Cursed With Plenty

America is on the verge of an energy boom. But will abundant shale gas create more problems than it fixes? 

Elsewhere in this issue, you will find advice Barack Obama can act on to ensure that history views him as the transformational figure he hoped to be when he took office, from saving Europe from itself to taking nuclear weapons off alert. But transformation cuts both ways. So in the interest of further assisting the president, consider a pitfall he and the country must avoid if this period in U.S. history is not to be someday seen as when it all went wrong for the onetime greatest country on Earth.

Of course, given the clown-show antics that predominate in Washington and the complexity, volatility, and risks that confront the United States in the world, the president faces potential peril almost wherever he looks. Rather than focusing on the country's more obvious problems, however, I'd like to look at one that is perhaps more worrisome precisely because it comes cloaked in opportunity: America's energy boom.

That's right: the boom. The technological breakthroughs enabling America to tap vast reserves of previously inaccessible oil and natural gas have been heralded as a bonanza for the United States, not least by Obama, who told everyone tuning in to his speech at the Democratic National Convention that "we can cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone." Analysts at Citibank are predicting that the United States will be the world's fastest-growing oil and gas producer well into the next decade. Great, huh? Not so fast.

It looks like the United States is showing the early symptoms of a particularly nasty case of the Resource Curse. The dreaded syndrome, also known as Hugo Chávezitis, tends to strike countries when they tap into large finds of oil, gas, or other valuable natural resources. Although such bonanzas clearly have their advantages, the influx of new wealth often leads countries to neglect real underlying problems or the requirements of long-term growth simply because they can spend their newfound riches to paper over their troubles. Political leaders don't have to do the hard work of building human capital and promoting sustainable economic growth -- they can just coast along, riding the benefits of the resource boom.

You can understand the appeal, especially to America's dysfunctional governing class. That is precisely what is so worrisome about all the talk of how these new energy finds will literally fuel the country's next period of economic expansion. You heard it during the recent presidential campaign from both candidates. You heard it in a slew of reports from Wall Street and international organizations. America is on the verge of energy independence. It will soon overtake Saudi Arabia as an energy producer. It will no longer have to worry about the messy realities of the Middle East. New boomtowns like those springing up in Canada and North Dakota will spread across the United States. Cheap energy will attract foreign investment! Revitalize U.S. manufacturing! Help America beat China and India!

Here's the biggest problem with all those assertions: They are plausible. America's energy boost is possibly the biggest geopolitical change to hit the world since China's rise. It almost certainly will stimulate U.S. growth, reduce U.S. dependency on foreign oil, and provide Americans with large amounts of comparatively clean natural gas. And since growth leads to higher revenues, it may help cut the federal deficit. Because America won't be as dependent on the Middle East, it may even be able to reconsider its involvement in the region. Already, U.S. monthly oil imports have nearly halved from their high in November 2005, and annual natural gas production has increased almost 30 percent from 2005 to 2011. What's not to like?

In truth, however, we don't yet know the real nature of this impending energy revolution. Natural gas prices are still too low to warrant profitable drilling in some areas. The environmental impact of widespread fracking -- the controversial water-intensive process of using pressurized fluid to release natural gas -- in different geological settings remains a mystery. Many regulatory decisions that will affect the growth of U.S. shale gas and oil will be made at the state level or by municipalities whose only "regulatory" option is an outright ban, and the resulting patchwork of rules may produce roadblocks to expansion and achieving necessary economies of scale. We are not sure of the economics of some of these new wells, when they might be depleted, and how that uncertainty might constrain the infrastructure investment needed to bring these resources to market. The whole boom could happen more slowly, or falter more widely, than expected. It's probably going to do a lot of good for a lot of people and for the U.S. economy as a whole, but it is unlikely to unfold without twists, setbacks, and disappointments.

