The (Ex) Washington Realist

Steve Weber, Flynt Leverett and Fred Kempe all gave their thoughts on whether a "World Without the West" is posing a challenge to U.S. interests at the UC California Center here in Washington this past Thursday. (Here is a summary.) One of the interesting debates: whether the "New Atlanticism" plus a vigorous effort to win the support of the "southern democracies" may blunt the "World Without the West"--depending on what a new U.S. administration does starting in 2009.

But I wanted to highlight some of the trends I found quite disturbing--and worry that there is far too little discussion about.

The first: that even with oil at $110 + a barrel, oil is still a far cheaper and more cost-effective "liquid" for fuel than any of the alternatives. Alternative energy sources are not going to be feasible even at this or a higher oil price, they won't produce enough energy and--as long as oil still remains the dominant fuel, no one will really invest in the infrastructure needed to produce, transport and dispense alternatives.

Second, oil prices will remain high--even though there is going to be some cyclical movement in price--but nothing where prices come down to $40 or under a barrel in the near future--unless there is such a dramatic global economic shock where demand crashes all around the world. But while everyone points the finger at increased demand from China and India--and this demand is keeping prices high--the real hidden secret is that energy-producing countries--especially Russia and the key Middle Eastern producers--are also consuming record amounts of energy as well--it is their own upward demand which is also a factor in keeping prices high. People forget that the collapse of the Russian economy in the 1990s collapsed Russian domestic demand for energy--that is now no longer the case.

So, a foreign policy approach predicated on collapsing oil prices is probably not feasible.

But a third item that was very interesting--and troubling. Most people assume that we are simply seeing a drain of excess wealth to the energy producers. True, we are. But this drain of wealth--especially from the U.S.--goes to the energy producers who then are increasing their purchases from the leading Asian and European manufacturing powers--not just China but from Korea, Japan and Germany as well. They have seen their positive balance of payments increase just as energy prices have been going up--and despite the fact that Germany and Japan have no indigenous energy sources of their own but have to import--and having been paying higher prices. So there is a growing symbiosis between energy producers and manufacturers.

Implications:

The United States is seeing its manufacturing base decrease further? We aren't producing the equipment and machinery and exporting the construction services that might help to put our own economy back into balance?

Second, and this is specifically in relationship to Germany. Germany's strong trading statistics are what, in essence, keeps the entire EU in a slight surplus. Germany is continuing to subsidize the rest of the Union. We've seen in recent years that Germany feels it should have a greater say in Europe based on its economic role. Given Germany's special relationship to Europe's main energy provider--Russia--and given Germany's continued position as Europe's economic engine--does this foreshadow a continuation of what we saw in Bucharest?