By Peter Huessy, Warrior Nuclear Weapons Analyst
The US leads the world in oil and gas production which enabled Texas alone to provide a lifeline to Europe of natural gas after the Russian invasion of Ukraine destabilized energy markets, in part due to a near ten percent decline in Russian oil and gas production.
The US could export significant gas supplies because the US produces 13 million barrels a day of crude oil, and 17 million barrels a day of crude oil and condensates, the highest ever, a result in large part due to the new technology of fracking.
But despite the benefits of “drill, baby, drill,” the US in 2023 annually produced only 180 million more barrels of oil than the previous 2019 peak, or despite a growth in population of 5% 15 million people, oil supplies were up only 3.6%
Part of the reason why oil prices have shot up by 50% is that since 2021 there have been 200 executive actions taken by the US government to preclude further enhanced coal, oil and gas production, largely as part of a policy of getting to zero net greenhouse gases by 2035. But this was despite the US already cutting back significantly on green-house gas emissions. For example, gas production in the Permian basin in Texas and New Mexico has surged 345% while methane emissions have been already cut 76%.
The pursuit of lower fossil fuel production in the US makes supporting Ukraine’s war effort more difficult. Since 2021, West Texas US crude oil prices climbed from $60/b to $83/barrel to where they are today. Pump prices also surged to over $3.50 a gallon on average, nearly a 50% increase compared to 2019.
This in turn was a key part of the nearly 20% increase in the cost of living since 2021, which also led to the US Federal Reserve to hike interests rates, to where an average mortgage now requires a 7% loan rate rather than 3%.
Why would the US government not seek to keep oil and gas production high and inflation low, particularly with a national election coming up where inflation and the cost of living are high on the concern of many Americans? With lower energy prices, Americans might be more willing to help Ukraine.
Now the other part of the story is that our ally Ukraine wants to curtail Russian not US oil and gas production as a deterrent against Russia. But the Administration is pushing Ukraine not to attack Russian refineries. Apparently, the administration believes if Russian oil and gas supply is harmed, energy prices would rise even higher to say nothing of whether such attacks on Russian soil would trigger Putin’s often threatened escalation to the use of nuclear weapons.
Ironically, despite sanctions, Russia surprisingly produces 10.7mb/d of crude today, very close to the production in 2022 of 11.3mb/d. With prices 50% higher, however, Russian revenue is $65 billion higher which enables Moscow to better fund the war against Ukraine.
However, if the US wants to defeat the Russians and secure a Russian withdrawal from Ukraine territory, a key strategy would certainly include curtailing Russian energy production, as nearly two-thirds of revenue to the Russian government comes from oil and gas sales.
Russian oil production at the time of the 2022 invasion was 11.3 million barrels a day while the EIA projects Russian production for all of 2024 will remain at 10.7 million barrels a day, the third largest in the world. Energy sanctions apparently have done little to deter Russia because they do not appear to be effective.
Sanctions were designed to punish Russia and keep their energy revenue down, but pushing Ukraine not to attack Russian oil refineries moves in the opposite direction, keeping Russian oil and gas production and supply high. At the same time, the US Administration is also spending hundreds of billions to keep US reliable fossil fuel production down but more risky renewable energy production up.
One of President Reagan’s key measures was to dramatically increase US (and Saudi) oil production to significantly lower the prices of oil and gas and literally eliminate multiple tens of billions of dollars from the Soviet exchequer.
At the time, oil and gas exports were the most important source of foreign exchange for the entire Soviet government, along with arms sales. Lowering oil prices from today’s $80/barrel to even $60 would cut Moscow’s revenue big time.
The US has the resources to increase the oil and gas supply significantly, even if Russian domestic energy production were curtailed by Ukraine attacks. And alternatively, Ukraine could attack non-fossil fuel facilities, not affect the worldwide prices of crude but cause the Russians significant economic loses.
Thus, both US energy policy and US Ukraine war strategy illustrate how an all of government approach requires the left and right hand to work in sync rather in contradiction to each other.
Whatever ones views is of global climate change and the role of fossil fuel production, you can’t reduce access to US energy sources where currently 60% of all electricity comes from and expect prices not to galvanize inflation and then interest rates with a deleterious impact on the US economy, which in turn makes it more difficult for Congress to appropriate billions to support Ukraine’s defense.
As Robert Zubrin wrote many years ago, from 1974 through 2008, every major spike in US oil prices has been followed by a recession in the United States. For the US with a $34 trillion debt now that is increasing $1 trillion every 90-100 days, bringing inflation down and interest rates as well is important as currently the US in 2023 paid more in interest payments on the debt than we spent for the entire US Department of Defense. To prevent further economic erosion, the US must increase its own oil and gas production if simultaneously the US wants to curtail Russian production as a deterrent strategy against Russia.
However, when the United States pushes against Ukraine attacks against Russian energy facilities, a key part of Ukraine tool-box is taken away, allowing Russian domestic production and refining as well as exports of oil and gas to continue. Although not exporting as much to Europe compared to 2022, Russia exports more oil and gas now to India, China and Türkiye, all of whom have pushed aside sanctions against purchasing Russian energy, while the previous assumptions of declining tanker availability have also not been borne out.
One recent report concludes “Russia, along with other countries not participating in sanctions, have established shipping services designed to avoid G7 sanctions and price caps, leading to more export outlets being available to Russia….we expect Russia’s production to average 10.7 million b/d in 2023 and remain mostly unchanged in 2024.”
Whatever the US thought sanctions would do to help the war to stop Russian aggression, our energy policy has on the one hand left Russian oil and gas production only marginally reduced (1.3mb/d vs. 10.7 mb/d) and on the other hand generated US inflation at over 20% since 2021.
