Which U.S. States Win and Lose Most From Falling Oil Prices?

The Buzz

Oil prices are plunging. Which U.S. states will benefit most – and which are most at risk?

A study that the Council on Foreign Relations published about a year ago looked at exactly this question. The research, by Mine Yucel of the Dallas Fed and Stephen Brown of UNLV, ranked Wisconsin, Minnesota, and Tennessee as the biggest potential winners, and Wyoming, Oklahoma, and North Dakota as those with the most to lose.

Oil prices have fallen by about twenty percent in the last few months. Brown and Yucel combined statistical analysis of the historical relationship between oil prices and employment with current data about state economies to estimate what a twenty-five percent price rise would do jobs. They note that the same analysis can generate insight into the potential impact of a price plunge. This map (also see above), which I’ve created by assuming that an oil price drop is as bad for jobs as an oil price rise is good for employment (Brown and Yucel discuss the value and limits of such an assumption in the paper), shows the results.

Brown and Yucel add some additional insight into the dynamics at work here:

“States like Texas and Louisiana that have downstream oil and gas industries that benefit from falling energy prices such as refining and petrochemicals would be less affected. In addition, states in which natural gas is more prominent than oil are likely to see less harm from falling oil prices. With the recent weakening in the relationship between oil and natural gas prices, a decline in oil prices does not necessarily imply as big a change in natural gas prices as it once did, lessening the effect of an oil price decline.”

They also provide historical perspective:

“When oil prices collapsed to near about eleven dollars per barrel in 1986, the Texas economy went into a deep recession for two years. Economic output contracted 5.6 percent and employment fell 1.1 percent…. Even though oil and gas extraction accounted for 19 percent of the Texas economy in 1981, that share was the second smallest among the eight oil-sensitive states (West Virginia was smallest). As a percentage of state GDP, the oil and gas sector accounted for 49 percent in Alaska, 37 percent in Wyoming, 35 percent in Louisiana, and 20 percent in North Dakota. The 1986 oil price crash also caused a recession in most of these states, with employment declines largest in Wyoming (-5.9 percent) and Alaska (-4.5 percent)—states with the largest oil and gas output shares.”

The historical record – both anecdotal and leveraged using statistics – is far from a perfect guide to the future, particular with massive changes in the U.S. oil and gas industry in recent years. And the fall in prices isn’t yet remotely comparable to 1986. Nonetheless, if you’re looking to see where and how falling prices might help or pinch economically, the Brown and Yucel study is a great place to start.

This piece first appeared in the CFR blog Energy, Security and Climate here.

TopicsEnergy RegionsUnited States

The Iran Nuclear Talks: Show Us Your Brackets

Paul Pillar

In any negotiation one can never be sure until the end how much either side is temporarily holding out for something more than what they will eventually accept. Some optimistic comments have been made about the nuclear negotiations with Iran, to the effect that we should not pay too much attention to indications of stalemate because both sides probably are saving their biggest remaining concessions until the last minute. Maybe, but there still seems to be good reason to worry that we may blow the best opportunity in a decade to get off a fruitless course of confrontation with Iran, to secure the declared objective of Iran never getting a nuclear weapon, and to unshackle U.S. diplomacy to deal better with other regional problems.

We will blow the opportunity if our side sticks stubbornly to the notion that limiting Iran's uranium enrichment program to X number of centrifuges or Y number of separative work units is so important it is worth killing an agreement altogether—in which case, of course, there would be no limits at all on Iran's enrichment program. It is not so important, and the fixation on “breakout” is badly misguided because any possible response to such an Iranian move would not depend on the sort of “breakout times” being talked about and because the fixation ignores the whole motivations and incentives side of an agreement.

One should hope that enough good sense will prevail to realize this, and that enough political fortitude will prevail to resist the demands of those who have been battling good sense on this issue all along. But with the current target date for completion of the negotiations just a few weeks away, it may be time for the authorities on both sides of this negotiation who realize the advantages of reaching an agreement to try something different.

