Halfway through this essay, I went back to the top to make sure it was Matt who was the author. The tone sounded so much more like political spin rather than the usual policy analysis. Only when I got to the end did I realize today's column is intended for a specific audience rather than the rest of us. Hope it works.
Yeah, particularly the political spin. The excuse of institutional inertia and risk aversion just feels too convenient and forgiving. I suspect that there may instead be some continued hostility toward the domestic oil industry within parts of the administration to bail them out with a price floor.
any Democrat who is instinctively hostile to the oil industry needs to get out of national politics. the highest they should rise is a deep blue urban seat in the House, they have no business being on the white house staff
"My reporting indicates that there is no Energy Department conspiracy to backslide on Biden’s SPR commitments."
I haven't read him use such language before. When I saw those words I thought maybe it was a guest writer (some journo or another who focuses on energy markets).
He didn’t tell them in person? Matt isn’t getting invited to “influencer” gatherings? He’s definitely influential, right? I wonder if it’s like Secret Congress, and the Yglesias influence is more effective when no one knows about it.
It's a good policy directive memo, but there's no substantive thinking of why Senator Schumer thought it was a good idea to oppose oil purchases during COVID or why Democrats meaningfully have changed their energy philosophy since he did that. Which is also why the US oil industry is probably not easily sold on investing in more oil wells *and* 4 more years of a Democratic administration, to say nothing of Saudi interests!
I doubt it. Outside of margin posting (which I don’t know the details here), cash wouldn’t go out the door until the contact settled, so it’s more like a future spending commitment than a purchase that would be funded by expanding the debt.
The debt limit is a limit on the notional amount of treasuries outstanding. Other obligations and commitments, which are perhaps conceptually debts, don’t apply here.
"Increase the debt limit so America can buy American oil from American producers for when American consumers will need it" doesn't seem like a crazy negotiation ploy, although that doesn't seem to be the direction the administration is going (it would presuppose some degree of good faith from the House GOP).
I generally agree with Matt's thesis here, but pretend for the moment that I'm an idiot.
Unless it's sitting in a tank on Freedom Soil (or in a Louisiana salt dome or whatever), how much is a strategic reserve truly a strategic reserve? Few state actors are as malignant as the current Russian Federation, but what happens if you had a "futures contract" with the Saudis and "oops our Nord Stream equivalent broke at a conveniently terrible time"?
I think in terms of having a strategic supply you could rely on in times of war, having it in the salt domes is really what you have to do. If I understand correctly, what MY is talking about here is buying futures now that would be put oil back into the salt domes in 2024.
Looking a bit more broadly, because of the changes in production methods, things are very different now than they were when the SPR started. Then, we used more oil than we produced, and like in the 70s, OPEC could actually cut off supplies such that we literally couldn't get enough oil to run the country. Now, we are net exporters and that capacity gets even higher if you include Canada. So the real reserve is the salt domes plus all that we have in the ground, and no one can actually keep us from having enough oil, it's mostly a matter of pricing.
On the risk of bad faith contracts on the part of the Saudis, the thing to remember about contracts is that what's most important about them is the ability to enforce them. The Kingdom could try to refuse to honor them, but our enforcement mechanisms include the most powerful military the world has ever seen and the ability to seize most of the liquid financial assets in the world. If we have a contract that says we're supposed to receive 10 super tankers full of oil we can send out aircraft carriers to gather them up.
Futures contracts are standardized, traded derivatives on exchanges with margin requirements. So, if you commit to sell someone oil at $80, and the price goes up to $85, you are required to post cash for that $5 difference. That’s so that if you bail on the contract, the counter party can just take the $5 of margin you posted , buy for $85 on the open market, and be in the same place. So, it really doesn’t matter who is on the other end of the contract, and the market is designed specifically toward that end. There aren’t “Saudi futures” and “American futures” and “Russian futures”. There are just “oil futures,” with the same standard terms. Doesn’t matter if you are Russia or Goldman Sachs or the DOE. https://en.wikipedia.org/wiki/Futures_contract. The point is locking in a price (check) and guaranteeing oil will flow from someone into the reserve (check).
There are actually different futures contracts for those things.
The DOE wouldn't be buying cash settled futures contracts, they'd buy contracts for physical delivery. At the end of it you actually own a bunch of black sticky stuff - you can't just walk away and settle in cash. Back during covid the contract price for WTI went negative because a bunch of speculators who just wanted to play on the price of oil discovered that they were about to own a bunch of actual oil, and they had nowhere to put it.
The specific contracts define a specific oil composition and delivery location. In the case of the WTI contract that means oil that meets the west texas intermediate standard for delivery over common pipelines, and delivery in Oklahoma. Basically as a practical matter you can only fulfill the contract with American oil.
Hm, so sounds like you know what you’re taking about and maybe there are legal interpretations I’m unaware of but the description here sounds pretty narrow:
And the list of exposure below, which shows net fund holdings, too. Is that where you’d think it shows up? Doesn’t look like purchase contracts at various departments show up here though.
Could Saudi Arabia thwart a prude floor by reducing production every time prices approached it, or do they lack the market power to do that, at least some of the time. Would Saudi pullbacks, if they became policy, just give a slightly higher de facto floor to American producers.
I would pause before celebrating Biden's use of the SPR for political gain. He may have outfoxed republicans politically, but there was a cost. To name two: From now own both parties will use the SPR for their political ends when they are in the WH; Depleting the SPR put the country at increased risk if there had been an actual oil shortage. I think we should mourn each instance (from either party) when politicians break longstanding norms to act in the country's best interest in order to meet short term political ends.
Lastly, you seem to assume that the SPR can be filled and emptied without problem. But, the SPR is in salt caves not storage tanks, and was never intended to be emptied and filled repeatedly. Below is an article from the American Association of Petroleum Geologists. While not exactly an unbiased group, they have expertise, and as it was written in 2016, would seem to not be posted because of the current political environment.
The second paragraph I definitely did not know and definitely changes some of my thoughts on this. Definitely changes my thinking here.
I think given that GOP winning in 2024 would be so much worse for the environment then anything Democrats would realistically do; still seems smart for Biden to take Matt's advice. But good to know this really should be a "break glass in case of emergency" situation.
Matt's proposal as I read it is to institutionalize a new role for the SPR to stabilize oil prices at the level we choose, long-term. Establishing a new norm. I suppose either party could still use the SPR to drop the price as low as they want right before the election, which would be a new, shitty and abusive practice. But in our current moment that sort of thing is happening on every side, and it doesn't seem to be an argument against Matt's proposal.
It is fascinating that Biden has taken the advice I'd give as an 18-year-old and managed to piss off the Saudis and then also everyone else in the region simultaneously for no clear upshot. Back then I was mad the Saudis are authoritarian and DC people don't care/insist on helping them as a big security client. But at the ripe old age of 25, I have to ask; what have we gotten out of Biden's handling of the Middle East, or even India for that matter?
The Saudis were *always* going to gravitate towards the Chinese as US fracking and renewables reduced their leverage over our economy and the Chinese made it obvious that they'd not ask pointed questions of any client state.
I'm not sure what you think could have been done to ward that off short of showering them in gobs of cash, but my presumption going forward would be that anything we tell or supply to the Saudis will be in MSS hands within five minutes.
We can exercise a degree of realpolitik here, but there's no salvaging the relationship in any meaningful sense.
But if you look at India, which I rarely hear Democrats lament Trump/Kushner taking tons of bribes from, the exact same pattern is repeating? The Democratic party's foreign policy approach is being fractured by a younger progressive wing that despises right-wing nationalist parties in places like Israel and India, so Democratic leaders have to synthesize this with their old guard to increasingly mediocre results, and when that synthesis doesn't work out somehow this is all actually the fault of Republicans or was inevitable anyways. Not very persuasive!
I think your own ideological preferences are blinding you to the reality that US diplomacy is in both instances operating reasonably well, given the widely divergent interests of these nations compared to the United States.
The Indians have areas in which their interests coincide with the United States and on which we cooperate effectively, but to imagine that they can be drawn into a firm alliance on par with NATO, or even a relationship as close as that between the US and Australia or South Korea, is simply not rooted in reality.
I literally posted this in another substack less than five minutes ago:
"SE Asia and India are never going to be firm partners in constraining China everywhere but will be happy to cooperate in bulking up their own defensive capacities and in poaching industry and expertise from China to feed developed world markets."
That is precisely the opportunity we are offering to India, Vietnam, Indonesia... and it's being accepted, insofar as it goes. But to imagine that we can get India to do much more than accept the industry and development opportunities we are offering at China's expense, and to shore up its own northern defenses and naval arms, is... unrealistic. There is not going to be a world in which we could get India to intervene alongside us if China throws the PLA across the Straits.
Precisely what do you think we need to be doing to entice India that we are currently not doing?
