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.
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.