Energy diplomacy with attitude

The United States doesn’t have an energy policy, and it never will. Neither does China, despite decades of a planned economy. China didn’t even have an energy minister to serve as a counterpart for Energy Secretary Sam Bodman when he and Treasury Secretary Henry Paulson led a US delegation to Beijing last year to inaugurate the Strategic Economic Dialogue.

Both the US and China are oil energy price takers – not price givers – in a world where there are only two kinds of actors. But the US’s similar circumstances may make these high-level

discussions much more important than might otherwise be the case.
When it comes to oil, Americans let markets and consumption set the agenda. The 1973 shock didn’t change behavior in a durable way. Neither did the spike of the early 1980s. The post-September 11, 2001, trajectory saw the price of standard crude oil move from under US$25 per barrel in September 2003, tripling to around $80 per barrel last year.

Oil dependence is a fact of life. While the neuralgia about it has deepened, neither the government nor markets have seen much reason to reduce US political risk through conservation and an all-out technological commitment.

The US isn’t alone in this conceit of inaction. China has joined the US as a world-class consumer, gobbling up oil and competing for energy assets around the world. Indeed, four of the world’s top five oil importers are Pacific nations – including the US. The US Navy’s Pacific fleet protects more than 90% of the oil flowing to China, Japan and South Korea.

What if the US leadership proposed in the next round of the US-China dialogue that these energy-hungry engines of global prosperity join together to discuss how they could cooperate in reducing their dependence on oil?

Of course, in a world of price givers and price takers, what good does it do to celebrate the US’s dependence? It’s important to understand the potency of impressions in oil markets. These markets don’t react, they only overreact. Think about what would happen to assumptions about the future price of any product if four of its biggest buyers sat down to discuss their interests in a public way.

The mere fact of a meeting and the possibility of some coordinated behavior could send a powerful message to sellers that bargaining power and leverage are moving. They may confront an inflection point. To be clear, the goal of such cooperation isn’t to emphasize “us/them” politics in a zero-sum game with producer nations. The countries need each other and the US needs an orderly market. But that market doesn’t operate freely now, so there’s no harm in sharing views among the four major buyers.

Asia Times