Grand Strategy Comes To The Oil Patch

By any reckoning Barack Obama will have bequeathed a treacherous world to Donald Trump. Simply by spinning the globe any armchair observer can identify several hotspots which might well rise to the level of existential threats:

Islamic Terrorism, which now has metastasized onto every continent. The expressed strategy is to demoralize societies to the point of chaos at which point they will surrender to sharia. If non-nationstate players ever get weapons of mass destruction they will on leash them in the American homeland and in Western Europe and they very likely will obtain a surrender to sharia;

Iran, on the cusp of getting the bomb and the means to deliver it throughout Europe and, arguably, the great font of terrorism. When (not if) Iran gets the bomb the entire balance of power in the oil-producing regions will be inverted, the price of oil worldwide will soar, a nuclear arms race will be ignited, American influence will be diminished, the odds of a nuclear exchange will greatly increase;

Russia, which has recently reported to be installing tactical nukes in the Baltic in addition to the threats outlined in this reply from August of this year:

"Russia, along with China and aggressive Islam constitutes an existential threat to the United States not because of its conventional weapons but because it is a superpower possessed of nuclear weapons and is strategically situated to upset the world balance of power and America's strategic alliances.

We see Russia expanding its aggressions from Georgia to the Crimea to Eastern Ukraine into the Black Sea and along an Islamic crescent to Syria and a port on the Mediterranean. In the polar regions Russia is claiming sole rights to minerals, mimicking the Chinese in the South China Sea. In the polar regions and in Europe generally, the Russians are testing NATO with provocative incidents in the air.

Russia is aiding and abetting Iran even more than Obama has done, no mean feat. In return, Russia gains participation in a new axis consisting of Iran, portions of Iraq, Syria and naval elements described above. This axis is already armed with intercontinental ballistic missiles and nuclear warheads owned by the Russians and soon to be duplicated by the Iranians. Thus, the entire balance of power in the Middle East will be altered, indeed it is already turned on its head in the critical oil-producing regions of the world.

Generally, Putin's game in the West is the same as Stalin's, to cut a deal with Germany as that mass murderer did in the Hitler/Stalin pact which precipitated World War II. He seeks to intimidate weak Western consumers of energy into positions of neutrality thus wrecking NATO, leaving the way open to exerting pressure individually against weak, unaligned but rich Western countries.

Forced by sanctions to look eastward, Putin has striven to cut a deal with the Chinese who are already cooperating in some respects with the new axis in Syria but who, if combined with Russia, would constitute a terribly dangerous threat to the United States indeed.

In all of these actions, Putin has shown himself willing to murder adversaries and plunder his own country, he is a thug who has enriched himself even as he has empowered himself. He has murdered his way to power.

The United States of America has very much indeed to fear from present-day Russia. "

Since writing that in September, in addition to inserting nukes into Kaliningrad Oblast, Russia has been accused of attempting to rig the presidential election on Trump's behalf through hacking of the DNC etc. Trump himself has dismissed these allegations which have been aggressively advanced by Democrats and their stooges in the media. Without commenting on the truth or untruth of the allegations, it is clear that there is a gulf between Republicans and Democrats concerning the degree of danger to American interests posed by Russia.

The other side of the story needs to be considered. Conservative forces, historically profoundly anti-Communist, are arguing on behalf of Putin's Russia that it is only seeking to reestablish the natural and historic boundaries of the czarist Empire, mindful as it is from history that Russia is vulnerable to invasion from many fronts and is sensitive to maintaining defensive buffer areas. These areas historically include Ukraine and Crimea in which Russian intervention is in keeping with its historical posture and indeed was precipitated by American heavy handedness in participating in a coup in Ukraine and moving Ukraine toward NATO and the European Union.

Further in defense of Putin, conservatives point out that he has consistently called for a united front against terrorism which has been rebuffed by the Obama administration and Hillary Clinton as Secretary of State and as candidate. The left in general has turned resolutely against Russia, a reversal of its historic tolerance of the Soviet Union.

I have never understood why Putin has supplied Iran to the degree he has done if he is truly anxious over global terrorism and eager to establish a relationship with the West to combat it. A great problem is that much of Western Europe is reflexively opposed to harsh sanctions and any realistic policy against Iran obtaining the bomb just as it is reluctant to lose trade deals or the supply of oil and gas from Russia merely to enforce sanctions on behalf of the people in Crimea and Eastern Ukraine.

