Foreign Policy Realism and the Importance of Shale

Pennsylvania Shale

Just six months after the Chinese Communist leadership massacred hundreds of their own people at Tiananmen Square in 1989, President George H. W. Bush sent his envoy Brent Scowcroft on a secret mission.  When pictures of National Security Advisor Scowcroft raising glasses for a champagne toast with the Butchers of Beijing leaked out, Americans were outraged.  However, Bush and Scowcroft realized that the Chinese relationship was too important and that the Communist leaders weren’t going anywhere.

Today, critics of President Trump, especially the conservatives, wish he were surrounded by international “realists” like Mr. Scowcroft.  Instead, they see Mike Pompeo and John Bolton.  It is curious, however, that the same crew which praised the Bush/Scowcroft team for their “skillful” handling of the aftermath of Tiananmen and the fall of the Soviet Union now criticize Mr. Trump for not immediately taking steps to isolate Saudi Arabia following what appears to be the murder of a Saudi journalist inside the Saudi consulate in Istanbul, Turkey.

For reasons ranging from oil to Iran, the US/Saudi relationship is important.  Trump has to exert a price from Crown Prince Muhammed bin Salman (MbS), but he has to be careful not to risk the overall relationship.  Whatever decision the President makes will affect the energy industry.  Will the Saudis retaliate by withholding oil supplies?  Will they do the opposite?  Will increased Saudi supply of oil be part of the overall “price” that Mr. Trump extracts from MbS for this sordid affair?  We don’t know the answers yet, and we may never know.

What we do know is that the future of many Pennsylvanians will both impact and be impacted by the intrigue playing out over the Saudi journalist.  That’s a remarkable accomplishment when you think about it.  The Saudis will have to consider places like Washington County and Tunkhannock, Pennsylvania in their calculations of how to respond to American anger.  Who would have thought that ten years ago?

While the international situation plays out, elections loom in this country.  Fewer than three weeks before election day, it looks increasingly likely that Pennsylvania Governor Tom Wolf will win a second term.  That will put both the Governor and the gas industry in a bind.  The industry has been loath to engage with the Governor after he bludgeoned them during his 2014 campaign and after they had some dealings with him in the early days of his administration that the industry felt were not up front.  The Governor is bitter that the industry fought him so hard on his extraction tax, robbing him of one of his most important campaign promises.

Both the industry and the Governor may be in a pivotal international position in a few months if things spin out of control in the Middle East or elsewhere.  Pennsylvania gas production may prove to be a critical bulwark against mass economic dislocation that would please no one as much as the Russians and the Iranians.

First comes the approaching winter.  New York and New England are more vulnerable than ever to energy shortages due to their short-sighted policies on pipeline infrastructure and their closing of their nuclear plants.  Will they have to import gas again from Russia?  If they do it will it limit the President’s ability to deal with Russian involvement in the Middle East? What if the Saudis respond to American pressure by just moving closer to Vladimir Putin?  Meanwhile, as this is happening will New Englanders be forced again to go hat in hand to Putin to save them from freezing to death this winter?  It could happen.  By making themselves vulnerable to energy shocks – especially when the answer is five hours away in Pennsylvania, the New Englanders have weakened us all.  Domestic miscalculations often have international implications.

In Pennsylvania we have a separate problem.  Pennsylvania’s shale producers are notorious for their inability to develop common positions.  This limits their effectiveness when dealing with state government.   Assuming he wins, Governor Wolf will owe the industry nothing for his reelection.  Still, the industry provides a critical service at an unsettled time.  There is a lot that can be accomplished on both sides given any willingness to engage based on the new international and electoral realities.  There’s no time like the present.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

 

Depoliticizing Middle East Oil Dependence through Increased Production of U.S. Shale

MCU_20181012

While America was transfixed with the sordid spectacle of the Brett Kavanaugh confirmation hearings, the news that really can have international impact was playing out in Istanbul, Turkey.  On Thursday its ramifications began being felt in this country.  Thanks to our shale industry, however, President Trump will have many more options going forward than otherwise.

Jamal Khashoggi was a Saudi Arabian journalist who has been highly critical of the ruling House of Saud.  A columnist for the Washington Post, Khashoggi was a permanent resident of the United States.  He also has been a thorn in the side of the de facto Saudi ruler, Crown Prince Mohammed bin Salman.  Readers of this blog will know that I’ve written about “MbS” before.  He is part reformer (opening up new avenues for Saudi women), part irresponsibly aggressive international leader (kidnapping the Lebanese President; getting involved in a reckless war in Yemen), and part thin-skinned autocrat (ordering many of his own royal family held at a Saudi hotel on corruption charges).

Over the last several months, Khashoggi received death threats and other intimidations.  Nevertheless, Khashoggi entered the Saudi consulate in Istanbul to obtain necessary papers for his upcoming wedding.  He hasn’t been seen since.

Turkey, which is a major Middle Eastern adversary of Saudi Arabia, claims he was murdered inside the consulate, his body later dismembered so it could be smuggled out to uncertain location.  The Saudis deny this but can’t produce him.  American intelligence intercepts seem to point the finger directly at MbS for a plot to at least detain Khashoggi, or worse.

Congress now is up in arms.  Twenty-two senators from both parties signed a letter demanding President Trump sanction Saudi Arabia, including cutting off arms shipments.  Trump is resisting the arms embargo, but it looks more likely that he will have to do something substantial.  It was, after all, an American green card holder who was detained and possibly executed in brutal fashion.

What can the President do?  Saudi Arabia is crucial to Trump’s strategy of developing a new axis of power in the Middle East featuring Saudi Arabia, Israel, and Egypt.  It is regarded as a counterweight to the ambitions of Turkey and Iran, both of which are led by Islamic governments (as is Saudi Arabia) yet neither of which is friendly toward the West.

Since the 1973 Yom Kippur War, Saudi Arabia literally has held the United States over a barrel (pun intended).  Their oil weapon intimidated American presidents for 40 years; quite simply, the United States needed their product.  However, during that time, Saudi oil money – in large part coming from America – also funded Islamic schools called madrassas that indoctrinated Saudi (and in Pakistan, Taliban) youth into their radical, misogynistic form of Wahhabism Islam, sponsored terrorist camps around the world, and produced 15 of the 19 hijackers on September 11, 2001.  Somehow, the Saudis always got a pass.

Now, however, the world might be different, and that difference is due in significant part to our frackers.  As out of “PC” favor as it may be, it is the shale industry that has given the President, or any president, freedom of movement in this situation.  Given the gravity of the situation, Trump will probably have to make serious moves, but he must be very careful in what he does given the complexity and volatility of the Middle East.  A military option would only be a last resort.  An economic one is far more likely but its chances for success in bringing about reform are heavily dependent on the degree of Saudi pain that it might inflict.  This is where the shale industry becomes an important factor.In response to any economic sanctions, any threat by the Saudis to use its oil weapon would have far less sting today than it did during the oil embargos of the early 1970s.  Such a move certainly would increase the price of oil and gas, but it would also give the American shale industry a huge opening to increase production, expand international market share, and actually make some money (which many of the companies really don’t do).  Environmental activists can act self-righteous all they want, but it is the frackers who provide the breathing space for the American government to use economic weapons instead of military ones – and for the economic weapons to have real effect.

Provided many scientific questions get answered (which is not a foregone conclusion), both America’s and the world’s long term future may be with “renewables.”  In the short term, however, those of us with younger children need to say a “thank you” to George Mitchell and the other pioneers of the shale industry.  Thanks to them, our sons and daughters have substantially less chance being sent overseas to fight another Middle Eastern war we don’t want among people we don’t understand.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.