Last Friday we hosted a call featuring Dr. Meghan O’Sullivan, Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University’s Kennedy School. A replay link is included below along with a brief summary:
Prior to her current position as professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project, Dr. O’Sullivan has held a number of posts including but not limited to the following:
- Special Assistant to George W. Bush and National Security Adviser
- Senior Director for Strategic Planning and Southwest Asia at the National Security Council
- Political Adviser to the Coalition Provisional Authority Administrator and Deputy Director for governance in Baghdad.
On a high-level, Dr. O’Sullivan outlined three major geopolitical pressure areas in the energy space. She provided potential implications and forward-looking points of interest in her discussion:
- Iraq – The current situation with the ISIL advancement and implications for Middle-Eastern energy security moving forward
- Russia – Details and events that have unfolded in the last week
- Unconventional Oil & Gas- Geopolitical impact of North American capacity
ISIS has made a substantial advance in Iraq and currently controls more than a third of Iraqi territory. Most of the Western and Northern Provinces outside of Kurdish control have fallen. Mosul and Iraq’s largest oil refinery, Baiji, have been overtaken. ISIS’ goal is to continue diminishing the border between Syria and Iraq. For all practical purposes, the border between Syria and Iraq has already merged in the northwest part of the country.
Iran has initiated support and advice, with the unconfirmed existence of special forces within Iraqi borders. Syria has conducted air raids within Iraqi airspace against ISIS. Finally, Russia has sold Iraq jet fighters. Throughout escalation of the conflict the US has been hesitant to provide support militarily, but rather has called for political reform.
The current Iraqi government has failed to maintain Sunni support. Many Sunni-based groups have sided with ISIS because of their growing disillusionment with the current regime. Pressure is now being applied for Iraq to form a new government that would be more inclusive to the Sunnis, Kurds, and Shiites. All parties remain hopeful that steps will be taken within the coming weeks to form a new government.
O’Sullivan provided probability-weighted scenarios moving forward:
- 25% - A new government, new Prime Minister, more robust military, and involvement of Kurdish forces in the fight.
- 35% - A continued political stalemate with an extensive civil war in Iraq and close involvement from neighboring countries.
- 40% - Something in between these two.
These three scenarios will be easier to forecast depending on several events concluding in the near future:
- What happens in parliament over the following weeks
- What religious leaders convey about political change
- How the U.S. intervenes
- ISIS exacerbation of their rule
- Iranian political stance
- Unlikely any production interruptions as most of Iraq’s exports move out of the Persian Gulf
- Possibly an increase in exports near-term due to the Kurds exporting their own oil for the first time
- Medium-term production expectations could be an issue; 45% of future OPEC production expected to come from Iraq (IEA estimates)
Over the last weeks and months we have seen this constant ebb and flow of confrontation between Russia and the West. The world is waiting to see if a new round of sanctions will be imposed on Russia. Despite a cease-fire proposal from Kiev, Russian backdoor involvement is likely fueling the violence.
Putin’s strategy when dealing with the EU and U.S. seems to be twofold:
- He’s provided encouragement and support for the Eastern separatists in a way that allows him plausible deniability when faced with scrutiny from the international community, mainly the West and EU;
- He then takes conciliatory measures to signal cooperation and his desire to end the violence.
His strategy points to the likely goal from Moscow: keep Ukraine weak and vulnerable without being directly involved in a war in the global spotlight.
For the first time, the US and EU have been more specific about what they want to see. These measures would target the exploration and production of natural gas. These sanctions however, would not be a tough as people think; Global leaders are cognizant of the situation in Iraq and the corresponding global price impact of short-term supply disruptions.
UNCONVENTIONAL NORTH AMERICAN ENERGY:
Dramatic changes in North American production capacity have shifted the domestic landscape. The U.S. has gone from importing tens of billions of dollars of LNG to self-sustainability.
Possible economic benefits of self-sustainability:
- GDP increase
- More employment opportunities
- Trade deficit reduction
- Lower prices
Prior to the boom, every time an intelligence assessment was made of the US, it was recognized that America’s dependence on external energy was one of its prime vulnerabilities. This movement from energy as an Achilles’ heel to energy as an asset relative to other countries globally is a monumental benefit moving forward.