Not sure the Iranians would be open to the deal, but it's worth a try. Maybe a no-sanctions for political reform in Venezuela would work and even it it did not, a noisy attempt ought to be politically useful.
Love this suggestion--I’m sure there is a strong case that could be made from the Left for relaxing sanctions on Venezuela for humanitarian reasons. If it happens to increase oil supply that’s not a problem. Increasing foreign aid to Nigeria and Iraq could also boost world oil production and could be written off as humanitarian.
1) That might be a fine idea if it also applied to Israel. However, American politicians won’t even say plainly that Israel has nukes, much less sanction Israel for not signing the NPT, so it’s all a farce
2) Recent events in Ukraine have made me think that small countries menaced by bigger countries are foolish not to have nukes. Ukraine gave up its nukes in the 90s in exchange for security guarantees from the West. That was catastrophically stupid. De Gaulle was spot on when he doubted the US would ever sacrifice New York for Paris. We have prevented Ukrainian collapse (for now), but have not prevented 20% of their territory from being overrun. They will never get back eastern Donetsk and Luhansk, much less Crimea.
3) Given that I really don’t want to fight China, I think Taiwan desperately needs nukes. An independent nuclear deterrent is far more credible than vague assurances from a country that won’t even send an ambassador. The secret transfer of several ballistic missile subs to Taiwan would be a brilliant fait accomplis.
Separately, I think one reason we have yet to find intelligent life beyond our planet is that civilizations advanced enough to transmit radio signals we could detect are also advanced enough to have nuclear wars.
It’s fascinating to ponder how many nuclear wars have occurred in the history of the milky way.
>Recent events in Ukraine have made me think that small countries menaced by bigger countries are foolish not to have nukes.<
I've been re-thinking my hitherto strongly anti proliferation views of late, too. A Japanese or South Korean arsenal would presumably provide a strong deterrent vis a vis PRC aggression while not depending on the implicit threat (to Beijing) of war with America. Which logically should lessen our chances of getting drawn into a war with the former. I suspect it's too late for Taiwan, however. PRC official policy has long maintained a Taiwanese bomb is for them a casus belli. Taipei should have been emulating Israel in all areas related to national defense over the last several decades. But that's water under the bridge.
And yes, Ukraine's giving up its nuclear weapons looks in retrospect a massively naive decision.
1) The more countries that have nuclear weapons, the more likely we are to have a nuclear incident. For all Israel's failures, they have had nukes for a long time and have not used them. They also tend to follow the rules of the international order better than Iran.
2) I thought the same thing about Ukraine for a while, but upon doing a bit more research, it was clear a) that Ukraine never actually had the launch codes for any of the nukes there; b) there was no way the US, Europe, or Russia was going to allow Ukraine to keep the nukes. Also you're opinion that they will never regain their territory may be accurate, but the book isn't closed on that yet.
3) What countries would you say shouldn't have nukes?
I wish that only the US had nukes. But wishing isn’t having. The question is how hard am i willing to push other countries to not have them, and I’d rather work with Iran towards energy abundance than take up for Israel
Say Ukraine had kept its nukes but didn’t have the launch codes. At a minimum, they would have had enough fissionable material to make lots of new bombs. When Crimea was occupied, they could have started a crash program and had a credible deterrent before February 2022. also, they might have used intelligence to get the launch codes.
it’s not like they really got much from Europe before 2022, and germans will trade with anyone!
These all seem like reasons we might be tolerant of friendly small nations having nuclear weapons and compelling reasons that we don't want unfriendly ones to have them. Iran is unfriendly.
Also re: Ukraine - AIUI the relevant authorization codes were never in Ukrainian hands, so while the physical weapons were transferred, the capacity to actually use them as a deterrent was never really on the table for the Ukrainians.
One of the stated goals of the Iranian government is the destruction of the US. "Israel has nukes so the people that want to blow up New York also have the right to have nukes." doesn't sound very convincing to me.
I mean, the DPRK has been saying shit like that forever and they've not yet done it, because like the Iranian government they enjoy living and ruling, not gloriously committing suicide.
Kim may be mad but doesn't look like the type of person who feels that God wants him to commit suicide so that he can enter heaven. On the other hand Iran has a long history of supporting suicide bombings (including against the US). It seems to me that you're arguing that a kamikaze pilot would never commit suicide because an unrelated US enemy (like North Korea) isn't into suicide attacks.
edit: I would also have preferred a world where the US had prevented the DPRK from getting nuclear weapons. Kim may be mad indeed.
Disagree on the first point, I would really like someone to actually explain this assertion that has been repeatedly made that the Iranian government is just vastly less rational of an actor than the North Korean, Pakistani, Israeli, or Saudi ones. My read is that they're pretty goddamned sophisticated for how they came into power and what they are.
On the second... this is the whole point of my line of discussion: How, and at what cost, should we have prevented that acquisition? How, and at what cost, should we prevent it next time?
No one seems to be offering up a conception of an acceptable cost to prevent the Iranian state from building nuclear weapons.
The number one reason to not want iran to have nukes is to keep them from messing with israel. escalation parity would let them act much more aggressively. and frankly, i’m kind of ok with that.
israel needs to chill out and stop apartheid and ethnic cleansing, otherwise it needs regime change
Iran will not have the capability to hit the US with nuclear weapons for a very long time if ever. They will never have an air force capable of delivering nuclear weapons and their missile program is farther behind than even their nuclear program.
As poor of a state the American navy is in right now, it is far, far better than the Iranian navy. Iran also doesn't have aircraft carriers from which to launch planes. The direct nuclear threat the US faces from Iran is the same as it faces from Pakistan, which is no threat.
Because we don't like Iran very much and might, conceivably, invade them at some future point, in addition to wanting strategic flexibility to do things like, e.g., hit drone production facilities that are being used for export to Russia without risking nuclear exchange? This seems like a bizarre proposal even if you think (as I do) that Israeli opposition to the Iran nuclear deal reflected a country going off the deep end and shooting themselves in the foot with a machine gun. In what possible way would it benefit the United States to have a nuclear rather than non-nuclear Iran?
I will note that I 100% do not value whatever sovereignty principle seems to be being implicitly invoked here more than the terminal goal of "Iran should not have nukes." I think sovereignty only makes sense as an instrumental rather than terminal goal. Plenty of sovereigns are bad -- see, e.g,. Putin or the CCP or MBS or Khameini--we just think war is often on average worse. I think that there's virtually zero non-consequentialist content to the principle of honoring sovereignty. It's important for Taiwan to retain independence because the CCP is a malevolent autocracy and should not be suffered to conquer a friendly democracy (especially one with enormous worldwide strategic value to the west), rather than because Chiang Kai-Shek was divinely ordained to establish an independent state on this particular island.
please, let's not pretend there's some "we have to treat Israel and Iran the same" principle at work in the world. You don't strike me as so naïve as to think that's how the world works.
David's "why/why not let them have" is the wrong framing, anyway. All the US can do is present a set of carrots and sticks that makes Iran's leadership conclude that life is better without nukes than with them. Same goes for every other nuclear state interacting with every other non-nuclear state. Sometimes the carrots and sticks are small and easy and effective, sometimes they're big and hard and ineffective. That's how sovereign states do.
It's not a genie that we have absolute power to keep in the bottle, and anybody who pretends otherwise is selling something.
I mean, Israel's coercive kinetic approach of murdering Iranian nuclear scientists and conducting physical sabotage does genuinely appear to have been shockingly effective and seems to fall pretty squarely under "not letting them have it," so I don't think that a brokered deal is the only alternative to unilateral coercion in the short to medium term, even discounting the possibility of war by the US to prevent Iranian success (which I agree seems low probability). In the long term, however, I would agree that the kinetic approach is intrinsically unsustainable - Iran can always build the bunkers deeper and you can't count on Stuxnetting it repeatedly and consistently and murdering your way out of the rest of the problem.
There are some apt comparisons to be made to limiting the spread of destructive invasive species. Mitigation is a very worthy goal, but you're stuck fighting a holding action. This is generally not a position of strength.
i really don’t think Iran would engage in a preemptive strike against Israel. Also, it’s hardly clear that being a Jew in Tehran is worse than being a Palestinian in Gaza. Israel and Iran are both icky.
Maybe so, but it is *not* the least unstable country in the middle east. In any given year, crazy unexpected shit may happen with the country's regime and people.
Less than 3% of Iranian Jews in the world still live in Iran. No one cares - they would scream bloody murder if that happened with Palestinians. I guarantee you Arab inhabitants of Israel are doing better than the Tehran Jews.
The ethnic cleansing of the Arab world is up there with the Russian imperial tendencies as things the West DGAF about but the people affected by it understand extremely well.
Eh, I agree with David on this one vis a vis the likelihood of preemptive strike whether directly or through a proxy. A nuclear strike against Israel that more probably than not could be laid at the feet of the Iranians seems highly likely to mean the end of the Iranian regime at the hands of the United States with extreme prejudice. The Iranians are dicks but they're pretty rational dicks for all that.