So far not many details of what has been tentatively agreed to have leaked out. That generally is a good thing in any negotiation, and a sign of seriousness and good will on both sides. Keeping what is on the negotiating table confidential means neither side has shifted entirely to a mode of publicly assigning blame for failure, and the confidentiality is consistent with the principle that nothing is finally agreed to until everything is agreed to—a principle that facilitates flexibility in making offers and exploring the bargaining space. But with the danger of failure looming, it might be time to try something different.

According to the meager indications that have leaked out, the negotiators already have arrived at common language for the great majority of provisions in an agreement. Differences remain on just a few sticking points such as capacity for uranium enrichment and the length of time Iran would be subject to the one-of-a-kind restrictions that the agreement would entail. The parties should consider making public the draft agreement as it now stands, with the continuing disagreements indicated through bracketed language.

Doing so would be a recognition that in many ways the toughest political contest is being waged not between governments in the negotiating room but instead between each government and anti-agreement hardliners on its own side. Making public the draft bracketed agreement might help to overcome in several ways the hardliner opposition.

For one thing, exposing the draft agreement would underscore how far the parties have come, how close they are to inking a final deal, and how much of a shame it would be to throw the effort away through stubbornness that causes the talks to collapse. Making a bracketed text public also would place the burden of proof on those who would contend that something like the difference between X centrifuges and Z centrifuges is of deal-killing import—when in fact it is not.

Letting us all see the terms of a draft deal might help us get away from a silly mantra that has been so drummed into the discourse by opponents of any agreement with Iran that even those who support the negotiations sometimes voice it. The mantra is “no deal is better than a bad deal.” The mantra is a fatuous tautology. Whether a particular deal is good or bad depends on comparing it with no deal. Seeing the terms of an actual draft agreement would enable all of us to make that comparison. And what could then be demanded of the hardliners on both sides is: explain exactly why no agreement at all supposedly would be better than the terms you see before you—even with the bracketed language that the other side wants. Hardliners on our side would have to explain why the absence of agreement—meaning no restrictions on uranium enrichment, no enhanced inspection and monitoring, and nothing else in the way of special requirements being placed on Iran—would be better than allowing Z (rather than X) number of centrifuges.

Negotiating practice being what it is, such a public revelation probably won't happen unless the target date next month is reached without a deal being struck. But by then it may be too late.


TopicsIran RegionsMiddle East

The World Needs More Nobel Controversies

The Buzz

The Norwegian Nobel Committee has abandoned its recent fondness for giving the Peace Prize to aseptic international bureaucracies, giving this year’s award to Malala Yousafzai, a human, and Kailash Satyarthi, another human. That’s a positive step, and the two clearly deserve recognition. The sort of work they do—advocating on behalf of children—also merits international notice, as many states around the world are experiencing massive “youth bulges.” This global bumper crop of young people will shape this century for good or for ill, and people like Yousafzai and Satyarthi are fighting on the side of good. The two are also from opposite sides of one of the world’s many bloody frontiers—Satyarthi is a Hindu from India, Yousafzai a Muslim from Pakistan. They’ve invited their leaders to join them at the award ceremony in December, prompting jokes that they’re already working on their next Peace Prize.

Both had already won a raft of international honors. Their cause and their heroism is almost universally acclaimed in fashionable circles. There won’t be a Nobel controversy this year.

And it’s a shame there wasn’t.

2014 has been a terrible year. A new European war opened up in Ukraine. Israel and Hamas were at each other’s throats again. The Syrian civil war, which didn’t seem like it could possibly get any worse, did, with a new barbarism emerging and spreading into Iraq. International tension is on the rise in East Asia and between the great powers. Afghanistan, Pakistan, Somalia, Yemen, Mexico, Nigeria, Libya, the Central African Republic and others became or remained bloody messes. That the people “who shall have done the most or the best work for fraternity between nations” (as Alfred Nobel’s will put it) in such a year would be a pair of children’s-rights advocates shows us just how far we are from peace.

