September 2005
IAGS
Energy Security
Prepared by the:
Institute for the Analysis of Global Security
August 29, 2005
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IN THIS ISSUE:
(summaries below, click links for full articles)
Roundup:
Oil
puts Iran out of reach
Iran's decision to resume its uranium conversion activity in defiance of
Europe and the United States raises the specter of sanctions imposed against Tehran by the
U.N. Security Council. Sanctions always have been a favorite punishment against the rogue
state. But as the Iraqi case shows, they are easily breached and do little to bring about
behavioral change. In Iran's case, economic sanctions may be a double- edged sword. IAGS'
Gal Luft notes that before we tout them we must carefully assess whether they would be
effective and who would be the prime casualty of such a policy.
No doubt, Iran is heavily dependent on petrodollars and denying it oil revenues would no
doubt hurt its economy and might even spark social discontent. Oil revenues constitute
over 80 percent of its total export earnings and 50 percent of its gross domestic product.
But the Iranians know that oil is their insurance policy and that the best way to
forestall U.S. efforts in the United Nations is by getting into bed with energy hungry
powers such as Japan and the two fastest growing energy consumers, China and India.
Difficult as it may be to accept, Iran's influence on the world's economy makes it
virtually untouchable.
Threatening Iran with sanctions may well force it to flex its muscles by cutting its oil
production and driving oil prices to new highs in order to remind the world how harmful
such a policy could be.
Reconstructing
Iraq: Bringing Iraq's Economy Back Online
Before the war in Iraq began, many policymakers and oil industry experts
believed that Iraq's oil industry, with the second-largest proven reserves of light crude
in the world, would recover and provide most of the funds needed for Iraq's
reconstruction. On March 27, 2003, for example, Deputy Secretary of Defense Paul Wolfowitz
said that Iraq's oil revenues could bring between US$50 and $100 billion within two or
three years following the country's liberation. "We're dealing with a country that
can really finance its own reconstruction, and relatively soon," he said. Iraqi
National Congress leader Ahmad Chalabi promised that American oil companies would have a
"big shot at Iraqi oil."
Such optimism was unwarranted. More than two years after Saddam Hussein's statue fell, the
performance of Iraq's oil industry is far below prewar expectations. Looting, sabotage,
neglected infrastructure, and mismanagement have all curbed production and kept major oil
companies away from Iraq. IAGS' Gal Luft writes in the Middle East Quarterly that the
Iraqi leadership could reverse this trend by managing its vast oil resource in a
productive way, ensuring it becomes an engine of growth and prosperity rather than a
curse.
Spotlight:
The
sweet road to energy security
During the 1973 Arab oil embargo Brazil was importing almost 80 percent of its
fuel supply. By investing massively in sugar based ethanol industry to the degree that
about a third of the fuel Brazilians use in their vehicles is domestically grown, within
three decades Brazil cut its dependence by more than half. Half the new cars sold this
year in Brazil will be flexible fuel vehicles which can run on any combination of gasoline
and ethanol.
Though the Brazilian economy is only one-eighth the size of the U.S. economy it does not
preclude a similar model from being implemented in the U.S. The big challenge is expanding
the ethanol market, making ethanol a nationwide fuel rather than a fuel additive or a
boutique fuel used by mid-Westerners. Unfortunately, this can never happen as long as the
main source of ethanol in the U.S. remains corn or grain sorghum. These crops yield far
less sugar per acre than the Brazilian sugar cane, and the refining uses substantial
amounts of energy. Making ethanol from cellulosic biomass like switch grass and rice straw
might become feasible in the future but for now the only ethanol source that makes
economic sense and that does not require the 51 cents per gallon tax subsidy is sugar.
Yet, in the U.S. corn growers and major refiners such as Archer Daniels Midland oppose
imports of sugar ethanol and got their champions in Congress to impose a stiff tariff of
54 cent per gallon of imported ethanol to protect the local industry. This policy is also
supported by the American sugar-cane industry which has little incentive to diversify into
ethanol production because import quotas support U.S. sugar prices far above world levels.
As a result of this protectionism only 240 million gallons of ethanol can enter the
country tariff-free.
Latin American and Caribbean countries like Brazil, Guatemala, Panama, Trinidad and
Tobago, Costa Rica, El Salvador and Jamaica-- all low-cost sugar cane producers--could
become key to U.S. energy security.
This is one reason it is good that the Central American Free Trade Agreement (CAFTA) was
approved by Congress. Among other things CAFTA can be a vehicle for Caribbean countries to
export to the U.S. alternative fuel that can displace Middle East oil. Blocking ethanol
imports to the U.S. to protect corn growers is tantamount to blocking gasoline imports to
protect domestic gasoline producers. Such policy makes ethanol protectionists in Congress
the biggest obstacle for full-scale deployment of ethanol in the U.S.
On the Technology Front:
Finding
Technological Solutions to the Energy-Water Nexus
In a followup to Dr. Allan Hoffman's Energy Security article on the
link between water and energy security, Lindsay M. Green, energy analyst for Science
Applications International Corp. (SAIC), Thomas J. Feeley, III, technology manager at the
U.S. Department of Energy, National Energy Technology Laboratory, and James T. Murphy,
senior environmental engineer at SAIC describe efforts by the U.S. Dept. of Energy's
National Energy Technology Laboratory to reduce net water consumption by power plants.
Thermoelectric generation of electricity is the second largest source of freshwater
withdrawals in the U.S.
IAGS:
Institute for the Analysis of Global Security
IAGS Energy Security
Mon, 29 Aug 2005
September 4, 2005