The New Map: Energy, Climate, and the Clash of Nations

by Daniel Yergin

Gulf countries is represented in a multitude of agreements, arms deals, exchanges, and a series of bases and facilities for air, ground, and sea forces.

An important element in the world oil market is “spare capacity.” This is production capacity—that is, oil wells—that are not actually in operation, but can be swiftly brought on line if prices spike or if a disruption knocks out supply elsewhere. Today, most of the world’s spare capacity is in Saudi Arabia, with some in the United Arab Emirates and Kuwait. That, combined with the size of its oil reserves and its ability to quickly increase or decrease out...

The nature of the U.S. commitment to Persian Gulf security, the scale of the U.S. engagement, and the size of the region’s resources led to a widespread view that the United States itself was heavily dependent on the Mideast. Yet in 2008, even before shale oil, imports from the Gulf amounted to less than 20 percent of total U.S. oil imports. As already noted, oil sands in the province of Alberta had made Canada the largest supplier of U.S. imports by far. In 2019, only about 11 percent...

The U.S. commitment to the region has endured not because specific barrels of oil are departing Saudi Arabia or Kuwait or the UAE for U.S. refineries, but rather because these resources are central to the overall world economy and critical for America’s most important allies and trading partners. Disruptions of supply affect the global system into which America is so integrated—with almost 30 percent of U.S. GDP and close to 40 million jobs resulting from trade with the rest of the world. Even if th...

How has the shale revolution changed geopolitics? Case study number one is Iran and the 2015 nuclear agreement. In 2012, sanctions were applied on Iranian oil exports and finance. The aim was to force Iran to the negotiating table, as we shall see later. But it wasn’t obvious that these sanctions would work. The expected shortfall in world supplies would drive prices up, hitting oil-importing countries, causing the sanctions to

crumble. Certainly that is what Tehran expected as it confidently proclaimed the new sanctions “doomed to fail.” But increasing U.S. production offset the reduction in Iranian exports. As we shall see later, the oil sanctions held, buttressed by financial sanctions; and the economic pressure on Iran led finally to the 2015 agreement that constrained Iran’s nuclear program in exchange for the removal of sanctions.

Case number two is Europe and relates back to Putin’s angry rejoinder at St. Petersburg. The rise of shale has been one of the keys to diversifying the European gas market and enhancing energy security. When European leaders talk about energy security, they are often less focused on oil and more on natural gas—and in particular the degree of reliance on Russian gas. As Europe’s top supplier of gas, Russia had, in the minds of some in the European Union and many in Washington, the ability to use gas supply as leverage for political objectives. This concern was magnified by the reliance on pipelines with their inherent inflexibility.

Enter U.S. shale gas. First it eliminated the need for LNG in the United States, leading exporters to redirect some of their LNG to Europe. Then the export of LNG from the United States reinforced the shift toward competition in Europe—with U.S. gas, along with other LNG supplies, competing head-to-head with Russian gas. European buyers now had multiple options and choices, which meant diversification of supply—the keystone of energy security. “We have had many historical challenges with Russia,” said Lithuania’s energy minister. But now, as a result of the opening of the country’s LNG importing facility, he continued, “gas supply has been depoliticized.”

In March 2016, a supertanker filled with oil left the U.S. Gulf Coast and crossed through the Panama Canal into the Pacific. Its destination was China. The customer was Sinopec, one of China’s two major oil companies and one of the world’s largest buyers of oil. “U.S. crude oil exports are positive news for the global market and make it possible for Asia-Pacific refiners to diversify their supply,”

A few months later, another tanker unloaded at Shenzhen the first shipment of U.S. LNG to China.

These voyages demonstrated that the supposed zero-sum life-and-death competition between China and the United States for access to constrained energy, so vividly imagined just a few years earlier, was not going to happen. Global energy supplies are ample, and China and the United States can interact through the global marketplace to mutual benefit. The shale revolution removed at least one major area of contention in U.S.-Chinese relations, cr...

Because of shale, the United States is “present” in Asia in a new and strategically important way for many countries. It adds to diversification, moderating dependence on the Middle East and the Strait of Hormuz and providing options on LNG. While the United States is only one among several suppliers of oil and LNG to India, this growing trade has brought the two nations closer together and ...

