As the chattering classes wrangle over what the appropriate U.S. response should be to Vladimir Putin’s seizure of Crimea, the Obama administration would do well to look to the geopolitical playbook Ronald Reagan used when Russia attempted to exert leverage using energy policy under far tenser circumstances.
Consider the current crisis. Russia has annexed Crimea, Ukraine’s warm water port and a vital key to Russia’s ability to export oil and gas to Europe and the rest of the world. Energy exports remain the backbone of the Russian economy and its source of world currencies. So far, the West has done little to stop Putin’s illegal storming of Ukrainian bases and hostage-taking of troops. The U.S. has gone to the U.N. Security Council to condemn Russia’s violation of international law, but the Russians cast a negative vote, thereby vetoing Security Council action. With so much of Europe beholden to Russia for energy resources, the U.S. has found few partners, despite some verbal support from allies.
Now consider how Reagan navigated the shoals of past Russian attempts to use energy as a geopolitical tool and profits to finance its imperial ambitions. Like Russia today, the former Soviet Union relied on oil and gas for the international currency it needed to fuel the Soviet economy. Ronald Reagan, however, deregulated oil prices to drive down oil prices thereby deeply cutting Soviet hard currency earnings.
That step sent oil prices plunging in 1984 from $40 a barrel down to $10. Also helpful was the fact that Reagan also worked with friends like the monarch of Saudi Arabia, King Fahd, to flood the world market with oil to edge out the Soviets.
Moreover, Reagan had a strategic plan, one developed by his national security team, including: National Security Advisor William Clark, then counselor and later Attorney General Ed Meese, and CIA Director Bill Casey. As declassified documents like NSDD 32 and NSDD 75 reveal, the Reagan Administration exerted economic pressure to destabilize the USSR. Put simply, the plan was to bankrupt the Soviet economy. And it worked.
The Obama administration can and should pursue a similar strategy designed to maximize American energy at Russia’s expense. We are awash in oil and gas resources; the U.S. has identified 300 billion metric tons of oil and gas-producing shale. That is a sum ten times as large as has been identified in Russia.
The Obama administration has also been sitting on more than two dozen natural gas export licenses for over a year. If granted, those licenses would provide most of the natural gas used to heat western European homes, thereby freeing up Europeans from relying on Russia to transport gas through the Ukraine.
Bottom line: the American petroleum industry is prepared to meet Europe’s energy needs. All that is needed is for the Obama administration to issue the necessary federal permits.
Today we have a similar opportunity to hammer the Russian economy. Once freed from its regulatory shackles, the energy industry can begin the process of tipping the scales in our favor and against Moscow on world energy markets. Russia has financed both its domestic policy and intrusions into the world with its oil profits. Now, however, sophisticated production methods allow the United States to far surpass Russia’s production and export capacity. Russia’s dirtier oil is more expensive to produce, which requires oil prices to be above $100 a barrel to remain profitable. All that is required to lower the price is for the heavy foot of government to ease off the break and allow American ingenuity to flourish.
If the U.S. wants to make Putin pay a price for invading the Ukraine, hit him where it hurts—in the petro pocket.
Owen Smith is the Chairman of the Board, Institute of World Politics, professor emeritus at Long Island University.