Today’s international system is in serious disorder. We do not need prophets to scourge us or minor saints to rescue a few of us from the rising tide of blood. We need statesmen who are not afraid to wade into it, to be stained by it, but finally to stop it. War ends when the war-makers choose peace. And peace lasts when the war-makers shape it to reflect their interests and their mutual fears, so that the next generation of potential war-makers will be satisfied, too. Peace can be an ugly business. The pure in heart often play only minor parts.

That is reflected in the history of the Nobel. Some of the greatest steps for peace were taken by people your postcolonial studies prof would have called “problematic.” Anwar Sadat, anti-Semite, Nazi fanboy and author of a war of aggression against a neighboring state, won his alongside Menachem Begin, a retired terrorist who was no stranger to acts of aggression himself. The peace they made dramatically reduced the chances of another massive Arab-Israeli war—a war which, if the previous one is a guide, would introduce real dangers of nuclear attack and even great-power conflict. The humanitarian benefits of that peace were enormous, and continue to accrue to this day. The story’s similar elsewhere. We find a number of warring parties. We find the great imperialist Teddy Roosevelt, who helped settle the Russo-Japanese War. We find apartheid leader F. W. de Klerk and Nelson Mandela, who long refused to give up armed struggle. Taken together, the grubbier winners of the Nobel could rightly claim that they saved the lives of hundreds of thousands—if not of millions.

So we should hope that this time next year, the salons are howling with outrage at the news of the Norwegians’ choice. We should hope, indeed, that the Norwegians found themselves with many equally ugly alternatives. That would be a sign that the world was back on the way to stability, that the bloodshed had slowed. And if they must once again give the Peace Prize to someone we could all agree on? I hope we’ll still be here to politely applaud.

John Allen Gay, an assistant managing editor at The National Interest, is coauthor of War with Iran: Political, Military, and Economic Consequences(Rowman and Littlefield, 2013). He tweets at @JohnAllenGay.

TopicsSecurity RegionsPakistanIndia

Leon Panetta’s Worthy Fight?

The Buzz

President Barack Obama has a lot on his plate: a U.S. military campaign against the Islamic State in Iraq and Syria; the Ebola outbreak in West Africa; the stalemate in Ukraine; terrible poll numbers; sincere doubt among the American people on his presidential leadership abilities; and the fact that his party is likely to lose control of the Senate in November.  So the president must not have been pleased when his former Secretary of Defense and CIA Director, Leon Panetta, added on to the pile with some very harsh criticisms about the Obama administration’s foreign and national security policies.  

In his memoir (Worthy Fights) released on October 7, Panetta writes like the straight-shooter, candid public servant that he’s been known for throughout his career—a resume that included a stint in the Nixon administration, a Democratic congressman representing California for 16 years, President Bill Clinton’s budget director and chief of staff, and Obama’s pick to lead the Pentagon during a time of straining defense resources and automatic budget cuts.  According to multiple reviews that have been published about the book (I haven’t read the memoir yet), Panetta is direct in both what President Obama got wrong and what he got right.  Panetta calls Obama a highly intellectual and analytical person who weighs all of the costs and unintended consequences before making a decision, and describes him as a “strong leader on security issues” during his first term.

It was the next two years, Panetta says, when Obama “lost his way,” as he put it to USA Today’s Susan Page in an exclusive interview touting the book’s release.

Panetta has a set of complaints similar to those that Robert Gates, another Obama Defense Secretary, wrote about in his own memoir, Duty.  Obama, for one, didn’t seem to value the advice of his cabinet officials as much as he could have—particularly when important national security priorities were under discussion.  The National Security Council largely called the shots on matters of foreign policy, and when agency heads like the CIA, Pentagon, or State Department gave recommendations to the president, they were were often overruled.  “There was nothing wrong with that,” Panetta writes, “but that did have the effect of reducing the importance of the Cabinet members who actually oversaw their agencies.”

Comments like these, of course, should be taken for what they are: relatively uncontroversial, common griping from cabinet officials who would much rather have their recommendations endorsed by the president than thrown on the shelf for a later date.  What one can suspect the Obama administration does not appreciate, however, are criticisms from Panetta about the president’s policies and capacity as a Commander-in-Chief.