Unlike the Gulf States, Iran's leadership, while fanatical, is still the product of an urbane and highly-urbanized state with roots in an old culture and a very strong literary and educational tradition. And they also face more popular constraints on their actions because their citizenry comes from the same, minus the self-selection for fanaticism.
I trust them sooo much further than the Saudis or the GCC states that it's not even funny.
That's kind of the most interesting thing going on here. Sure, price ceilings and floors are not a bad thing, but a technocrat issue like this will never get some grassroots populist groundswell, so the intelligentsia are very boldly sending smoke signals to elected politicians to do the things they think are good for the economy. Like it's not a bad thing, and better than backroom lobbying, or those blanket DC ad campaigns really hoping to hit maybe a dozen people, but it's still strange as a cottage industry.
> What will Joe Biden’s response be if the governments of Russia, Saudi Arabia, and the United Arab Emirates spend the summer of 2024 curtailing oil production in order to spike gasoline prices and help restore Trump to power?
Solid opening with this nightmare fuel. Yet, after hearing it laid out so clearly, this seems like a self-evident concern that someone in the administration should have identified and appropriately escalated. Just the geopolitical and national defense concerns should be sufficiently alarming, let alone the domestic politics and reelection ones.
Can institutional inertia alone fully explain this? I'm not questioning Yglesias' sources or his capacity to elucidate the issue's structure based on them. This just seems like something the administration could easily identify and correct on their own due to the high stakes of an OPEC+ oil price surge at such an inopportune time.
Could there instead be something of a disagreement within the Biden administration about balancing the rivalrous concerns of geopolitics, climate, economics, and electoral politics? Perhaps this article is primarily written to lend support to the more pragmatic, technocratic faction within that fight. I mean, it’s not even particularly subtle with the, “I hope that someone in the White House reads this newsletter”.
While I’m sure there may be disagreement within the White House, I think the null explanation is that this dynamic is playing out with every issue across the executive branch simultaneously. EOP only has so much capacity to monitor what’s happening and push for their initiatives against inertia. The choice is not “prioritize SPR refilling or not” it’s “prioritize SPR refilling or some other policy”.
I could only read the free part, but they seem to completely ignore the current situation. Sure, Russia had a few good months in 2022, but in 2023 their oil revenue has crashed and the price they're currently getting is below their production cost (especially when transport is included).
Most analysists I've read think the sanctions did their job quite well, albeit with a bit of a time delay. Russia has been eliminated as a global energy power and they don't have the money or technology to do anything about it for the foreseeable future.
Does their analysis cover 2023? That would be interesting to hear. As best as I can tell, Russia is in deep deep trouble going forward. As I understand it, they're already selling well below cost once exploration and startup costs are considered.
Also, on the other article, the idea that they think Germany's closure of its last three nuclear power plants was "severing their toes in the name of saving their feet" tells me they don't have the foggiest idea about how Germany's electricity grid works.
The reason nuclear power doesn't make sense for Germany is because nuclear power is inflexible and doesn't mix well on a grid with lots of intermittent renewables. The high renewable penetration on Germany's grid requires flexible generation to balance supply and demand. Nuclear can't help with that, especially with rickety and unreliable 50 year old plants (See France's nuclear output in 2022).
Germany screwed up by single sourcing natural gas from Russia, but their plan to go all-in on natural gas to back up renewables is a good one and as they continue to diversify their supply using LNG, they'll be fine and are on track to accelerate their transition to a renewable grid with gas for balancing and backup. Their plan for this is sound.
Germany's renewables have never covered more than 85% of demand, not even for a few hours. It turns out that the day they believed they'd covered 100% was due to a dramatic underestimate of current demand, and they actually peaked at 82%.
In context, having 20ish percent of their output be from nuclear, even if completely inflexible, would continue to be a good thing for another half-decade at current levels of demand. And given that both EV and climate control transitions are going to push peak demand up by 40-50%, they would in fact be able to wring value from their nuclear plants well into the 2050's.
Instead, they will maintain a considerable *constant* usage of, if we're lucky, natural gas. If not, coal or unsustainable biomass. For decades.
>> In context, having 20ish percent of their output be from nuclear, even if completely inflexible, would continue to be a good thing for another half-decade at current levels of demand.
The thing is that Germany already imports a bunch of nuclear from France. Nominally, France gets 70% of its power from nuclear but that doesn't tell the whole story. Nuclear's limited load following makes it tough to satisfy more than around 50% of load using nuclear. France gets to 70% by doing a lot of balancing with imports/exports. Germany made its phaseout plan knowing there was a bunch of nuclear available from France through imports.
Those plants needed refueling and a lot of work/investment to continue service and the math doesn't really work if their output is needed for just a few years. Also, between refueling and needed maintenance they wouldn't be able to help for at least a couple of years. By then, Germany will have added a ton of renewables to compensate.
Perhaps, but if so then the amount not invested in remedial maintenance should be sufficient to rapidly decarbonize a similar percentage of consistent capacity, no? It does not seem that's currently the case.
Moreover, the current maintenance and fueling backlog would not have arisen had Germany committed to a rational strategy of replacing its damned coal- and gas-fired generation with renewables and storage first.
I agree that gas-fired peaking generation is an excellent complement to renewables, is ideally suited to being replaced by storage facilities at one-to-one as they become economical and no longer supply-constrained. But surely you agree that the decision to use solar and wind to replace nuclear power first instead of all baseload fossil fuels was a profoundly stupid one?
Germany could have a completely clean grid well over two-thirds of the time if it had maintained its nuclear capacity in 1995 in full. Yes, the pricing issues are quite obvious, as you note, but the need to subsidize the nuclear plants would not have added significant costs to the already-expensive Energiewende, and would have yielded significant benefits.
Instead they basically leapt, looked, and were able to cobble together a parachute sufficient to only break a tibia on landing. That this entire policy mix has been a disaster should be encapsulated perfectly in three numbers:
US electricity carbon intensity, 2020: 0.371 kg/kWh
France electricity carbon intensity, 2021: 0.058 kg/kWh
Germany has *poured* its treasure and bent vast amounts of expertise and industrial sinew to the job of decarbonizing its grid, all to achieve a result barely better than a half-assed, desultory effort by the United States that cost a tiny fraction as much relative to GDP and vastly worse than decades-old French policies which have provided the most affordable electricity in Europe.
If we go back 10 years what they did was rash for sure. In general it makes total sense to keep nuclear running as long as possible even with subsidies. The IRA's nuclear production tax credits are smart policy.
As an aside, next winter's futures prices on electricity in France are double German prices due to concerns about nuclear reliability. We should still try to keep them all running, but they're not going to be as dependable as they get advanced in age.
Thanks. Points 2 and 3 make it sound like they can't increase renewable output as the transition continues. They will easily because renewable build out times are very predictable unlike nuclear.
For point 4 the solution is demand response and time of use billing which Germany already does. This allows them to cover most of ev demand with existing capacity. Storage and gas can easily handle what load shaping can't handle.
For 5, nuclear is 3-5 times more costly than renewables plus storage or gas. Without a breakthrough with next gen tech it's got nothing to offer.
Technically they can do it, but just not economically.
Running plants in load following mode causes some wear and maintenance headaches, but the real problem is that if you lower a plant's capacity factor by much, it becomes very tough to cover fixed op ex (eg 500-1000 employees per plant versus a couple dozen for a gas plant).
I don't see the rivalrous conflict between climate and geopolitics here. Buying oil to be put in the SPR is literally a "keep it in the ground" plan that would also act a price floor on global oil prices--seems to be good from a climate perspective.
As has been my pattern lately, I actually am going to note something that isn't really the point of this article.
"America’s emergence as a major producer has changed the game — we are less dependent on the goodwill of the Gulf monarchies than we used to be, but they are less interested in cultivating a positive relationship with us. They like Donald Trump, personally, because in exchange for large cash bribes paid directly to his family, he’s been willing to completely subordinate American interests to Gulf interests when it comes to Iran policy."
I just need to say that it's absolutely horrifying that Matt can write this sentence. I don't mean that he's wrong. Quite the opposite. It's just sort of casually known that Trump is completely in the pocket of a murderous dictatorship and that if he came to power there's a good chance that MBS would basically dictate our foreign policy.
One of the tragedies of the "Russia stuff" is that as bad as that is (we still don't have a great explanation as to why Trump is so fawning of Putin. We still have unanswered questions about financial ties between the Trumps and Russia generally), it likely distracted us from the much more concrete corruption that clearly exists between Trump, Kushner and various Middle East dictatorships. There's so much awfulness with the man, that it can be hard to keep track of all the ways Trump returning to power could be so unbelievably awful for America and the world.