In the long run the maximum danger from Russia is posed if it intensifies its relationship with China which reshapes extensive cooperation beyond trade and supply of materials to China into an axis which would combine China's wealth and massive population with Russia's resources and geographical reach. Combine that axis with the developing axis, or caliphate if you prefer, emerging from Iran, Iraq, and Syria and one might be shocked by a stunning overturning of the world order. Imagine the impact on our weak-kneed allies in NATO and on the coherence of the European Union. We come now to a consideration of,

China, our most formidable long-term adversary. This nation is possessed of the bomb, and the ICBMs to deliver it to the American homeland. It is the world's second-largest economy and by some reckonings the world's first economy, certainly it is moving ahead in manufacturing and the ability to produce tactical and strategic arms at a rate which the United States cannot presently compete with. For example, with so many shipyards the Chinese can build ships at a rate multiple times those at which our American shipyards are capable. But the challenge is not limited to 20th century arms, China is moving aggressively into warmaking potential in space and in cyberspace. Moreover, they do not lack the intellectual capital capable of 21st century technological warfare because they are producing scientists and engineers at a rate multiple times those hatched in the United States.

At best, China is an autocracy with all its advantages and disadvantages of that manner of government writ large. In the takeoff phase of an economy which China has just experienced, freeing a market under central planning can produce amazing results as it has in China but top-down management of an economy inevitably results in misallocation of resources, compounded by systemic corruption. China might well be headed for a hard landing, but even in that event China remains our most formidable adversary. This is partly because The Middle Kingdom, in addition to its superpower assets, has always regarded itself as the exceptional nation of the world and China is acting aggressively to regain that status. It conceives and always has conceived itself to be entitled, a delusion which is manifestly very dangerous to its neighbors and ultimately to us in America whom the Chinese despise as a nation in decline. Finally, China is extremely dangerous because its elites in charge are riding a tiger and they cannot get off.

A potential alliance between China and Russia is a frightening prospect indeed, one which would likely atomize what is left of European unity and ultimately leave the United States isolated and beleaguered. Therefore, while China is to be considered the most formidable foe in the short and long-term, Russia is the key. Russia is the key because of its growing influence over Iran, because of its newly formed axis running from Iran to the Mediterranean shores, because of its economic power over Europe by the threat to withhold oil and gas energy, because of its willingness to go to a very aggressive posture against its neighbors who, with alarmingly few exceptions, are pusillanimous, because of the ultimate existential threat of Russia aligning with China, because Russia is the keystone which aligns all hostile forces against us, because if that keystone is removed each hostile force can be successfully isolated and contained. Finally, Russia is the key because it is possible to do business with a rational thug such as Vladimir Putin while in China the elites will find themselves increasingly constrained by events involving upheavals of hundreds of millions of people.

This is the treacherous world which Donald Trump will inherit. An armchair observer certainly has no way of knowing whether Trump shares this perception of the world or whether he is simply a dealmaker who will send in the CEO of Exxon to cut deals with Putin in which we yield a free hand to Putin in the old czarist Empire who agrees only to play nice with our European partners. One can hope that Trump has a greater strategic vision beyond appeasement within a public façade of economic dealmaking. One can hope the Trump recognizes that Russia is essentially a Potemkin village, essentially nothing more than a giant gas station which cannot long survive as the present regime with oil under $80 a barrel level needed to keep the apparatus going. In short, Putin must cut a deal with us or he must deal with China. The new technology of oil exploration and extraction, especially fracking, actually constitutes an existential threat to Putin's regime as it drives down the price of oil to the $50 range. Enter the Eagle Scout from Exxon.

