The Petro States of America

Feb 28, 2014 by

BloombergBusinessWeek

 

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Behind this week’s cover

Photograph by Adrian Gaut for Bloomberg BusinessweekBehind this week’s cover

The Keystone XL pipeline should be an open-and-shut case from a climate perspective, the criterion President Obama has set for judging it. In a speech in June, he said he would approve the pipeline “only if this project does not significantly exacerbate the problem of carbon pollution.” By that standard, this should be an easy, data-driven call to make. It hasn’t been. And the core reason the Keystone saga has dragged on inconclusively for years has little to do with the well-aired talking points both sides of the debate trot out on cable TV talk shows.

The oil industry says Obama should stop stalling. The U.S. Department of State’s latest environmental impact report concluded that the Keystone XL pipeline that would transport 700,000 barrels of carbon-heavy tar-sands oil per day from Alberta, Canada, to refineries on the Gulf Coast is unlikely to significantly worsen carbon emissions. Even if the $5.4 billion, 1,700-mile pipeline were not completed, the report determined, the oil would still be extracted and transported to world markets. That’s all the rationale Obama needs to say yes. Climate advocates and parts of the Democratic base, on the other hand, deride the department’s report as exactly what one would expect from a document written by the industry itself; they’re calling on Obama to show some guts for once and reject a pipeline that would connect a massive amount of carbon to the world oil market and most certainly expand greenhouse gas emissions.

But there’s a deeper explanation for Obama’s caution on Keystone that rarely gets acknowledged. He is the president of a petro state, a country that ranks as an OPEC nation in all but name. And in a petro state, saying no to Big Oil is never easy.

“The United States is as much of an OPEC nation as most OPEC nations are,” Everett Ehrlich, an undersecretary of commerce for economic affairs in the Clinton administration, once told me in an interview. Ehrlich, who chaired the administration’s interagency deliberations on climate change, was explaining why a government that boasted Al Gore as vice president was nevertheless much more timid about cutting greenhouse gas emissions than were the European and Japanese governments. “The U.S. is an energy producer,” he added, “while the Europeans and Japan are energy consumer nations. Our natural resource industries are very powerful, and their executives saw dealing with climate change as punitive to their interests.”

Every producer wants to sell more product, but the oil industry has been able to pursue that desire more fully than most, thanks to its special relationship with the U.S. government. Oil companies have worked closely with the White House and State Department since the 1920s, when Big Oil persuaded Washington to help gain it access to the vast petroleum deposits of the Middle East, which in those imperial days were controlled by the British and Dutch governments.

The relationship between Washington and Big Oil began changing in the 1930s, when discoveries of massive deposits in Texas, Oklahoma, and California made the U.S. the world’s largest oil producer. This development conferred on Washington a huge advantage: Unlike any of the Axis and Allied powers, the U.S. had its own oil to fight World War II. Abundant domestic supply also transformed the postwar U.S. economy as Americans bought cars and commuted from rapidly expanding suburbs. Building all those cars and interstate highways propelled a decades-long economic boom that ranks among the most spectacular in human history.

Oil companies made buckets of money, but they were hardly the only ones that profited. The auto, steel, and construction industries also did well (as did politicians who aided them). Others benefited, too: unions whose workers found steady jobs; farmers whose petroleum-based fertilizer boosted crop yields; and owners of gas stations, fast-food outlets, and the other drive-in establishments whose outlets mushroomed across the American landscape.

All these developments called forth a pro-oil constituency within the U.S. political economy that extended far beyond the industry. For nearly a century now, broad swaths of the populace and powerful individuals in government, finance, and other key sectors have seen oil as indivisible from national interest. That presumption has arguably deepened with the current shale oil and gas boom that the International Energy Agency forecasts will turn the U.S. into the world’s biggest oil producer by 2015—and may have already by some estimates.

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