The United States doesn't have an energy
policy, and it never will. Neither does China,
despite decades of a planned economy. China didn't
even have an energy minister to serve as a
counterpart for Energy Secretary Sam Bodman when
he and Treasury Secretary Henry Paulson led a US
delegation to Beijing last year to inaugurate the
Strategic Economic Dialogue.
Both the US
and China are oil energy price takers - not price
givers - in a world where there are only two kinds
of actors. But the US's similar circumstances may
make these high-level
discussions much more
important than might otherwise be the case.
When it comes to oil, Americans let
markets and consumption set the agenda. The 1973
shock didn't change behavior in a durable way.
Neither did the spike of the early 1980s. The
post-September 11, 2001, trajectory saw the price
of standard crude oil move from under US$25 per
barrel in September 2003, tripling to around $80
per barrel last year.
Oil dependence is a
fact of life. While the neuralgia about it has
deepened, neither the government nor markets have
seen much reason to reduce US political risk
through conservation and an all-out technological
commitment.
The US isn't alone in this
conceit of inaction. China has joined the US as a
world-class consumer, gobbling up oil and
competing for energy assets around the world.
Indeed, four of the world's top five oil importers
are Pacific nations - including the US. The US
Navy's Pacific fleet protects more than 90% of the
oil flowing to China, Japan and South Korea.
What if the US leadership proposed in the
next round of the US-China dialogue that these
energy-hungry engines of global prosperity join
together to discuss how they could cooperate in
reducing their dependence on oil?
Of
course, in a world of price givers and price
takers, what good does it do to celebrate the US's
dependence? It's important to understand the
potency of impressions in oil markets. These
markets don't react, they only overreact. Think
about what would happen to assumptions about the
future price of any product if four of its biggest
buyers sat down to discuss their interests in a
public way.
The mere fact of a meeting and
the possibility of some coordinated behavior could
send a powerful message to sellers that bargaining
power and leverage are moving. They may confront
an inflection point. To be clear, the goal of such
cooperation isn't to emphasize "us/them" politics
in a zero-sum game with producer nations. The
countries need each other and the US needs an
orderly market. But that market doesn't operate
freely now, so there's no harm in sharing views
among the four major buyers.
Substance
does matter, however, and the opportunities for
cooperation are tangible. Most obvious is the need
for better coordination of strategic petroleum
reserves in Asia. China is at the nascent stages
of developing an oil reserve. Like much in that
system, this process so far lacks visibility and
is largely unconnected with the international
system.
Because China isn't an
Organization for Economic Cooperation and
Development member, it can't be a member of the
international body that does the most to
coordinate emergency reserves, the International
Energy Agency (IEA). But there is no reason the US
cannot take steps to build off of the strong
coordination it has enjoyed for decades with Tokyo
and start to imbed China and South Korea, to an
even greater extent, in the international energy
economy in a way that reduces uncertainty and
builds confidence.
But China is a
strategic competitor and will never be an ally,
unlike both Japan and South Korea. Isn't
increasing energy coordination with Beijing
dangerous? To the contrary.
First, knowing
what China will do in an energy emergency is vital
to US crisis management, but every day is a crisis
if your energy imports are growing. Co-option -
making China more of a status quo power - is an
urgent US interest. So too, reducing China's fear
of being left alone in the cold may reduce its
accretion of influence in Africa and Latin America
through aggressive purchases of oil assets there.
Second, if four of the world's most
technologically innovative countries sit down
together, it could prompt a broader, deeper
dialogue about both technology gains and
conservation. Japan has shown how powerful a
national commitment to reducing oil consumption
can be. In addition to transferring learning and
best practices, a dialogue of this kind could
create political cover at home for belt-tightening
that no US government - and no Chinese government
- has been willing to undertake on its own.
Third, the very fact of notional consumer
cooperation puts the most pressure on the
exporting countries with the greatest dependence
on exceptionally high oil prices: the three with
questionable economic fundamentals. Iran,
Venezuela and Russia are all thorns in the side of
broader US interests. The more downward pressure
on world oil prices, the less leverage these
regimes have on the US.
To be clear, it is
not possible to create a buyers' cartel - a notion
that has been under consideration since the
mid-1970s. The IEA was conceived to serve this
goal, but it has reached the limits of what is
possible with its diverse membership. But if the
fastest-growing and most innovative economies on
the planet set a tone and direction, the signal to
markets is that something may be about to change.
At the very least, an effort by China and
the US to work together on a problem that
confronts Japan and South Korea too will affirm US
leadership, reduce political risk in Asia and
encourage habits of cooperation that could pay
dividends in other areas.
Kevin G
Nealer is a partner in The Scowcroft Group, an
international business advisory firm. Opinions
expressed are his own.
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