In this respect Trump's expected nomination of Rex Tillerson as Secretary of State is encouraging. Let us assume that Trump puts Tillotson in place because Trump recognizes the need to neutralize Russia so that terrorism and China can be dealt separately and because he believes that Tillerson shares that vision and has the rare talent to negotiate a grand alliance which offers Putin a deal he cannot refuse. A true Eagle Scout, Tillerson has held his affiliation to scouting to this day and considers the Scout Oath to be his moral compass. He is a man with an impressive biography and he appears to be admirable in every way. No man rises to the head of Exxon over four decades unless he has The Right Stuff. His exposure to world politics is vast, Exxon by the force of economics of oil exploration and geology is forced into doing business in difficult and dangerous corners of the world. As CEO of Exxon, Rex Tillerson is no stranger to tyrants and thugs. He has already demonstrated an impressive ability to do mega deals with Vladimir Putin. The question is, does Tillerson have the strategic vision to cut the grand deal?

Your analysis, on this and almost any subject, are always insightful. Good read.

Posters like you are the reason I’ve participated in this forum for as long as I have.

Thanks.

L

Tillerson is also a true Christ follower who attends church and Bible study every week.

Not many see the “big picture” and far fewer can express it....thanks

Great post!

nathanbedford for 2nd Deputy SOS. ;-)

Seriously though... (I had a much longer reply written, with several interesting links included, but I somehow killed it, so I’ll repost only my central point.)

The only real “existential threat” to Russia is low petro prices. What kind of “grand deal” insures that? If they need $80 / barrel oil to support their economy, given that their current production cost is around $17.20 / barrel

( http://marketrealist.com/2016/01/crude-oils-total-cost-production-impacts-major-oil-producers/ )

and also given dramatically lowering costs in the US, what can the US do to “ensure” $60+ / barrel “profit” in Russia?

We certainly are not going to limit our own production: Trump in fact strongly advocates the opposite. Even given present regs and such, $70 / barrel would almost certainly result in a dramatic increase in US (and others) output. (I estimate something on the order of 3 million barrels a day increase, by early 2019, even if oil were to stabilize at “only” $60 / barrel, assuming Trump gets even 1/2 of his regulatory and other petro policy related changes through.)

IMO, the only “grand” thing we could do for Russia is to legislate “no oil exported from the US”. Does anyone think Trump would go for that?

For clarity: What kind of practical “grand deal” insures high oil prices for Russian oil?

Ping for later.

Good to see you.... and read you again.

It does look a little long, this late at night... I want to be fully awake and coffee’d up before I tackle it :)

Good questions and I completely agree, we will not restrict our petroleum production, nor should we.

Even at a reduced price there is room for Russia to prosper more from increased production, such as that contemplated by the mega deal that Rex Tillerson put together for the Arctic.

I understand that Russia is rapidly running out of cash reserves and has already scaled back subsidies and wages etc. My personal interlocutor who comes to Germany from time to time, advises that people are desperate to get their children and their cash out of Russia. If this is so we can expect Putin to look evermore to China for relief. For example, Putin will need money to build pipelines and the Chinese have shown themselves not at all loathe to put the money up in exchange for mineral rights etc. we could do the same for pipelines directed to the West. We could support the building of refineries and the extraction of minerals. We certainly could provide the technology and know-how for petroleum.

The problem is any deal cut with Putin is liable to be betrayed by him. We ought not to forget that there was a joint guarantee of Ukraine sovereignty when that country rid itself of nuclear weapons. Nevertheless, there are foodstuffs and weapons which Russia could sell into Western markets. We can, of course, offer the Russians the lifting of sanctions if we could somehow not sellout the Ukrainians in the bargain. We might be able to convince Putin that he will initially get a sweeter deal from the Chinese but he should prudently consider the downside. If Putin is sensitive to maintaining the borders of czarist Russia, he no doubt will be well aware of the bitter warfare along the Chinese border, a repetition of which he could ill afford and probably could not survive in office. He might well be convinced that the effete West is a safer partner. We could point to the rapid growth in the Czech Republic and Poland and invite him in, winking and nodding so that he understands that he can keep his personal fortune which he looted from Russia to the tune of $30 billion.

There are options beyond oil, these are off the top of my head and they may not be attractive either to Putin or to us, but it suggests that creative minds could put together an attractive package.

Thank you all for the kind words.

I don’t think that Putin is a saint, but with respect to the Ukraine, it was Samantha Power and company, that upset the Ukraine. One year before an election, and the West had to support a soft coup.

I suspect Russia is supporting Iran/Iraq/Syria/Hizbullah as a Shiite counterbalance to the power of the Sunnis, who greatly outnumber the Shiites.

Great analysis, though!