In perhaps one of the more personal digs at Obama’s leadership qualities as president, Panetta writes that Obama “relies on the logic of a law professor rather than the passion of a leader." On occasion, he "avoids the battle, complains, and misses opportunities.”  These are precisely the types of statements that will make congressional Republicans and G.O.P. contenders for the 2016 presidential election giddy with excitement.  In fact, if given that quote without Panetta’s name attached, one would assume that it came from a Republican like Sen. John McCain or Speaker John Boehner—not by a longtime Democratic operative who served Obama for four years.

The same goes with another nugget, deployed in a story by Peter Baker of The New York Times, in which Panetta writes that Obama hoped “that perhaps others in the world could step up to the plate” as the United States sought to rebalance its role in the world.  This is a common talking point for Republicans, many of whom love to invoke the argument that the president is deliberately trying to lessen American’s commitments overseas so he can tackle the domestic, legacy-like issues.  Sen. Bob Corker and Sen. Lindsey Graham could just have easily used this kind of rhetoric for a press release.

Should we read anything into these specific quotes?  On the surface, they appear to show a wide and distinct disconnect between a president and his former Secretary of Defense—a gaping hole that Republican candidates will be eager to fill in an election year that has already been friendly to the party.

But, looking beyond the juicy remarks that journalists have used in their stories, it’s likely that the media storm brewing over Panetta’s memoir will pass sooner rather than later.  Robert Gates did some damage to the Obama foreign policy brand for a few weeks after his own book was published, yet no one really talks about it anymore.  At the time, Gates forced the White House to push back and defend the administration in the public eye (Vice President Joe Biden took the lead in that effort), but Obama’s legacy wasn’t severely harmed as a result.  Panetta’s Worthy Fights will likely follow a similar direction, even if White House officials are scrambling right now to produce a legitimate defense.

There’s only one big difference between the Gates and Panetta accounts: the latter was published during the height of a midterm election year.  Given the date of the book’s release—four weeks before election day—the respected, career Democrat may have inadvertently provided Republicans with more ammunition on the stump.    

TopicsPolitics RegionsUnited States

A Man-Made Ecological Catastrophe: More Than Half of All Earth’s Vertebrates Have Disappeared

The Buzz

In a world of crises from Ebola to Syria, it’s easy to overlook slow-motion calamities. Both the U.S. government and the mainstream media are vulnerable to this myopia, the former in thrall to the tyranny of the in-box, the latter forever chasing what’s “new” in the news. This may account for the silence that has greeted recent scientific evidence that the Earth is experiencing a devastating and potentially irreversible loss of biodiversity. Unfortunately, this man-made ecological catastrophe is unfolding at a gradual, if inexorable, pace in multiple areas of the world. But it is harder to find images akin to a hostage begging for his life, or health workers clad in protective suits, to hold the public’s attention and mobilize political support for action. Thus, humanity continues to sleepwalk, as the planet experiences only the sixth major extinction event in its 4.5 billion year history.

On September 30 the World Wildlife Fund (WWF) and partner organizations issued a jaw-dropping report. According to the Living Planet Report 2014, between 1970 and 2010 more than half of all Earth’s vertebrates (mammals, birds, reptiles, amphibians, and fish) disappeared, even as the human population nearly doubled from 3.7 to 7 billion. This decline occurred everywhere—on land, in rivers, and in the oceans. The main culprits were habitat destruction and unsustainable resource exploitation through commercial fishing and hunting. The greatest declines occurred in freshwater systems, where populations declined by 76 percent. Latin America alone lost 83 percent of its wildlife—the most dramatic drop globally. “If half the animals died in the London zoo next week it would be front page news. But that is happening in the great outdoors,” as one of the reports contributors, Kevin Norris of the Zoological Society of London, told the Guardian.

It is clear by now that Homo sapiens is the most potent invasive species ever. By clearing forests and transforming land for agricultural use and new human settlements, by exploiting and altering water systems, and by polluting the air, rivers, and oceans, we have placed extraordinary pressures on countless species of animals and plants, as well as microorganisms on which natural cycles depend. Last year an exasperated Sir David Attenborough, one of the world’s best known naturalists, declared humans to be a “plague on earth.”