Japanese companies, and the Japanese government, are also keen to receive U.S. oil and gas exports. They see these supplies as important to reducing Japan’s trade surplus with the United States and as major contributions to global energy security—as Japan imports 99 percent of its oil and 98 percent of its natural gas. Prior to the 2011 Fukushima nuclear accident, nuclear power provided 30 percent of Japan’s electricity. By 2020, not much more than 5 percent of the country’s electricity came from nuclear. LNG, alread...

South Korea, at the time of this writing, is the largest buyer of U.S. LNG. Moreover, the option of U.S. gas, as a senior Korean official said, “helps us negotiate with our traditional suppliers.” And the more gas South Korea buys from the United States, the lower ...

In the autumn of 2018, though it was hardly noted at the time, something historic occurred: The United States overtook both Russia and Saudi Arabia

to regain its rank as the world’s largest oil producer, a position it had lost more than four decades earlier.

the Permian is the only place where every time I made a map of resources, it was bigger than the last one.

February 2020, it had reached the highest level of production ever—thirteen million barrels per day—more than Saudi Arabia and Russia and on the way to tripling the level of 2008.

Moreover, the struggle to adjust to the crisis demonstrated in a new way how energy continues to be so central to geopolitics. Certainly that is the way Vladimir Putin sees it.

It is the second-largest producer of natural gas (after the United States) and is still the world’s largest gas exporter. The earnings from oil and gas exports provide the financial foundation for the Russian state and Russian power—in normal times, 40 to 50 percent of the government’s budget, 55 to 60 percent of export earnings, and an estimated 30 percent of GDP.

Enraged at the resulting cut in their own revenues, oil-exporting countries, led by Saudi Arabia and Venezuela, came together to form a new organization, the Organization of Petroleum Exporting Countries—OPEC.

At independence, Ukraine was “born nuclear,” for it inherited nineteen hundred nuclear warheads from the Soviet Union, making it the world’s third-largest nuclear state. In 1994, in what is known as the Budapest Memorandum, it gave up those weapons and transferred them to Russia. In exchange, Russia, Britain, and the United States solemnly promised to “respect” the “existing borders of Ukraine.”

One institution managed to sail through the maelstrom of the post-Soviet collapse intact, though somewhat battered—the ministry of natural gas. It, however, changed its name—to Gazprom. It gained control of the big export pipelines—and the revenues that came from exports—and thus inherited the Soviet-era relationship with the major Western European energy companies.

Gazprom became the largest gas company in the world. It provided gas to keep Russia’s domestic economy going, even if bills went unpaid; it maintained its reputation as a reliable supplier to Western Europe. And it delivered desperately needed revenues to the national treasury. Amid the chaos of the collapse, Gazprom represented not only continuity with the past but also Russia’s future economic integration with the West. Gazprom insisted it operated as a commercial organization. But for some outside Russia, it was not just a gas company. It was also the palpable ghost of the Soviet-American Cold War, the embodiment of resurgent Russian power, and the instrument for Russia to gain leverage over Western Europe and thus drive a wedge between Europe and the United States. At the heart of the gas issue was Ukraine.

In which direction would Ukraine look for its future? This fundamental question has inflamed relations between Ukraine and Russia ever since the breakup of the Soviet Union. Would it continue to look east and remain under Moscow’s sway? Or west, toward Europe and the European Union and, worse from Moscow’s point of view, toward NATO and the United States?

Natural gas, and the pipelines that carry it, had bound the two countries together—but now would set them against each other. Gas imported from Russia was Ukraine’s major energy source and critical to its own economy and fueling its heavy industry. Moreover, the tariffs—that is, the fees—that Ukraine earned on the transmission of Russian gas to Europe through its pipelines and territory were a major source of government revenue.

But this was not a one-way street. Assuring access to Europe was critical for Gazprom, for the European market was its major source of revenues. That meant Russia also depended on Ukraine; as late as 2005, 80 percent of its gas exports to Europe passed through Ukraine’s pipelines. That, of course, had not mattered when Ukraine and Russia were both parts of the same country and were connected by what was called the “Brotherhood” ga...