Amusingly, I think that the Saudis' are quite foolish to place any faith in Trump.* Its not that he won't take their money and do what they want for a while. Its just that he has demonstrated a willingness to toss anybody and everybody under the bus as soon as it suits him.
*that applies to anyone who places their faith in Trump. Dude would sell his mother for a klondike bar.
The biggest reason not to refill the SPR is that oil prices are still higher than people in Georgia and Wisconsin want them to be. Buying oil would be an admission that oil will never be cheaper than it is today, and that would upset alot of us provincials. The $70 floor was definitely an improvement on Matt’s idea, and still high enough to encourage American hydrocarbon heroes to frack for freedom.
Interesting footnote. My old accord has two Bernie stickers on it (2016 and 2020) and a Frack For Freedom sticker to make it clear I reject Bernie’s nonsense on energy. Alas, the Frack for Freedom sticker was sold by grifters and has largely fallen off. The Bernie stickers have held strong.
The Obama administration did a lot of things right in support of American commercial interests in the 21st century. Four years of Trump going back to tarriffs and 80s style trickle-down economics and the Biden administration pushing unions and other 70s era progressive themes like "oil companies are bad" have over-politicized our economy and destroyed the win-win approach between government and US businesses we had under Obama.
As long as anyone is still oxidizing carbon atoms, I'm all for letting US producers supply the demand. The US is not doing enough and most of the rest of the world less to reduce _demand_ for carbon atom oxidation when the resulting CO2 get released into the atmosphere. Preventing US producers from supplying those carbon atoms at a profit just means someone else will supply them and profits of US producers will be a little lower. Maybe that makes some environmental activist happy, although it should not, but it doe not prevent the oxidation of the carbon atoms and release of theCO2 into t he atmosphere and the economic losses that will entail.
I'm not sure I really disagree with this but the devil's advocate argument seems like it's the same as that for divestment: you can't credibly take actions and positions against burning hydrocarbons when you've taken a economic dependency on doing just that.
"It is difficult to get a man to understand something, when his salary depends on his not understanding it.”"
The idea is that America would be constrained from taking serious steps promulgate policies that promote fossil reduction even as it revels in the revenue from such extraction. You go from "as long as anyone is still oxidizing carbon atoms" as an exogenous given, to a status quo that entrenched U.S. interests now don't want to see disrupted. In a world where you aren't and don't want to read "as long as anyone is still oxidizing carbon atoms" as an exogenous given, treating it as one creates moral hazard.
Abroad, it makes you look like a hypocrite and reduces your moral force if you're trying to get international coordination on reducing exploitation while doing your best to outcompete everyone else's oil industry. At home, you now have a bunch of very wealthy and their lobbyists whose livelihoods and votes and general self-interest are tied into the wellbeing and persistence of the extraction / combustion industry.
It's not impossible to overcome these dynamics in real-world politics (U.S. tobacco regulation became secularly more stringent despite the U.S. having a large tobacco industry) but it's clearly easier to get three sheep to reach consensus on what's for dinner than it is for two sheep and a wolf. University carbon-divestment agita is basically about how the administration's material interests aren't credibly aligned with their alleged anti-carbon policy agendas because they own a bunch of Exxon / Chevron stock or whatever and will tend to neuter substantive action on carbon reduction whenever the rubber hits the road.
Counterpoint: Norway lectures the world about climate change and emissions while having an economy that is as dependent on hydrocarbon exploitation as the Gulf states, and their standing in the world doesn't seem to be reduced.
Fair, but on the other hand, when's the last time anyone cared what the Norwegians thought or took a threat from them seriously? You're definitely right though that they're basically externalizing emissions full-tilt even as they mandate the use of electric cars domestically.
The main argument that it was intended to influence US politics was that it was an odd time for the Saudis to be trying to push up oil prices, as they were already at recent highs due to the Russo-Ukrainian war.
With inflation still around 4% and the ongoing debt debacle maybe one line of thought is they’ll look like heroes filling at < $60 a barrel when a recession hits. Average this out with the let’s fill < $80 team and a trigger price of $70 remains a decent compromise (given that possible internal split).
Your first graph shows US petroleum production at 20,000,000 barrels per day, but your second graph shows a more correct figure of 12,000,000 barrels per day. We do not produce 9,000,000 barrels per day more than Saudi Arabia.
Oil and gas data analytics guy here - I believe the first chart is including "natural gas liquids", which are liquid hydrocarbons that can be removed from natural gas. This includes molecules like propane and butane that are more valuable than gas but less valuable than oil. US shale production is usually rich in these NGLs, and the US is by far the world's biggest gas producer.
Still it is problematic. Russia is the second largest natural gas producer in the world, and not that much smaller than US, so how could daily production be double? You cannot get more NGL than the gas you produce.
Also, if you are correct, then it is still a colossally mislabeled graph.
OK, I dug a little deeper. The US produces 20 million bbl/d "total liquids", of which ~12 million is crude oil and condensate, and ~8 million is NGLs, biofuels, and refining gains. The US produces almost 100 billion cubic feet a day of natural gas, and 6ish million barrels of NGLs from that is quite reasonable.
Saudi produces ~12 million bbl/d total, of which ~10.6 million bbl/d is crude and condensate.
Russia produces ~10.9 million bbl/d total, of which ~10.3 million bbl/d is crude and condensate.
The NGL production from Russia is quite a bit lower than from the US, especially proportional to their gas production. Russian gas primarily comes from large, dry gas fields, whereas US gas comes from unconventional shale wells, most of which have a higher liquids content.
The NGL production is also dependent on processing decisions by the producer. It costs money to remove the NGLs from gas, and so you will only do that if you get extra value.
Realistically, I think for Matt's comparison here he should be using oil production, not total liquids.
Halfway through this essay, I went back to the top to make sure it was Matt who was the author. The tone sounded so much more like political spin rather than the usual policy analysis. Only when I got to the end did I realize today's column is intended for a specific audience rather than the rest of us. Hope it works.
Yeah, particularly the political spin. The excuse of institutional inertia and risk aversion just feels too convenient and forgiving. I suspect that there may instead be some continued hostility toward the domestic oil industry within parts of the administration to bail them out with a price floor.
any Democrat who is instinctively hostile to the oil industry needs to get out of national politics. the highest they should rise is a deep blue urban seat in the House, they have no business being on the white house staff
I found the tone and prose 100% Yglesian. What made you think it was a guest writer?
"My reporting indicates that there is no Energy Department conspiracy to backslide on Biden’s SPR commitments."
I haven't read him use such language before. When I saw those words I thought maybe it was a guest writer (some journo or another who focuses on energy markets).
The headline told me this article was aimed at the whitehouse, so I suppose I adjusted my priors before the first paragraph
Same reaction.
That's a good point, although in a lot of publications AIUI, editors write the headlines.
It sounded like Yglesias to me, but I agree that the imagined audience here is senior white house staff.
He didn’t tell them in person? Matt isn’t getting invited to “influencer” gatherings? He’s definitely influential, right? I wonder if it’s like Secret Congress, and the Yglesias influence is more effective when no one knows about it.
Or just pick up the phone. We know for a fact he's besties with Treasury Sec.
I did, too.
I also checked the byline part-way through.
It's a good policy directive memo, but there's no substantive thinking of why Senator Schumer thought it was a good idea to oppose oil purchases during COVID or why Democrats meaningfully have changed their energy philosophy since he did that. Which is also why the US oil industry is probably not easily sold on investing in more oil wells *and* 4 more years of a Democratic administration, to say nothing of Saudi interests!
Does the debt limit matter here at all? Like are they delaying spending to improve cash flow?
That was my thought as well, seems like they would want to hoard cash right now.
I doubt it. Outside of margin posting (which I don’t know the details here), cash wouldn’t go out the door until the contact settled, so it’s more like a future spending commitment than a purchase that would be funded by expanding the debt.
might some say a "future spending commitment" is a type of debt? I genuinely don't know the details of how that works.
The debt limit is a limit on the notional amount of treasuries outstanding. Other obligations and commitments, which are perhaps conceptually debts, don’t apply here.
"Increase the debt limit so America can buy American oil from American producers for when American consumers will need it" doesn't seem like a crazy negotiation ploy, although that doesn't seem to be the direction the administration is going (it would presuppose some degree of good faith from the House GOP).
I generally agree with Matt's thesis here, but pretend for the moment that I'm an idiot.
Unless it's sitting in a tank on Freedom Soil (or in a Louisiana salt dome or whatever), how much is a strategic reserve truly a strategic reserve? Few state actors are as malignant as the current Russian Federation, but what happens if you had a "futures contract" with the Saudis and "oops our Nord Stream equivalent broke at a conveniently terrible time"?
I think in terms of having a strategic supply you could rely on in times of war, having it in the salt domes is really what you have to do. If I understand correctly, what MY is talking about here is buying futures now that would be put oil back into the salt domes in 2024.
