At the Intersection of Energy and Foreign Policies

Most of the discussion in recent years about the relationship between energy and international relations has been focused on the subject of "the Great Game"-the competition to create and control export routes for the hydrocarbon resources of Central

Most of the discussion in recent years about the relationship between energy and international relations has been focused on the subject of "the Great Game"-the competition to create and control export routes for the hydrocarbon resources of Central Asia and the Caspian Sea-as well as to locate alternative sources in other parts of the world, such as West Africa. Certainly, the question of diversifying the world's hydrocarbon supply will remain a key issue for debate, especially whether economics or security interests should drive development.

Commenting on this question in the pages of The National Interest last fall, Carla Hills, former U.S. Trade Representative, made the case that economic factors should guide energy policy:

Having a reliable energy source is in our national interest, and so the government should craft an energy policy that maximizes the possibilities of creating that reliability.  Providing a subsidy is a different thing, however.  One of the reasons why some pipelines are not developed is because they're not needed now. … They don't provide adequate returns to cover the risk. But if they are needed, the returns will go up, and at a certain point the incentives will become sufficient to cause the line to be built.1

On the other hand, Zeyno Baran, director of the International Energy and Security Program at The Nixon Center, argued earlier this year that the United States has a strategic interest in the successful construction of the "East-West Energy Corridor-the Baku-Tbilisi-Ceyhan (btc) oil pipeline and the Shah Deniz gas pipeline"-even if such projects may not be commercially viable in the short run-because diversification of both energy supplies and export routes "will benefit both the nations of the region and help to ensure the energy security of the Western world."2

But there are several other important intersections between energy and international affairs beyond "the Great Game" that will rise to the fore as this decade progresses. Energy is increasingly becoming de-linked from pre-existing relationships. Already, oil is freely traded around the globe--oil producers have no interest in who receives their bounty and their supplies will go to the highest bidder. Technological breakthroughs in the area of liquefying natural gas mean that it too can become a more flexibly traded commodity. And the growing integration and interconnectedness of electricity grids means that electric power is becoming a transnational commodity, traded across borders-no longer automatically the preserve of a national monopoly.

There is no need to go into great detail about the importance of a consistent supply of moderately priced energy for ensuring that a modern society functions and prospers. A continental country like the United States depends on a steady and inexpensive stream of fuel to power the trucks and planes that transport goods and people across vast distances.3 A developing economy like India or Malaysia needs a reliable power grid capable of delivering energy to factories and service centers without interruptions or slowdowns in service.

One need look no further than the experience of Georgia over the last decade to see how a prolonged energy crisis can cripple and stunt a society. Once one of the most prosperous of the Soviet republics, Georgia's industrial output is 10 percent of its 1990 level and agricultural has relapsed largely to subsistence levels. The Canadian International Development Agency highlights some of the effects of Georgia's energy crisis: heat and electricity are unreliable; power problems exacerbate the deterioration of public services such as health care and sewage treatment and contribute to unemployment. This, in turn, contributes to the country's ongoing political crisis, since "dissatisfaction with socio-economic conditions leads to dissatisfaction with government." (It should therefore be no surprise that most Iraqis place a premium on the restoration of the country's energy infrastructure.  A future regime will be legitimated by its delivery of services--including provision of energy--rather than its ideological commitment to democracy.)

Over time, therefore, a country's "domestic" energy policy is likely to become inseparable from its "foreign" policy. Or, to put it another way, following Tip O'Neill's famous aphorism that all politics is local, energy policy will increasingly define a state's foreign policy position. Take the example of Russia. More than a quarter of Russia's population lives below the poverty line. One of the ways the cash-strapped Russian government has attempted to subsidize the population is by setting low domestic prices for heating and electricity--Russia's gas prices are three to four times lower than those paid by consumers in other parts of Europe. The European Union insists that the Russian government end such policies, insisting that the Russian domestic market charge export prices for energy, and has made this demand into a precondition for supporting Russia's accession to the World Trade Organization. On December 2, President Putin rejected this approach, noting that Russia's lower energy prices "objectively" reflect Russia's natural competitive advantages and Russia does not intend to "give them up." He went on to compare Russia's possession of energy reserves to "good weather in eu countries with well-developed agriculture"-a natural endowment for which Russia should not be penalized. Under current conditions, it would be political suicide for any politician to suggest massive increases in energy prices for Russian consumers--even if this prevents Russia from joining the wto or creates tensions in its relationship with Europe, Russia's leading trade partner.4