The breakup of the Soviet Union in 1991 quickly led to acrimony between the two countries over the price of Russian gas and the tariffs charged by Ukraine for passage through its pipelines. Yet the disputes were largely containable until the 2004 contested Ukrainian presidential election in which the “two Viktors” were pitted against each other. The initial winner in what was widely seen as a rigged election was Viktor Yanukovych, the sitting prime minister and a onetime boxer. Yanukovych’s native language was Russian, and he was Moscow’s candidate. His opponent was the other...

“Orange Revolution”—after

the colors of Yushchenko’s campaign. In a court-imposed runoff, Yushchenko won. The result was a shock to Moscow. Ukraine now had a president who wanted to look west. As if to drive home that point, his wife was an American of Ukrainian descent, a graduate of Georgetown University who had worked in the Reagan administration.

Ukraine was paying only one-third, or even less, of what Western Europeans were paying. Why, said the Russians, should they continue to subsidize Ukraine with cheaper gas, to the tune of billions of dollars a year, when Ukraine was already billions of dollars in arrears on its gas bill, and was now led by a president who wanted to pivot away from Russia? Beyond revenues, Moscow had another objective—to gain control over the all-important Ukrainian gas pipeline system, on which it depended for sending its gas to Europe. This, however, was not on the table. As Yushchenko put it, those pipes, laid down in Soviet times, were the “crown jewels” of independent Ukraine.

On January 1, 2006, with no resolution in sight, Gazprom cut off gas earmarked for Ukraine. But Ukrainians siphoned off gas meant for delivery to Europe, which cut gas supplies to other European countries—and led to a crisis in Russia’s relations with Europe.

In 2013, Yanukovych was about to sign the association agreement with the European Union when the Russians suddenly realized that it would shut Ukraine out of the Eurasian Economic Union. Moscow raised the ante—and the pressure. It was “either/or.” Yanukovych backed out of the EU agreement, his exit lubricated by a $15 billion loan from Moscow. Ukrainians were enraged. In late 2013, half a million flooded into Maidan Square in Kyiv to protest the abandonment of the European Union agreement and against the rampant corruption and Russian influence.

the freezing December weather, U.S. assistant secretary of state Victoria Nuland passed into the crowds, handing out cookies. Meanwhile, Moscow denounced the demonstrators as “fascists and neo-Nazis.”

In February 2014, police opened fire on the demonstrators, killing a hundred of them. Civil war seemed imminent. Three European foreign ministers hurriedly flew in and worked out a deal with Yanukovych and opposition politicians to hasten presidential elections. But the government was disintegrating. Yanukovych’s own security detail vanished. Yanukovych abruptly fled to Russia. The United States and the European Union immediately announced their support for the new interim government. One of its first acts was to ban Russian as an “official” language, a position that it had shared with the Ukrainian language. Russian was the prime tongue of many, particularly in eastern Ukraine and Crimea...

The Crimean city of Sevastopol was the only warm-water port for Russia’s navy, which was there on a lease from Ukraine.

By the middle of March 2014, a Moscow-organized referendum in Crimea supposedly had 96 percent of the people voting to join Russia. The next day, Putin announced the “reunification” of Crimea with Russia. The United States and the European Union, taken by surprise, declared that Russia had overturned the accepted boundaries of Europe and imposed sanctions.

The Ukrainians protested bitterly at the annexation. The Russians had been party to the Budapest Memorandum in 1994, which guaranteed Ukraine’s territorial integrity in exchange for its giving up its nuclear weapons. But Moscow insisted that the Budapest Memorandum had been invalidated by what it described as a “coup d’état,” allegedly engineered by the West, that had overturned what it asserted was the “legitimate” government of Ukraine. Then separatists, paramilitary forces, and Russian soldiers “on vacation” started military operations in the Donbas, in southeastern Ukraine, the country’s great industrial heartland, still highly integrated with the Russian economy, mos...

