Study on Energy Supply Security and Geopolitics

views updated

Study on Energy Supply Security and Geopolitics

Report

By: Coby van der Linde

Date: 2004

Source: van der Linde, Coby. Study of Energy Supply Security and Geopolitics. The Netherlands Institute of International Relations, Clingendael International Programme (CIEP), 2004.

About the Organization: The Netherlands Institute of International Relations conducts research and provides training related to international affairs, with special attention devoted to European issues. Coby van der Linde has directed the center's Energy Program since 2001.

INTRODUCTION

In 1973, following an armed conflict between Israel and forces from Egypt and Syria (the Yom Kippur War), the Organization of Petroleum Exporting Countries (OPEC) declared an embargo against the United States and the Netherlands, cutting off shipments to these nations. OPEC also hiked the price of oil by 70 percent for Western European nations, and doubled the price again the following year. As gasoline prices in the United States quadrupled, an economic shock wave hit the West, leading to a recession which lasted well into 1974, when the embargo was eventually lifted.

Beyond the immediate discomfort and economic misery caused by the embargo, Americans and Europeans recognized for perhaps the first time that their comfortable lifestyle was dependent on a continuous supply of inexpensive energy from the Middle East. While political scientists still debate the actual impact of the 1973 oil embargo, American and European politicians clearly learned that insuring energy supplies must be a priority if economic growth is to continue.

In the years since the oil embargo, foreign policy and energy policy have become inexorably intertwined. Oil producers and oil consuming nations have formed shaky bonds in order to insure supplies. The United States and European countries have invested billions of dollars in both political and military efforts intended to insure the steady flow of oil from the Middle East to the West. Russia and the African nations have emerged as powerful players in world energy markets.

Recent events have also reminded the European Union (EU) of its energy dependence. In early 2006, in response to an ongoing dispute over natural gas prices, Russia cut off gas supplies to Ukraine. Following the cut-off, European nations, which import one-fourth of their gas from Russia, noted an 18 percent drop in gas arriving in Hungary, Poland, Austria, and Slovakia. Analysts quickly concluded that this gas, most of it delivered through pipelines traversing Ukraine, was being siphoned off in Ukraine to meet local energy needs. Once again, outside political events had an immediate and tangible impact on European economic health.

In 2004, in response to continued growth in both the population and energy needs of Europe, the EU commissioned a study to assess the future energy supply and demands of European nations in the future. This report, assessing expected developments through the year 2020, predicted that the EU will face significant challenges in obtaining steady energy supplies. It also recommended that energy policy be fully integrated into trade, foreign, and security policymaking, given the importance of energy to the EU economy.

PRIMARY SOURCE

MAIN CONCLUSION AND POLICY RECOMMENDATIONS

7.1 Conclusion

The main result of this study on EU Energy Supply Security and Geopolitics is that energy must become an integral part of EU external trade and foreign and security policymaking. EU foreign and security policy and external trade policy are crucial energy policy tools to achieve future security of supply. The recommendation to include energy issues more prominently in external trade and foreign and security policy-making is based on the fact that the dependency on imported energies will increase substantially in the coming decades (COM 769 final, 2000) and that the uninterrupted flow of energy will mainly depend on the political and economic stability of the producer regions. Even though this study has focused on geopolitical issues from a predominantly energy perspective and that other important issues of external trade and foreign and security policy have not been directly analysed, the conclusion is nevertheless that energy will greatly determine foreign relations in the future.

Overall, security of energy supply is of vital interest to the member states. If security of supply is or becomes uncertain (for some or all member states) or the level of security is asymmetric among the member states, the urge to implement national energy security policy by certain member states, to guarantee these supplies, might well become stronger. However, due to the integration and liberalisation of the EU energy markets, the scope for national policies to ensure adequate levels of security of their own has decreased significantly. To the extent that member states find it necessary to forge national security of supply policies at the level of national foreign policy-making, this strategy to deal with supply concerns will not only interfere with EU energy policies but could have negative effects on the development of EU foreign and security policies. Considering the external energy dependency of the EU and given the internal market, it may be that the EU has no other alternative but to develop a coherent energy security policy that addresses the current asymmetry in exposure among the member states.