Nor should the shale boom in America, even if it produces growth, be seen as a get-out-of-jail-free card for politicians. Tax revenues might go up, but nowhere nearly enough to address the $16 trillion federal debt plus the perhaps $87 trillion in unfunded retiree health-care liabilities the country faces. We may see growth associated with energy, but the United States will not be competitive without also fixing what's broken in the other drivers of long-term prosperity, such as education and infrastructure. America may be able to pivot away from the Middle East -- Lord knows it should -- but energy markets are global, and upsets in that region will still have big consequences. Not to mention that instability in the region will still produce security risks and threats to U.S. citizens, no matter where the country gets its energy from.

Shale gas will also seemingly give our beloved politicos a pass on one of their greatest failures: stopping climate change. By making available large supplies of a fuel that is comparatively cleaner than oil or coal, shale-gas drilling should lead to lower emissions as the United States converts -- hopefully with some speed, focus, and purposefulness -- its power plants from coal to gas. It could produce benefits as the country moves to bigger fleets of natural gas vehicles. But these resources should not be seen as manna from the heavens. For one thing, shale oil creates serious carbon emissions. For another, using more gas won't slow emissions sufficiently in the United States or worldwide.

Each new gas field discovered in America is as rich in promise as it is in hydrocarbons. But if the country allows the potential benefits to dazzle or delude -- if it lets them lull the country into complacency about the other major challenges it faces -- we could find them providing not so much a shot of energy to U.S. growth as a shot of morphine to America's body politic, hiding the pain and clouding its vision as to what is truly necessary to take advantage of this potentially great moment in American history.


David Rothkopf

The Other Pivot

America rediscovers diplomacy.

The foreign-policy Christmas gift of the year may have been given by the president of the United States and Secretary of State Hillary Clinton to the new nominee for Clinton's job, Sen. John Kerry. The gift is not, however, Secretary Clinton's seventh-floor office at State Department headquarters in Foggy Bottom. It is instead related to what could actually someday be seen as the administration's most important international affairs legacy and Clinton's greatest contribution as secretary of state: the restoration of diplomacy to its proper place in U.S. international policy.

Over the past two decades, the role of the State Department has diminished. In part, this is because the White House has assumed a more central role in making policy. In part, this is because in a one-superpower world, we stopped thinking we needed to ask permission or gain support to take action internationally. In part, this is because of the elevation of the defense and intelligence communities in the so-called War on Terror. And in part, it is because the role of ambassadors and embassies has been marginalized due to new communications technologies and the ability (and inclination) of world leaders to go around lower-level functionaries at State and right to their bosses.

But a number of factors have produced what might be seen as a surprising reversal.  Why surprising?  Because the changes have come during an administration in which the White House has actively controlled policy formation (so give the president and his advisors credit for recognizing the need for the renaissance of diplomacy), while the technological trends mentioned above have only continued to reduce the role played by most ambassadors.

First, the president came into office with an openness to engagement that set the stage. Say what you will about Obama: He has at least resisted the unconstructive view that speaking to our enemies was a sign of weakness. Next, America's domestic economic problems, our wounds from Iraq and Afghanistan, and our consequent reluctance to get involved in major military operations overseas and the rise of other powers has made it increasingly important to be able to assemble coalitions to get anything done.

It was Clinton who played the vital role of seizing the moment and effectively putting diplomacy in action. Whether it was fashioning a next-generation coalition around the intervention in Libya, working to bring pressure on Iran with unprecedented sanctions, helping herd the cats of the international community into some action in Syria, the vital bilateral and multilateral groundwork that made the "pivot" to Asia a reality, or the renewed efforts to work effectively through the U.N. or other multilateral mechanisms, active diplomacy only grew more important over the past four years. Some of these efforts were clearly more effective than others. Some efforts -- like those to advance climate negotiations or the reset with Russia or efforts to stop the slaughter of Syrian innocents -- were frustratingly ineffective. Some -- like the embrace of emerging powers, raising the profile of groups like the Arctic Council, or the effort to negotiate a stop to Iran's nuclear program -- are clearly works in progress. But with troops being pulled out of Iraq and Afghanistan and no public appetite for future comparable interventions, it is clear that the during the next four years, America's foreign policy will turn more centrally on the effectiveness of the diplomacy Kerry leads than perhaps any comparable period since the end of the Cold War.