On July 16, 2014, the United States ratcheted up sanctions on Russia’s financial, defense, and energy sectors. It was not clear that the Europeans, who would be more directly impacted economically, would go along. But then the next day, July 17, a shocked world learned that separatists, apparently believing that they were aiming at a Ukrainian troop plane and using a Russian ground-to-air missile, had shot down a Malaysian airliner over eastern Ukraine. All 298 passengers aboard perished, two-thirds of them Dutch. The Europeans joined the new sanctions. In lieu of force, the sanction...

One set of sanctions was aimed at specific individuals and organizations that were judged to be either close to Putin or active in Crimea and the Donbas. A second set restricted Russia’s access to the global financial system and its ability to raise money in international markets, and at the same time choked off foreign investment into Russia. It made international banks very leery of doing business with Russia, for fear of running afoul of sanctions or inadvertently falling short on some compliance rule and becoming subject to multibillion-dollar fines and public shaming. Such financial sanctions depend on the centrality of the United States in the global financial system and the world economy’s dependence on the global dollar payments system that flows through New York—and the danger of being shut out of that system.

Yet there is a risk that the commanding position of the United States—derived from its capital markets and the dollar—could be eroded over time by the overreliance on financial sanctions, because nations will find alternatives. Two years after the United States imposed financial sanctions on Russia, Obama treasury secretary Lew himself warned, “The more we condition the use of the dollar and our financial system on adherence to U.S. foreign policy, the more risk of migration to other currencies and other financial systems in the medium term grows. Such outcomes would not be in the best interests of the United States.”

The third set of sanctions was aimed at constraining Russia’s energy might. Care was taken to construct sanctions that would not hinder Russia’s current oil output, for fear of driving up the price of oil at a time when it was already high. Instead, they were aimed at the new growth areas that were deemed to require Western technology and partners. Western participation in the Arctic offshore was banned.

But with the new sanctions, the Western companies had to drop out. As the Russian engineer observed, Western companies were “afraid to touch the Bazhenov as if it were a fire.”

The U.S.–EU sanctions, as well as those of other countries, including Japan and Norway, had been imposed at a time of high oil prices and expectations of a continuing tight market. But then in late 2014 the oil price collapsed, delivering a new shock to a Russian economy and national budget so heavily dependent on oil. A severe crisis seemed inevitable. And indeed, the initial impact was great—capital flight, drying up of both foreign and domestic investment, loss of access to international capital markets, plummeting spending by consumers, and a declining GDP.

But the shock was cushioned by the policies of the Russian central bank. It closed insolvent banks, including those owned by powerful figures, and allowed the ruble to float. The currency lost more than half its value against the dollar. But this flexibility helped to steady the economy. Expenditures by the Russian government are largely in rubles. Thus a fall of 50 percent in dollar revenues from oil would, roughly speaking, still convert into the same amount of rubles within Russia as prior to the collapse.

The devaluation was a great boost to the Russian oil industry. It received dollars from its exports, but most of its expenditures on workers and equipment were in devalued rubles, and so the collapsing oil price had very little effect on industry activities within Russia. Indeed, between 2014 and 2016, Russian oil output increased.

Imported goods became much more expensive for Russian consumers, who were paid in what were now devalued rubles; and they cut way back on such purchases. At the same time, owing to the fall in the ruble, domestically produced Russian goods were now much more competitive not only domestically but internationally. This applied to both manufactures and agriculture, in the latter case also aided by far-reaching reforms in the farming sector. Russia became the largest exporter of wheat in the world—quite a turnaround from the 1970s, when the Soviet Union spent a good part of its oil earnings buying wheat from the United States. Moreover, in retaliation for the sanctions, the Russian government imposed sanctions of its own—banning food imports from Europe. This proved to be a great boon for Russian farmers.

Yet when it was all added up, the Russian economy proved more resilient to the sanctions and oil price collapse than had been expected. By 2017, the economy had crawled back into positive economic growth, and by 2019 it was growing at 1.6 percent. Yet the crisis had demonstrated once again the risks of being so reliant on oil. Hopes for economic reform were derailed, in part, by the plethora of sanctions and disengagement from the global economy—and

The new isolation instead made companies more dependent on the state and expanded the role of the government in the national economy.

The Russian economy was returning to state control. Reform would once again have to wait.