.org/getattachment/51ee4866-95c1-4603-b0dd-e16d2d49fcbc/The-Day-FDR-Met-Saudi-Arabia-Ibn-Saud.aspx

Luft, G., & Korin, A. (2013, October 15). The myth of U.S. energy dependence: What we got wrong about OPEC’s oil embargo. Foreign Affairs. Retrieved from: http://www.foreignaffairs.com/articles/140172/gal-luft-and-anne-korin/the-myth-of-us-energy-dependence

MacDaniel, Dan. (October, 2012). India, China and the United States in the Indo-Pacific region:

coalition, co-existence or clash? Australian Defence College. Retrieved from: http://www.defence.gov.au/adc/docs/Publications2012/09_US_China_India_in_the_Indo-Pacific_Region_Coalition_Co-existence_or_Clash_McDaniel%20_2_.pdf

Maugeri, L. (2013). The shale oil boom: A U.S. phenomenon. Belfer Center for Science and International Affairs, Harvard Kennedy School, Discussion Paper 2013-05

Nixon, R. (1974, January). Radio address about the national energy crisis. Washington D.C. Retrieved from: http://www.presidency.ucsb.edu/ws/?pid=4208

Obama, B. The White House, Office of the Press Secretary. (2012). Remarks by the president in state of union address Washington, D.C.: Retrieved from http://www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-union-address

Obama, B. The White House, Office of the Press Secretary. (2014). Remarks by the president in state of union address Washington, D.C.: Retrieved from http://www.whitehouse.gov/the-press-office/2014/01/28/president-barack-obamas-state-union-address

OPEC. (2013). World oil outlook. Vienna: OPEC Secretariat. Retrieved from http://www.opec.org/opec_web/en/publications/340.htm

Ratner, M. & Tiemann, M., (2014, January 23). An overview of unconventional oil and natural gas: Resources and federal actions (Congressional Report No. CRS-R43148). Washington DC: Library of Congress Congressional Research Service Retrieved from: http://www.fas.org/sgp/crs/misc/R43148.pdf

Rosenberg, E., (2014, February). Energy rush: Shale oil and U.S. national security. Retrieved from: http://www.cnas.org/sites/default/files/publications-pdf/CNAS_EnergyBoom_Rosenberg.pdf

Saez, F., L. (2013, July). Shale gas and the neo-strategy of the United States. Documento Opinion, 66, 1-14. Retrieved from: http://www.ieee.es/en/Galerias/fichero/docs_opinion/2013/DIEEEO66-2013_NeoestrategiaEEUU_FernandoLiborioSoto_ENGLISH.pdf

Shellenberger, M., Nordhaus, T., Trembath, A., Jenkins, J. (2012, May). Where the shale gas revolution came from: Government’s role in the development of hydraulic fracturing in shale. Breakthrough Institute Energy and Climate Program. Retrieved from: http://thebreakthrough.org/images/main_image/Where_the_Shale_Gas_Revolution_Came_From2.pdf

United States Energy Information Agency. (2012). Strait of Hormuz. Retrieved from: http://www.eia.gov/countries/regions-topics.cfm?fips=WOTC#hormuz

U.S. Energy Information Administration. (2014). Annual Energy Outlook 2014 Early Release Overview.

United States Energy Information Agency. (2014). Petroleum and other liquids [Data file]. Retrieved from: http://www.eia.gov/petroleum/

Yergin, D. (2012). The quest: Energy, security and the remaking of the modern world. New York: Penguin Books.

Wong, E., Jacobs, A. (2014, Feb. 22). U.S. Army Seeks Better Ties With China’s Military. New York Times. Retrieved from: http://www.nytimes.com/2014/02/23/world/asia/us-army-to-increase-ties-with-chinas-military-general-says.html