Energy as a tool of foreign policy

In recent decades, there has been an increase in the interplay between foreign policy and energy supplies. This trend as resulted from the significant increase in the number of new international energy supply pipelines that link producers and consumers in long-term supply relations.  The rise in the number of such pipelines has occurred due to: the dramatic increase in the global use of natural gas, the production and export of oil from land-locked states and the Soviet breakup that turned a number of domestic supply lines into international ones.  The interplay between politics and energy supply is set to increase.  Due to the relative low environmental damage from its use, natural gas’s portion of overall world energy consumption is growing rapidly.  Natural gas use also contributes relatively modestly to climate change, increasing its attractiveness and the likelihood of rising consumption in the future.  However, the nature of natural gas renders such supplies much more susceptible to political considerations than those of oil or coal.  Petroleum and coal are traded primarily on international markets with little connection between the supplier and the consumer; natural gas is supplied chiefly in pipelines, creating direct, long-term linkages between suppliers and consumers.  This article examines the use by states of energy supplies as an instrument to promote political and security goals and peace. 

Oil weapon?

Due to the nature of the prevailing mode of world oil trade and supply, “oil weapons” are rarely utilizable by suppliers.  Since the oil market became global in the late 1960s, there have not been successful instances in which suppliers imposed an oil embargo on consumers.  If certain producers decide to halt sales to a specific country, other producers will supply the targeted country.  If the world oil market is tight, the declaration of embargos can cause significant price rises, but in the end in a global world oil market, all consumers will bear the brunt of the price increase.  While oil supply embargos by producers have been an infrequently used and very ineffectual tool, embargos on investment in the oil and gas sectors have at a number of times been imposed on a large number of oil and gas producers and thus are an effective tool in the hands of the consumers.

Natural gas supply as a political weapon?

Due to the large expense of building natural gas supply infrastructures, rarely do states possess multiple supply lines.  In theory, therefore consuming states are dependent on their suppliers and potentially at risk of the supplier taking advantage of that vulnerability to promote political and security goals.  Thus, the trend of growing natural gas consumption creates more opportunities for use of the energy weapon.  However, in most cases, not only is the consumer dependent on the gas supplies, but the supplier is also dependent on the consumer as a market for its gas.

Since natural gas began to be traded internationally on a widespread basis in the late 1970s, suppliers have rarely intentionally cut off natural gas flows.  States that want to serve as long term gas sellers will not quickly sacrifice their standing as reliable suppliers for fear that in the long-run customers will seek other sources of supply or different fuels.  This tendency to wield the natural gas weapon is less about the identity of the supplier than it is about the conditions of the supply relations.  When the suppliers and consumers are interdependent in the need for the trade, the gas supply between them is stable and less vulnerable to political and security ebbs and tides.  However, the existence of major infrastructure linkages in no way creates interdependence.  Whether the relations are dependent or interdependent seems to depend on a number of factors: symmetry in the level of dependence of a supplier and a consumer and the extent to which each of the countries possesses alternative supply or market options, including transport infrastructure. 

Short-term considerations may differ, however.  In the short term, consuming states will pay a much stiffer cost for a cutoff than suppliers.  Thus, suppliers may be willing to pay this cost if they are focusing on short-term goals, such as a political crisis with a consuming state.  In addition, suppliers can use “technical disruptions” to promote short-term political and security agendas without explicitly calling it a cut-off of energy supply and thus not damage their long-term role as supplier.

Transit states often wield the “energy weapon.”  They use their middleman position in attempt to elicit economic, security and other gains.  Therefore, supply arrangements in which transit states lie between the supplier and the consumer are less stable than direct ones and require frequent policy attention of the producer and consumers linked via transit states.  

In most cases of the building of international energy supply pipelines between independent states, good political relations and cooperation precede the building of linkages in major energy infrastructure projects.  Thus, it should be noted that the supply and transit relations between Russia and other former Soviet states are exceptional.  The infrastructure that links Russia with the former Soviet states was built as domestic USSR pipelines and the supplies flowed on a non-commercial basis. 

Policy-makers, legislators, and academics, especially in the US, often float the idea of promoting “peace pipelines” as part of conflict resolution efforts.  In the 1990s, for instance, a number of US lawmakers and State Department officials promoted the idea of bringing Azerbaijan to build its major oil export pipeline through Armenia, as a means to bring peace to the South Caucasus.  Successful energy infrastructure projects require good relations between states as a precondition to be established.  The pipelines are a result of the good relations, not the cause.  And there is no evidence to date that energy supply pipelines can serve as a means for peace in conflict-ridden zones.  In fact, there have been no cases to date of energy infrastructure promoting peace.  Also, no companies have ever undertaken the commercial risk of investing billions of dollars in infrastructure that would link states in conflict.  Despite the lack of any theoretical grounding or cases of where energy linkages promoted conflict resolution, policy-makers continue to promote these projects.

Infrastructure weapon?

While suppliers and consumers tread carefully with the use of supply disruptions, a number of the world’s powers work aggressively to promote and block various natural gas export options and to control infrastructures, in order to promote both political and security goals.  Moscow has sought to gain control of the energy transport and distribution networks in neighboring states for long-term economic gain and leverage over their policies, and to ensure that the energy producers among them export through Russia.  Russia has also aggressively pursued blocking potential natural gas export competitors from entering the European market, such as Iran, Azerbaijan and producers in Central Asia, and works assertively to retain control over Central Asian export.  Iran is the only country that has the volumes of natural gas and the location to pose any major threat to Russia's supply dominance in Europe.  In the spring of 2007, Moscow spent a considerable amount of money to buy out Iran's potential access to the European gas market through Armenia.

Policy conclusions

Governments in consuming states need to stay involved in energy policy.  Today, over seventy percent of the world’s oil and natural volumes are under the control of state entities.  Market forces do not rule on the supply side, and thus should not rule the consumer side.  Just as the market cannot produce national security, it cannot produce energy security.  The market does not create the diverse energy sources, alternative infrastructures, or storage policies that can enhance the security of energy supplies.  The market does not know how to craft the wider political relations in a way to deter use of the energy weapon.  In addition, the market can lead to decisions to promote short-term personal interests, and not the long-term energy security of the state.  While most of the highly industrialized states are in a process of rapid privatization and unbundling of energy production, supply, and distribution, they might need to rethink a role for the state, at least as the guardian of energy security.