The EU is a project that is fundamentally embedded in the multilateral post-1945 world system. Any weakening of multilateralism will strongly impact the environment in which EU enlargement and the deepening of integration can take place. In a less multilateral oriented world system, the EU can be expected to change from an economically driven project into a political-strategic driven project. This does not mean to say that a re-orientation of the EU to a political-strategic project is in conflict with a multilateral world order. However, when such a re-orientation must take place under the mounting external pressure of a less multilateral oriented geopolitical system rather than as a result of internal choices, the EU member states might find that the time frame to realise such a re-orientation does not fit the usually long process of consultations and could therefore create new complications and unpredictable contingencies. Under the circumstances, it is altogether possible, given the wide divergence in political-strategic issues among the member states and the difficulty in the EU to address the power question that the political-strategic project may not succeed. Notably absence of a common direction in political-strategic issues could jeopardise the formulation of an EU security of energy supply policy and fuel the preference for national approaches.

Due to the growing energy import dependency of other main consumer regions, such as the US, India, China and other Asian countries, energy relations will become increasingly politicised. In other consumer countries, energy security will also become a more integral part of foreign and security policymaking. Competition among consumer countries for energy supplies is likely to become more intense than in the previous two decades. The changed circumstance will necessarily have an impact on the international economic and political relations in the world.

In the past decades, the Trans-Atlantic relationship has been of great importance in EU-Middle East relations, and has left little room for an independent EU approach (for instance the 1970s Euro-Arab Dialogue). The energy interests of the US are a primary factor why the independent approach of the EU has not received much support in the US. In recent years, the fate of the Energy Charter has been similar to earlier initiatives towards energy producing countries. The current Charter is a much-diluted measure compared to the initial plan to build and to strengthen the European-CIS energy relationship. The promotion of the long term energy interests of the EU is important and can coincide with stronger relations with neighbouring countries and/or regions. For instance, North Africa, the Persian Gulf, the Caspian Sea region and Russia are neighbouring regions of the enlarged EU and are all economies that are, some more than others, important trading partners. With the east and southward shifting borders of the EU, the external trade and foreign and security policy of the EU will certainly be influenced by enlargement; in particular by the possible enlargement with Turkey, which would create direct borders with Iran and Iraq. There is clearly room for neighbouring countries or regions to integrate their markets with the EU. Consequently, the EU could, as a part of its (energy) policy-making strategy, facilitate a deeper integration of markets.

EU external trade policy and foreign and security policy will be instrumental in securing an uninterrupted supply of oil and gas by underpinning the political and economic stability in producer countries and maintaining good relations with these countries. Security of demand is of vital interest to the producer countries, which has to be acknowledged. A coherent and well co-ordinated EU approach in producer consumer relations is an important precondition to achieve an acceptable level of energy supply security.

As a consequence of the geopolitical developments in the period to 2020, the probability of events affecting the energy security of supply and the exposure of the EU (to the vulnerability of society to risks) is likely to increase. In addition to traditional energy policies, such as strategic reserves, foreign and security policy should also be seen as crucial element of the energy security toolset. The effectiveness of the policy tools depends not only on the ability to employ domestic energy assets, technical and operational factors, transportation and import facilities, investment climate and the availability of foreign oil and gas supplies, but also on the geopolitical setting in which these policies must perform. Given the dynamic developments in the international political and economic relations, a static approach to energy security does not suffice.

Energy supply security therefore requires a dynamic external trade and foreign and security policy towards North Africa, the Persian Gulf, the Caspian Sea region and Russia. Moreover, the EU policies should be focussed on political and economic sustainability in producer regions/countries to guarantee the long term security of supply of oil and gas. For this reason, stability in North Africa and the Persian Gulf must be seen in the wider context of stability in the Middle East and in Central Eurasia. Given the current level and kind of instability in these regions, the realisation of a more stable situation will take time….

SIGNIFICANCE

While the United States is often the most visible (and militarily active) player in the international petroleum game, the EU economy is today the largest marketplace in the world. This report acknowledges that the European Union, if it wishes to achieve its goals for economic growth, must act to insure its energy future.

Because of its geographical proximity to many of the petroleum producing nations, Europe appears likely to follow the report's recommendations, potentially inviting neighboring petroleum producers to join the EU as a means of insuring continued supplies. In addition, European governments, which have historically been resistant to political involvement in the Middle East, may find themselves forced to take more aggressive steps to insure stability in the region.

FURTHER RESOURCES

Books

Electricity Trade in Europe: Review of Economic and Regulatory Challenges, edited by Janusz Bielecki and Melaku Geboye Desta. The Hague, The Netherlands: Kluwer Law International, 2004.

Huber, Peter W. and Mark Mills. The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run out of Energy. New York: Basic Books, 2005.

Strategic Energy Policy: Challenges for the 21st Century, edited by Amy Jaffe. New York: Council on Foreign Relations, 2001.