The WWF report seeks to measure humanity’s global “ecological footprint”—that is, how much area is currently required to supply humanity with ecological goods and services. It concludes that the Earth would need to be 1.5 times bigger than it is to allow these goods and services to be regenerated and exploited in a sustainable manner. And things are likely to get worse before they get better. By 2050 the world will add an estimated 2.4 billion more people, even as consumption rises dramatically among swelling middle classes in developing countries.

This week, representatives from nearly two hundred countries have gathered in South Korea for the biannual Conference of Parties to the Convention on Biological Diversity(CBD). One of their main tasks is to assess progress on a set of twenty targets (divided into fifty-six indicators) which they agreed to in 2010. These commitments were designed to slow the destruction of species’ habitats, cut pollution, and stop overfishing by the end of the decade, including by safeguarding ecosystems and encouraging national policies to support biodiversity. So what’s the status?

The news is grim. According to Global Biodiversity Outlook 4, published on the eve of the conference, the world is on track to meet only five of the fifty-six sub-elements. And while there has been some progress on thirty-three others, the world will fall short on these. A recent article in the journal Science, coauthored by more than fifty scientists, similarly predicts that the world will fall woefully short of achieving these goals.

What is becoming ever more clear is that humanity is simply exploiting nature without accounting for the ecosystem services that it provides. Collectively, we are running down our natural capital assets, rather than including them on corporate balance sheets or in national strategies for fostering economic growth. As WWF President Carter Roberts told CBS News, “We’re gradually destroying our planet’s ability to support our way of life…. We all live in a finite planet and it’s time we started acting within those limits.”

This sort of “limits to growth” talk has long been anathema to free market enthusiasts, as well as techno-enthusiasts, who predict that human ingenuity will continue to confound Malthusian predictions of the sort that biologist Paul Ehrlich made in his 1968 work, The Population Bomb. There remains great suspicion, particularly in libertarian and conservative circles, of any statist, public policy steps that would threaten to cap levels of consumption and growth.

The most intriguing approaches to biodiversity loss, however, are likely to come from those who argue that biodiversity loss represents a market externality, often a reflection of the well-known “tragedy of the commons.” The solution is likely to be found in regulatory steps to “internalize” current externalities. One such approach, which has been tried to good effect in some fisheries, is to issue a limited number of “catch shares” and allow fishermen to trade these permits. But the scope of the current ecological calamity requires even more creative ideas about how to account for the “ecosystem services” we get from nature—ranging from soil fertility to clean air to pollination to genetic diversity—including by charging those who run them down to the detriment of us all. Some of the most innovative thinking on these questions has been done by Dr. Gretchen Daily of Stanford University, 2012 winner of the prestigious Volvo Environment Prize.

New ideas must be married to political leadership, however. And here, the United States is in an ambiguous position. Despite being the largest bilateral funder of sustainable development programs worldwide, the United States is one of only two UN member states that have not ratified the Convention on Biological Diversity (the other is Andorra). President Clinton signed the CBD in 1993 and transmitted it to the Senate. Despite being voted out of the Senate Foreign Relations Committee after a bipartisan vote of 16-3 in 1994, a vote of the whole Senate has never been scheduled—a reflection not only of the general antipathy that many conservative U.S. senators feel toward UN environmental treaties, but also of groundless claims that the CBD will undermine U.S. sovereignty, impose taxes on the United States, infringe on intellectual property rights, and hurt U.S. biotechnology and agriculture interests. All such concerns can easily be addressed through use of explicit U.S. reservations, declarations, and understandings—as the Senate typically does when providing its advice and consent to treaties. In the meantime, as a mere “observer” rather than a party to the CBD, the United States undermines its standing as a leader in protecting the world’s precious genetic diversity.

This piece first appeared in CFR’s The Internationalist blog here.

TopicsEnvironment RegionsUnited States