The centrality of diplomacy also creates the possibility of a great legacy issue for Obama's foreign policy. That issue was touched upon at the recent forum Foreign Policy conducted with the State Department called "Transformational Trends." During the event, U.S. National Security Advisor Tom Donilon was featured in a keynote conversation. Donilon is one of the key architects with Clinton of this other, more important, pivot -- the one away from a unilateralist, force-based foreign policy to one in which diplomacy, alliances, and coalition-building is more central.

In his candid, wide-ranging comments, Donilon focused on what he saw as America's unique national advantage. "We have," he said, "the ability to work anywhere in the world with allies with whom we have shared threat assessment and established habits of cooperation. This represents a deep investment in an asset none of our peers and none of our competitors have. It's a huge plus for the United States and one that we can never take for granted and must work on constantly."

He went on to say, "As a strategic matter, understanding the importance of our alliances, the renewal of our alliances has been a top priority. People will give their own grades to this. But I think it's fair to say that both in Europe and in Asia, our alliances are in quite good shape after a tremendous amount of effort."

It is hard but important to remember how damaged America's alliances were in the wake of the invasion of Iraq. But this administration came in and made restoring those alliances a top priority. The strategic rebalancing to Asia deepened existing ties from Korea to Japan to Southeast Asia to India. Developing new levels of cooperation with regional powers like Turkey and the moderate Arab states, whether in dealing with Syria or Libya or other regional issues, has been another important dimension of this overall initiative.

Much work remains to be done. Indeed, one could see a second Obama term making significant progress by building on this focus on alliances and diplomacy as the centerpiece of its foreign policy. This is a way to leverage constrained assets and to reduce risk by deepening friendships and cooperation rather than through enhancing our ability to intimidate or impose our will.

Areas of special opportunity should include: tightening ties with our European allies, possibly through seriously consider a U.S.-EU Free Trade Agreement and a similar initiative with our friends in Japan (in both cases, the key will be agricultural subsidies reform, a growing possibility given the fiscal condition of all the participants -- something that will create real goodwill and further possibilities for cooperation with emerging powers like Brazil), deepening ties with India, potentially the emerging power with whom the United States might have the closest and most important ties, strengthening NAFTA given the economic vitality and shared interests associated with the North American resource boom, and seeking institutional reforms in vital multilateral mechanisms such as the NPT, WTO, U.N. Security Council (supporting Brazilian permanent membership in addition to that of India, Japan, and Germany could strengthen ties at a very low cost to the U.S.). Finding ways to work even more effectively with vital partners in the Middle East like Turkey and the moderate Arab states, deepening ties with potential allies in Africa, and supporting our ties with key powers in Asia through moving ahead with Trans-Pacific Partnership and similar regional trade agreements would all augment this effort. Finally, realizing progress on the president's grandest of all initiatives, the one laid out in his Prague speech about moving toward the ultimate elimination of nuclear weapons, would be a dramatic triumph of diplomacy, as would brokering a much-needed deal that would bring into secure existence an independent, viable Palestine that recognizes Israel as its neighbor.

Not all of these goals will be achieved. But the reality is that all of them are possibilities and that they are being discussed. That is a tribute to some of the subtler and more positive changes made in U.S. policy over the past four years. It is also a recognition that such agreements are actually in the interests of all involved. We are, after all, at a moment in which all the world's major powers face great challenges at home and none, including the United States, can afford costly or unilateral ventures elsewhere in the world. It is a time ripe for progress in diplomacy. And we have an administration with a proven commitment to exploring avenues for diplomatic progress that also recognizes that neither America's strength nor our security can be assessed in the number of our divisions or carrier battle groups, but rather in the number of countries that view us as a friend.