Looking a bit more broadly, because of the changes in production methods, things are very different now than they were when the SPR started. Then, we used more oil than we produced, and like in the 70s, OPEC could actually cut off supplies such that we literally couldn't get enough oil to run the country. Now, we are net exporters and that capacity gets even higher if you include Canada. So the real reserve is the salt domes plus all that we have in the ground, and no one can actually keep us from having enough oil, it's mostly a matter of pricing.
On the risk of bad faith contracts on the part of the Saudis, the thing to remember about contracts is that what's most important about them is the ability to enforce them. The Kingdom could try to refuse to honor them, but our enforcement mechanisms include the most powerful military the world has ever seen and the ability to seize most of the liquid financial assets in the world. If we have a contract that says we're supposed to receive 10 super tankers full of oil we can send out aircraft carriers to gather them up.
Futures contracts are standardized, traded derivatives on exchanges with margin requirements. So, if you commit to sell someone oil at $80, and the price goes up to $85, you are required to post cash for that $5 difference. That’s so that if you bail on the contract, the counter party can just take the $5 of margin you posted , buy for $85 on the open market, and be in the same place. So, it really doesn’t matter who is on the other end of the contract, and the market is designed specifically toward that end. There aren’t “Saudi futures” and “American futures” and “Russian futures”. There are just “oil futures,” with the same standard terms. Doesn’t matter if you are Russia or Goldman Sachs or the DOE. https://en.wikipedia.org/wiki/Futures_contract. The point is locking in a price (check) and guaranteeing oil will flow from someone into the reserve (check).
There are actually different futures contracts for those things.
The DOE wouldn't be buying cash settled futures contracts, they'd buy contracts for physical delivery. At the end of it you actually own a bunch of black sticky stuff - you can't just walk away and settle in cash. Back during covid the contract price for WTI went negative because a bunch of speculators who just wanted to play on the price of oil discovered that they were about to own a bunch of actual oil, and they had nowhere to put it.
The specific contracts define a specific oil composition and delivery location. In the case of the WTI contract that means oil that meets the west texas intermediate standard for delivery over common pipelines, and delivery in Oklahoma. Basically as a practical matter you can only fulfill the contract with American oil.
https://www.reuters.com/article/us-global-oil-crash-explainer/explainer-what-is-a-negative-crude-future-and-does-it-mean-anything-for-consumers-idUSKBN22301M
Interesting question. Looks like you’d buy futures specifically in West Texas Intermediary https://www.ig.com/en/commodities/oil/how-to-trade-oil-futures
A contractual purchase commitment is debt and would directly impact the debt ceiling.
Hm, so sounds like you know what you’re taking about and maybe there are legal interpretations I’m unaware of but the description here sounds pretty narrow:
https://uscode.house.gov/view.xhtml?path=/prelim@title31/subtitle3/chapter31&edition=prelim
And the list of exposure below, which shows net fund holdings, too. Is that where you’d think it shows up? Doesn’t look like purchase contracts at various departments show up here though.
https://home.treasury.gov/system/files/136/Daily-Debt-Subject-Limit-Activity-2023_05_05.pdf
Could Saudi Arabia thwart a prude floor by reducing production every time prices approached it, or do they lack the market power to do that, at least some of the time. Would Saudi pullbacks, if they became policy, just give a slightly higher de facto floor to American producers.
*price floor
Matt,
I would pause before celebrating Biden's use of the SPR for political gain. He may have outfoxed republicans politically, but there was a cost. To name two: From now own both parties will use the SPR for their political ends when they are in the WH; Depleting the SPR put the country at increased risk if there had been an actual oil shortage. I think we should mourn each instance (from either party) when politicians break longstanding norms to act in the country's best interest in order to meet short term political ends.
Lastly, you seem to assume that the SPR can be filled and emptied without problem. But, the SPR is in salt caves not storage tanks, and was never intended to be emptied and filled repeatedly. Below is an article from the American Association of Petroleum Geologists. While not exactly an unbiased group, they have expertise, and as it was written in 2016, would seem to not be posted because of the current political environment.
https://www.aapg.org/publications/news/spheresofinfluence/details/articleid/36728/the-good-the-bad-and-the-ugly-the-strategic-petroleum-reserve
Sounds like we need a Tactical Petroleum Reserve in addition to the Strategic Petroleum Reserve.
Sounds like we have a mineshaft gap.
(Bonus points for catching this very old reference.)
Is it like a basselope gap? (Extra bonus points for catching this very old reference).
I bow to your yet more obscure reference which flew right past me.
It's from Bloom County. Berke Breathed was making fun of the 80s missile gap panic, which I assume is your reference.
Mine is from Dr. Strangelove but Bloom County was awesome as well.
The second paragraph I definitely did not know and definitely changes some of my thoughts on this. Definitely changes my thinking here.
I think given that GOP winning in 2024 would be so much worse for the environment then anything Democrats would realistically do; still seems smart for Biden to take Matt's advice. But good to know this really should be a "break glass in case of emergency" situation.
That seems important?
Matt's proposal as I read it is to institutionalize a new role for the SPR to stabilize oil prices at the level we choose, long-term. Establishing a new norm. I suppose either party could still use the SPR to drop the price as low as they want right before the election, which would be a new, shitty and abusive practice. But in our current moment that sort of thing is happening on every side, and it doesn't seem to be an argument against Matt's proposal.
The salt cave thing is a problem though!
Totally agree. Biden should revive the Iran nuclear deal while he’s at it. Would be a nice eff-you to the Saudis as a plus.
It is fascinating that Biden has taken the advice I'd give as an 18-year-old and managed to piss off the Saudis and then also everyone else in the region simultaneously for no clear upshot. Back then I was mad the Saudis are authoritarian and DC people don't care/insist on helping them as a big security client. But at the ripe old age of 25, I have to ask; what have we gotten out of Biden's handling of the Middle East, or even India for that matter?
The Saudis were *always* going to gravitate towards the Chinese as US fracking and renewables reduced their leverage over our economy and the Chinese made it obvious that they'd not ask pointed questions of any client state.
I'm not sure what you think could have been done to ward that off short of showering them in gobs of cash, but my presumption going forward would be that anything we tell or supply to the Saudis will be in MSS hands within five minutes.
We can exercise a degree of realpolitik here, but there's no salvaging the relationship in any meaningful sense.
double plus like. the middle east sucks. frack for freedom!
But if you look at India, which I rarely hear Democrats lament Trump/Kushner taking tons of bribes from, the exact same pattern is repeating? The Democratic party's foreign policy approach is being fractured by a younger progressive wing that despises right-wing nationalist parties in places like Israel and India, so Democratic leaders have to synthesize this with their old guard to increasingly mediocre results, and when that synthesis doesn't work out somehow this is all actually the fault of Republicans or was inevitable anyways. Not very persuasive!
I think your own ideological preferences are blinding you to the reality that US diplomacy is in both instances operating reasonably well, given the widely divergent interests of these nations compared to the United States.
The Indians have areas in which their interests coincide with the United States and on which we cooperate effectively, but to imagine that they can be drawn into a firm alliance on par with NATO, or even a relationship as close as that between the US and Australia or South Korea, is simply not rooted in reality.
I literally posted this in another substack less than five minutes ago:
"SE Asia and India are never going to be firm partners in constraining China everywhere but will be happy to cooperate in bulking up their own defensive capacities and in poaching industry and expertise from China to feed developed world markets."
That is precisely the opportunity we are offering to India, Vietnam, Indonesia... and it's being accepted, insofar as it goes. But to imagine that we can get India to do much more than accept the industry and development opportunities we are offering at China's expense, and to shore up its own northern defenses and naval arms, is... unrealistic. There is not going to be a world in which we could get India to intervene alongside us if China throws the PLA across the Straits.
Precisely what do you think we need to be doing to entice India that we are currently not doing?
Not sure the Iranians would be open to the deal, but it's worth a try. Maybe a no-sanctions for political reform in Venezuela would work and even it it did not, a noisy attempt ought to be politically useful.
Love this suggestion--I’m sure there is a strong case that could be made from the Left for relaxing sanctions on Venezuela for humanitarian reasons. If it happens to increase oil supply that’s not a problem. Increasing foreign aid to Nigeria and Iraq could also boost world oil production and could be written off as humanitarian.
Why not just let Iran have nukes? If Israel has nukes, Iran has every right to maintain parity with its enemy.
Nonproliferation?
1) That might be a fine idea if it also applied to Israel. However, American politicians won’t even say plainly that Israel has nukes, much less sanction Israel for not signing the NPT, so it’s all a farce
2) Recent events in Ukraine have made me think that small countries menaced by bigger countries are foolish not to have nukes. Ukraine gave up its nukes in the 90s in exchange for security guarantees from the West. That was catastrophically stupid. De Gaulle was spot on when he doubted the US would ever sacrifice New York for Paris. We have prevented Ukrainian collapse (for now), but have not prevented 20% of their territory from being overrun. They will never get back eastern Donetsk and Luhansk, much less Crimea.
3) Given that I really don’t want to fight China, I think Taiwan desperately needs nukes. An independent nuclear deterrent is far more credible than vague assurances from a country that won’t even send an ambassador. The secret transfer of several ballistic missile subs to Taiwan would be a brilliant fait accomplis.
Separately, I think one reason we have yet to find intelligent life beyond our planet is that civilizations advanced enough to transmit radio signals we could detect are also advanced enough to have nuclear wars.
It’s fascinating to ponder how many nuclear wars have occurred in the history of the milky way.
>Recent events in Ukraine have made me think that small countries menaced by bigger countries are foolish not to have nukes.<
I've been re-thinking my hitherto strongly anti proliferation views of late, too. A Japanese or South Korean arsenal would presumably provide a strong deterrent vis a vis PRC aggression while not depending on the implicit threat (to Beijing) of war with America. Which logically should lessen our chances of getting drawn into a war with the former. I suspect it's too late for Taiwan, however. PRC official policy has long maintained a Taiwanese bomb is for them a casus belli. Taipei should have been emulating Israel in all areas related to national defense over the last several decades. But that's water under the bridge.
And yes, Ukraine's giving up its nuclear weapons looks in retrospect a massively naive decision.
1) The more countries that have nuclear weapons, the more likely we are to have a nuclear incident. For all Israel's failures, they have had nukes for a long time and have not used them. They also tend to follow the rules of the international order better than Iran.
2) I thought the same thing about Ukraine for a while, but upon doing a bit more research, it was clear a) that Ukraine never actually had the launch codes for any of the nukes there; b) there was no way the US, Europe, or Russia was going to allow Ukraine to keep the nukes. Also you're opinion that they will never regain their territory may be accurate, but the book isn't closed on that yet.
3) What countries would you say shouldn't have nukes?
I wish that only the US had nukes. But wishing isn’t having. The question is how hard am i willing to push other countries to not have them, and I’d rather work with Iran towards energy abundance than take up for Israel
I wish nobody had nukes.
I think you're assuming that its just up to us. Iran has demonstrated pretty clearly they perceive their interests very differently than we do.
Say Ukraine had kept its nukes but didn’t have the launch codes. At a minimum, they would have had enough fissionable material to make lots of new bombs. When Crimea was occupied, they could have started a crash program and had a credible deterrent before February 2022. also, they might have used intelligence to get the launch codes.
it’s not like they really got much from Europe before 2022, and germans will trade with anyone!
These all seem like reasons we might be tolerant of friendly small nations having nuclear weapons and compelling reasons that we don't want unfriendly ones to have them. Iran is unfriendly.
Also re: Ukraine - AIUI the relevant authorization codes were never in Ukrainian hands, so while the physical weapons were transferred, the capacity to actually use them as a deterrent was never really on the table for the Ukrainians.
One of the stated goals of the Iranian government is the destruction of the US. "Israel has nukes so the people that want to blow up New York also have the right to have nukes." doesn't sound very convincing to me.
I mean, the DPRK has been saying shit like that forever and they've not yet done it, because like the Iranian government they enjoy living and ruling, not gloriously committing suicide.
Kim may be mad but doesn't look like the type of person who feels that God wants him to commit suicide so that he can enter heaven. On the other hand Iran has a long history of supporting suicide bombings (including against the US). It seems to me that you're arguing that a kamikaze pilot would never commit suicide because an unrelated US enemy (like North Korea) isn't into suicide attacks.
edit: I would also have preferred a world where the US had prevented the DPRK from getting nuclear weapons. Kim may be mad indeed.
Disagree on the first point, I would really like someone to actually explain this assertion that has been repeatedly made that the Iranian government is just vastly less rational of an actor than the North Korean, Pakistani, Israeli, or Saudi ones. My read is that they're pretty goddamned sophisticated for how they came into power and what they are.
On the second... this is the whole point of my line of discussion: How, and at what cost, should we have prevented that acquisition? How, and at what cost, should we prevent it next time?
No one seems to be offering up a conception of an acceptable cost to prevent the Iranian state from building nuclear weapons.
The number one reason to not want iran to have nukes is to keep them from messing with israel. escalation parity would let them act much more aggressively. and frankly, i’m kind of ok with that.
israel needs to chill out and stop apartheid and ethnic cleansing, otherwise it needs regime change
Iran will not have the capability to hit the US with nuclear weapons for a very long time if ever. They will never have an air force capable of delivering nuclear weapons and their missile program is farther behind than even their nuclear program.
They have ships that can come close to big US coastal cities and a steady supply of suicide bombers though.
As poor of a state the American navy is in right now, it is far, far better than the Iranian navy. Iran also doesn't have aircraft carriers from which to launch planes. The direct nuclear threat the US faces from Iran is the same as it faces from Pakistan, which is no threat.
I'm not talking about the navy. I'm talking about regular commercial vessels with a bomb concealed somewhere with the cargo.
Why? N. Korea is essentially at the point to where it could do that. Do you think they wouldn't sell to the Iranians?
Because Iran will likely give them to terrorists.
No more likely, and arguably much less so, than Pakistan or Saudi Arabia...
And Pakistan already has nuclear weapons
Because we don't like Iran very much and might, conceivably, invade them at some future point, in addition to wanting strategic flexibility to do things like, e.g., hit drone production facilities that are being used for export to Russia without risking nuclear exchange? This seems like a bizarre proposal even if you think (as I do) that Israeli opposition to the Iran nuclear deal reflected a country going off the deep end and shooting themselves in the foot with a machine gun. In what possible way would it benefit the United States to have a nuclear rather than non-nuclear Iran?
I will note that I 100% do not value whatever sovereignty principle seems to be being implicitly invoked here more than the terminal goal of "Iran should not have nukes." I think sovereignty only makes sense as an instrumental rather than terminal goal. Plenty of sovereigns are bad -- see, e.g,. Putin or the CCP or MBS or Khameini--we just think war is often on average worse. I think that there's virtually zero non-consequentialist content to the principle of honoring sovereignty. It's important for Taiwan to retain independence because the CCP is a malevolent autocracy and should not be suffered to conquer a friendly democracy (especially one with enormous worldwide strategic value to the west), rather than because Chiang Kai-Shek was divinely ordained to establish an independent state on this particular island.
please, let's not pretend there's some "we have to treat Israel and Iran the same" principle at work in the world. You don't strike me as so naïve as to think that's how the world works.
no
David's "why/why not let them have" is the wrong framing, anyway. All the US can do is present a set of carrots and sticks that makes Iran's leadership conclude that life is better without nukes than with them. Same goes for every other nuclear state interacting with every other non-nuclear state. Sometimes the carrots and sticks are small and easy and effective, sometimes they're big and hard and ineffective. That's how sovereign states do.
It's not a genie that we have absolute power to keep in the bottle, and anybody who pretends otherwise is selling something.
I mean, Israel's coercive kinetic approach of murdering Iranian nuclear scientists and conducting physical sabotage does genuinely appear to have been shockingly effective and seems to fall pretty squarely under "not letting them have it," so I don't think that a brokered deal is the only alternative to unilateral coercion in the short to medium term, even discounting the possibility of war by the US to prevent Iranian success (which I agree seems low probability). In the long term, however, I would agree that the kinetic approach is intrinsically unsustainable - Iran can always build the bunkers deeper and you can't count on Stuxnetting it repeatedly and consistently and murdering your way out of the rest of the problem.
There are some apt comparisons to be made to limiting the spread of destructive invasive species. Mitigation is a very worthy goal, but you're stuck fighting a holding action. This is generally not a position of strength.
Unfortunately there are no native birds that will realize they can eat the spotted lantern flies in this analogy.
(Yes, I'm from Pennsylvania, how can you tell?)
As I say, his framing is wrong.
i really don’t think Iran would engage in a preemptive strike against Israel. Also, it’s hardly clear that being a Jew in Tehran is worse than being a Palestinian in Gaza. Israel and Iran are both icky.
Israel sucks but it's the least evil country in the middle east
Is it clearly less evil than Turkey?
a pox on all their houses, frack for freedom!
Maybe so, but it is *not* the least unstable country in the middle east. In any given year, crazy unexpected shit may happen with the country's regime and people.
Less than 3% of Iranian Jews in the world still live in Iran. No one cares - they would scream bloody murder if that happened with Palestinians. I guarantee you Arab inhabitants of Israel are doing better than the Tehran Jews.
The ethnic cleansing of the Arab world is up there with the Russian imperial tendencies as things the West DGAF about but the people affected by it understand extremely well.
Eh, I agree with David on this one vis a vis the likelihood of preemptive strike whether directly or through a proxy. A nuclear strike against Israel that more probably than not could be laid at the feet of the Iranians seems highly likely to mean the end of the Iranian regime at the hands of the United States with extreme prejudice. The Iranians are dicks but they're pretty rational dicks for all that.
Unlike the Gulf States, Iran's leadership, while fanatical, is still the product of an urbane and highly-urbanized state with roots in an old culture and a very strong literary and educational tradition. And they also face more popular constraints on their actions because their citizenry comes from the same, minus the self-selection for fanaticism.
I trust them sooo much further than the Saudis or the GCC states that it's not even funny.
it wouldn't be the end of the regime, it would be the full carthaginian solution
Let’s see how much pull Matt has with senior white house staff. Popcorn anyone?
That's kind of the most interesting thing going on here. Sure, price ceilings and floors are not a bad thing, but a technocrat issue like this will never get some grassroots populist groundswell, so the intelligentsia are very boldly sending smoke signals to elected politicians to do the things they think are good for the economy. Like it's not a bad thing, and better than backroom lobbying, or those blanket DC ad campaigns really hoping to hit maybe a dozen people, but it's still strange as a cottage industry.
> What will Joe Biden’s response be if the governments of Russia, Saudi Arabia, and the United Arab Emirates spend the summer of 2024 curtailing oil production in order to spike gasoline prices and help restore Trump to power?
Solid opening with this nightmare fuel. Yet, after hearing it laid out so clearly, this seems like a self-evident concern that someone in the administration should have identified and appropriately escalated. Just the geopolitical and national defense concerns should be sufficiently alarming, let alone the domestic politics and reelection ones.
Can institutional inertia alone fully explain this? I'm not questioning Yglesias' sources or his capacity to elucidate the issue's structure based on them. This just seems like something the administration could easily identify and correct on their own due to the high stakes of an OPEC+ oil price surge at such an inopportune time.
Could there instead be something of a disagreement within the Biden administration about balancing the rivalrous concerns of geopolitics, climate, economics, and electoral politics? Perhaps this article is primarily written to lend support to the more pragmatic, technocratic faction within that fight. I mean, it’s not even particularly subtle with the, “I hope that someone in the White House reads this newsletter”.
While I’m sure there may be disagreement within the White House, I think the null explanation is that this dynamic is playing out with every issue across the executive branch simultaneously. EOP only has so much capacity to monitor what’s happening and push for their initiatives against inertia. The choice is not “prioritize SPR refilling or not” it’s “prioritize SPR refilling or some other policy”.
Doomberg -- a writer on Substack -- is my go-to for clear thinking about the energy space. I recommend these, both published over the past 2 weeks:
https://doomberg.substack.com/p/the-peter-principle
https://doomberg.substack.com/p/causal-effects
I could only read the free part, but they seem to completely ignore the current situation. Sure, Russia had a few good months in 2022, but in 2023 their oil revenue has crashed and the price they're currently getting is below their production cost (especially when transport is included).
Most analysists I've read think the sanctions did their job quite well, albeit with a bit of a time delay. Russia has been eliminated as a global energy power and they don't have the money or technology to do anything about it for the foreseeable future.
I wish Substack would offer the option of paying a nominal amount to read just one or two articles. It would be helpful for situations like this.
Does their analysis cover 2023? That would be interesting to hear. As best as I can tell, Russia is in deep deep trouble going forward. As I understand it, they're already selling well below cost once exploration and startup costs are considered.
Also, on the other article, the idea that they think Germany's closure of its last three nuclear power plants was "severing their toes in the name of saving their feet" tells me they don't have the foggiest idea about how Germany's electricity grid works.
The reason nuclear power doesn't make sense for Germany is because nuclear power is inflexible and doesn't mix well on a grid with lots of intermittent renewables. The high renewable penetration on Germany's grid requires flexible generation to balance supply and demand. Nuclear can't help with that, especially with rickety and unreliable 50 year old plants (See France's nuclear output in 2022).
Germany screwed up by single sourcing natural gas from Russia, but their plan to go all-in on natural gas to back up renewables is a good one and as they continue to diversify their supply using LNG, they'll be fine and are on track to accelerate their transition to a renewable grid with gas for balancing and backup. Their plan for this is sound.
Germany's renewables have never covered more than 85% of demand, not even for a few hours. It turns out that the day they believed they'd covered 100% was due to a dramatic underestimate of current demand, and they actually peaked at 82%.
In context, having 20ish percent of their output be from nuclear, even if completely inflexible, would continue to be a good thing for another half-decade at current levels of demand. And given that both EV and climate control transitions are going to push peak demand up by 40-50%, they would in fact be able to wring value from their nuclear plants well into the 2050's.
Instead, they will maintain a considerable *constant* usage of, if we're lucky, natural gas. If not, coal or unsustainable biomass. For decades.
>> In context, having 20ish percent of their output be from nuclear, even if completely inflexible, would continue to be a good thing for another half-decade at current levels of demand.
The thing is that Germany already imports a bunch of nuclear from France. Nominally, France gets 70% of its power from nuclear but that doesn't tell the whole story. Nuclear's limited load following makes it tough to satisfy more than around 50% of load using nuclear. France gets to 70% by doing a lot of balancing with imports/exports. Germany made its phaseout plan knowing there was a bunch of nuclear available from France through imports.
Those plants needed refueling and a lot of work/investment to continue service and the math doesn't really work if their output is needed for just a few years. Also, between refueling and needed maintenance they wouldn't be able to help for at least a couple of years. By then, Germany will have added a ton of renewables to compensate.
Perhaps, but if so then the amount not invested in remedial maintenance should be sufficient to rapidly decarbonize a similar percentage of consistent capacity, no? It does not seem that's currently the case.
Moreover, the current maintenance and fueling backlog would not have arisen had Germany committed to a rational strategy of replacing its damned coal- and gas-fired generation with renewables and storage first.
I agree that gas-fired peaking generation is an excellent complement to renewables, is ideally suited to being replaced by storage facilities at one-to-one as they become economical and no longer supply-constrained. But surely you agree that the decision to use solar and wind to replace nuclear power first instead of all baseload fossil fuels was a profoundly stupid one?
Germany could have a completely clean grid well over two-thirds of the time if it had maintained its nuclear capacity in 1995 in full. Yes, the pricing issues are quite obvious, as you note, but the need to subsidize the nuclear plants would not have added significant costs to the already-expensive Energiewende, and would have yielded significant benefits.
Instead they basically leapt, looked, and were able to cobble together a parachute sufficient to only break a tibia on landing. That this entire policy mix has been a disaster should be encapsulated perfectly in three numbers:
US electricity carbon intensity, 2020: 0.371 kg/kWh
Germany electricity carbon intensity, 2021: 0.349 kg/kWh
France electricity carbon intensity, 2021: 0.058 kg/kWh
Germany has *poured* its treasure and bent vast amounts of expertise and industrial sinew to the job of decarbonizing its grid, all to achieve a result barely better than a half-assed, desultory effort by the United States that cost a tiny fraction as much relative to GDP and vastly worse than decades-old French policies which have provided the most affordable electricity in Europe.
If we go back 10 years what they did was rash for sure. In general it makes total sense to keep nuclear running as long as possible even with subsidies. The IRA's nuclear production tax credits are smart policy.
As an aside, next winter's futures prices on electricity in France are double German prices due to concerns about nuclear reliability. We should still try to keep them all running, but they're not going to be as dependable as they get advanced in age.
Your rebuttal to an article you didn't read is unconvincing.
How do you think keeping three out of fuel and rickety reactors running would help Germany's energy situation?
Again, anyone claiming Germany's pivot away from nuclear is adding to their current problem is an idiot.
France's rickety reactor fleet produced at half of its planned output for 2022, contributing significantly to the European energy crunch.
The thesis of the essay, to which you seem very invested in rebutting despite not having read it, is:
1. Germany has expanded renewables dramatically since 2000, but total electricity generation is flat over that time.
2. Shifting to an all electric vehicle fleet will add 25% (or more) to the demand for electricity
3. Shifting to heat pumps will add another 25% (or more) to the demand for electricity.
4. Intermittency issues will require even more of an increase to the grid.
5. German policies against Nuclear are inconsistent with the need for such an increase in demand.
Thanks. Points 2 and 3 make it sound like they can't increase renewable output as the transition continues. They will easily because renewable build out times are very predictable unlike nuclear.
For point 4 the solution is demand response and time of use billing which Germany already does. This allows them to cover most of ev demand with existing capacity. Storage and gas can easily handle what load shaping can't handle.
For 5, nuclear is 3-5 times more costly than renewables plus storage or gas. Without a breakthrough with next gen tech it's got nothing to offer.
I thought it WAS possible to dial power output from a nuclear plant up and down? No?
Technically they can do it, but just not economically.
Running plants in load following mode causes some wear and maintenance headaches, but the real problem is that if you lower a plant's capacity factor by much, it becomes very tough to cover fixed op ex (eg 500-1000 employees per plant versus a couple dozen for a gas plant).
I don't see the rivalrous conflict between climate and geopolitics here. Buying oil to be put in the SPR is literally a "keep it in the ground" plan that would also act a price floor on global oil prices--seems to be good from a climate perspective.
"Climate economics" is not in play; climate activist politics, maybe.
As has been my pattern lately, I actually am going to note something that isn't really the point of this article.
"America’s emergence as a major producer has changed the game — we are less dependent on the goodwill of the Gulf monarchies than we used to be, but they are less interested in cultivating a positive relationship with us. They like Donald Trump, personally, because in exchange for large cash bribes paid directly to his family, he’s been willing to completely subordinate American interests to Gulf interests when it comes to Iran policy."
I just need to say that it's absolutely horrifying that Matt can write this sentence. I don't mean that he's wrong. Quite the opposite. It's just sort of casually known that Trump is completely in the pocket of a murderous dictatorship and that if he came to power there's a good chance that MBS would basically dictate our foreign policy.
One of the tragedies of the "Russia stuff" is that as bad as that is (we still don't have a great explanation as to why Trump is so fawning of Putin. We still have unanswered questions about financial ties between the Trumps and Russia generally), it likely distracted us from the much more concrete corruption that clearly exists between Trump, Kushner and various Middle East dictatorships. There's so much awfulness with the man, that it can be hard to keep track of all the ways Trump returning to power could be so unbelievably awful for America and the world.
Amusingly, I think that the Saudis' are quite foolish to place any faith in Trump.* Its not that he won't take their money and do what they want for a while. Its just that he has demonstrated a willingness to toss anybody and everybody under the bus as soon as it suits him.
*that applies to anyone who places their faith in Trump. Dude would sell his mother for a klondike bar.
The biggest reason not to refill the SPR is that oil prices are still higher than people in Georgia and Wisconsin want them to be. Buying oil would be an admission that oil will never be cheaper than it is today, and that would upset alot of us provincials. The $70 floor was definitely an improvement on Matt’s idea, and still high enough to encourage American hydrocarbon heroes to frack for freedom.
Interesting footnote. My old accord has two Bernie stickers on it (2016 and 2020) and a Frack For Freedom sticker to make it clear I reject Bernie’s nonsense on energy. Alas, the Frack for Freedom sticker was sold by grifters and has largely fallen off. The Bernie stickers have held strong.
Also worth noting that oil has only dipped below $70 a couple times in the last six months, and only fairly briefly.
I don't know what the case against Matt's proposal is, but it's looking pretty shabby right now.
I'm counting on the contra-contrarians of the SB commentariat to well actually up a response.
I mean, the most low hanging fruit, is that the government shouldn't be manipulating the market or something.
But given that we DO have a SPR, let's at least make some money from it by buying low and selling high.
Um, Matt's proposal mirrors current administration policy?
Except for the "do it now" part, right?
The Obama administration did a lot of things right in support of American commercial interests in the 21st century. Four years of Trump going back to tarriffs and 80s style trickle-down economics and the Biden administration pushing unions and other 70s era progressive themes like "oil companies are bad" have over-politicized our economy and destroyed the win-win approach between government and US businesses we had under Obama.
As long as anyone is still oxidizing carbon atoms, I'm all for letting US producers supply the demand. The US is not doing enough and most of the rest of the world less to reduce _demand_ for carbon atom oxidation when the resulting CO2 get released into the atmosphere. Preventing US producers from supplying those carbon atoms at a profit just means someone else will supply them and profits of US producers will be a little lower. Maybe that makes some environmental activist happy, although it should not, but it doe not prevent the oxidation of the carbon atoms and release of theCO2 into t he atmosphere and the economic losses that will entail.
I'm not sure I really disagree with this but the devil's advocate argument seems like it's the same as that for divestment: you can't credibly take actions and positions against burning hydrocarbons when you've taken a economic dependency on doing just that.
"It is difficult to get a man to understand something, when his salary depends on his not understanding it.”"
I'm glad you don't disagree, :) but I don't understand the point about divestment.?
The idea is that America would be constrained from taking serious steps promulgate policies that promote fossil reduction even as it revels in the revenue from such extraction. You go from "as long as anyone is still oxidizing carbon atoms" as an exogenous given, to a status quo that entrenched U.S. interests now don't want to see disrupted. In a world where you aren't and don't want to read "as long as anyone is still oxidizing carbon atoms" as an exogenous given, treating it as one creates moral hazard.
Abroad, it makes you look like a hypocrite and reduces your moral force if you're trying to get international coordination on reducing exploitation while doing your best to outcompete everyone else's oil industry. At home, you now have a bunch of very wealthy and their lobbyists whose livelihoods and votes and general self-interest are tied into the wellbeing and persistence of the extraction / combustion industry.
It's not impossible to overcome these dynamics in real-world politics (U.S. tobacco regulation became secularly more stringent despite the U.S. having a large tobacco industry) but it's clearly easier to get three sheep to reach consensus on what's for dinner than it is for two sheep and a wolf. University carbon-divestment agita is basically about how the administration's material interests aren't credibly aligned with their alleged anti-carbon policy agendas because they own a bunch of Exxon / Chevron stock or whatever and will tend to neuter substantive action on carbon reduction whenever the rubber hits the road.
Counterpoint: Norway lectures the world about climate change and emissions while having an economy that is as dependent on hydrocarbon exploitation as the Gulf states, and their standing in the world doesn't seem to be reduced.
Fair, but on the other hand, when's the last time anyone cared what the Norwegians thought or took a threat from them seriously? You're definitely right though that they're basically externalizing emissions full-tilt even as they mandate the use of electric cars domestically.
Putting words to action quickly!
https://twitter.com/mattyglesias/status/1656740618775719942
I liked Matt Zeitlin's take on it: https://twitter.com/MattZeitlin/status/1656740664707633154
I’m not sure about the claim that the ME monarchies like Trump so much more than Biden than they’d manipulate oil prices to help him get elected.
Didn't the Saudis conveniently spearhead an OPEC+ production cut in fall 2022 that resulted in an oil price bump before the midterms?
Is there evidence the reason they did that was to influence domestic US politics?
The main argument that it was intended to influence US politics was that it was an odd time for the Saudis to be trying to push up oil prices, as they were already at recent highs due to the Russo-Ukrainian war.
With inflation still around 4% and the ongoing debt debacle maybe one line of thought is they’ll look like heroes filling at < $60 a barrel when a recession hits. Average this out with the let’s fill < $80 team and a trigger price of $70 remains a decent compromise (given that possible internal split).
Your first graph shows US petroleum production at 20,000,000 barrels per day, but your second graph shows a more correct figure of 12,000,000 barrels per day. We do not produce 9,000,000 barrels per day more than Saudi Arabia.
Oil and gas data analytics guy here - I believe the first chart is including "natural gas liquids", which are liquid hydrocarbons that can be removed from natural gas. This includes molecules like propane and butane that are more valuable than gas but less valuable than oil. US shale production is usually rich in these NGLs, and the US is by far the world's biggest gas producer.
Still it is problematic. Russia is the second largest natural gas producer in the world, and not that much smaller than US, so how could daily production be double? You cannot get more NGL than the gas you produce.
Also, if you are correct, then it is still a colossally mislabeled graph.
OK, I dug a little deeper. The US produces 20 million bbl/d "total liquids", of which ~12 million is crude oil and condensate, and ~8 million is NGLs, biofuels, and refining gains. The US produces almost 100 billion cubic feet a day of natural gas, and 6ish million barrels of NGLs from that is quite reasonable.
Saudi produces ~12 million bbl/d total, of which ~10.6 million bbl/d is crude and condensate.
Russia produces ~10.9 million bbl/d total, of which ~10.3 million bbl/d is crude and condensate.
The NGL production from Russia is quite a bit lower than from the US, especially proportional to their gas production. Russian gas primarily comes from large, dry gas fields, whereas US gas comes from unconventional shale wells, most of which have a higher liquids content.
The NGL production is also dependent on processing decisions by the producer. It costs money to remove the NGLs from gas, and so you will only do that if you get extra value.
Realistically, I think for Matt's comparison here he should be using oil production, not total liquids.
Here is the relevant data from the EIA: https://www.eia.gov/international/data/world/petroleum-and-other-liquids/annual-refined-petroleum-products-consumption?pd=5&p=0000000000000000000000000000000000vg&u=0&f=A&v=mapbubble&a=-&i=none&vo=value&t=C&g=00000000000000000000000000000000000000000000000001&l=249-ruvvvvvfvtvnvv1urvvvvfvvvvvvfvvvou20evvvvvvvvvnvvvvs&s=94694400000&e=1640995200000
What about sourcing from American producers at the spot price?