Military

Before the House International Relations Committee

20 June 2002
Washington, D.C.

Mr. Chairman, I appreciate your courtesy in affording me an opportunity to contribute to the Committee’s deliberations on the national security implications of U.S. energy-related policies commerce and diplomacy in the 21^st Century. Rarely have such topics been more in need of your attention than at present.

In the brief time available to me this morning, I would like to address four interrelated areas of special concern from a national security perspective.

1) Over-reliance on the Persian Gulf: First, we and our allies are today heavily dependent -- in my view excessively so -- upon foreign energy suppliers and, in particular, on oil from Persian Gulf sources. Our ability to wage effectively a global war on terror may be impinged upon, perhaps significantly so, if our enemies are able to disrupt or otherwise interfere with such energy flows.

2) Relying on Saddam Hussein: Second, incredible as it may seem, one of the largest of our Persian Gulf suppliers is none other than Saddam Hussein of Iraq. I am delighted that President Bush has determined that Saddam must be removed from power and that Mr. Bush is preparing, albeit I fear far too slowly, to accomplish that goal by force of U.S. arms. Obviously, American efforts to bring about regime change in Iraq adds urgency to the need to reduce the vulnerability of our economy and that of our principal Western trading partners to probable, if temporary, disruptions or dislocations in energy supplies from the region.

3) China’s Growing Appetite for Energy: Third, even in the absence of such a vulnerability, the United States is likely to face increasing competition for energy from the People’s Republic of China. The Chinese Communists have themselves increasingly turned to foreign sources of oil in the hope of sustaining the PRC’s recent economic growth rate -- and their claim on power.

The potential magnitude of this problem is staggering. I understand that, if the Chinese economy achieves per capita energy consumption levels comparable to those of Japan (approximately 16 barrels per day per person), China would require some 70% of the world’s current oil production. Should the Chinese reach contemporary American consumption levels, moreover -- that is, roughly 40 barrels per person per day -- the People’s Republic alone would require more than the entire current global production of oil. Obviously, that prospect is a formula for future conflict.

Of further concern is the fact that China has been securing supplier relationships with many of the world’s most odious governments (including Sudan, Libya, Iran, Iraq and Venezuela) by providing the latter with access to advanced conventional weaponry and weapons of mass destruction-relevant technology. Needless to say, these transactions are also likely to have significant repercussions for U.S. security interests.

4) Underwriting Terror: Finally, it has become increasingly apparent that we find ourselves waging a war against those whose terrorist activities are made possible, at least in part, by the proceeds of American and Western oil purchases from the Persian Gulf. Specifically, such purchases are clearly enabling Saudi support for our Islamist enemies. This is being accomplished through, among other techniques, the spread of radical Wahhabist pedagogy via madrassas bankrolled by the Saudis in places like Pakistan, Indonesia, Malaysia and even the United States. With respect to our own situation, according to some estimates, the mortgages for as many as 80% of American mosques are held by Saudi financial institutions, members of the royal family, etc.

Unfortunately, our dependence on relatively inexpensive Saudi oil has caused successive U.S. administrations to adopt what might be called a "see-no-evil" attitude toward the Kingdom’s efforts to manage and suppress potentially threatening internal opposition by encouraging virulent hostility towards America and her allies, most especially Israel. Clearly we can no longer afford to indulge in such a dangerous stance, any more than we can wisely refuse to address the strategic vulnerabilities associated with excessive reliance on foreign -- and, in particular, unfriendly -- energy suppliers.

Mr. Chairman, this illustrative, but hardly exhaustive, list of national security-relevant energy challenges we face today and for the foreseeable future not only demands corrective action on the part of American policy-makers. It also leads inexorably to certain recommendations as to what that corrective action should entail. Permit me to suggest a few:

o Make Shrewd Strategic Use of the SPR: In the near term, the United States can simultaneously reduce its vulnerability to short-term disruptions in energy flows from the Persian Gulf ("shocks") and encourage diversification of supply from outside that volatile region. This can be done by employing a technique John McCormack, a highly regarded New York-based energy industry specialist, has outlined in recent conversations with past and present executive branch officials and others.

According to Mr. McCormack, the United States is well positioned, under certain circumstances, to make use of oil "time swaps," i.e., "selling oil from the Strategic Petroleum Reserve (SPR) and simultaneously buying larger volumes for delivery in the future." Such swaps are permissible under existing legislation governing the SPR.

Thanks to a phenomenon known in the industry as "backwardation" (reflecting the fact that future prices of oil are almost always below spot prices), the U.S. could -- if confronted, for example, with disruptions in energy flows as a result of war with Iraq or Saudi efforts to manipulate the market by briefly curtailing production -- release oil from the SPR to cushion immediate consumer demand and use the proceeds to contract with other, more reliable suppliers for future energy purchases. If properly managed, it should be possible to net out a larger reserve at no additional cost to the taxpayer.

Mr. McCormack concludes that through this technique, the United States could simultaneously mitigate the economic effects in the United States of oil supply disruptions in the Islamic world and reduce our dependence upon oil produced there, turning even threats of supply cessation from the Islamic regimes into greater investment in North America and other suppliers, even though costs are higher in such places.

Mr. Chairman, I would urge that the Committee, as part of its present deliberations, review this strategy with Mr. McCormack and consider recommending its adoption by the Bush Administration. While such a step would assuredly be opposed by the Saudis, and probably by many in the oil industry who are comfortable with present supply arrangement, we must address reality: American national security interests demand a diversification of supply away from the Persian Gulf and towards places like Mexico, Western Canada, West Africa, the Arctic National Wildlife Reserve and deep water Gulf of Mexico, the Caspian Basin and potentially Russia. The oil time swaps strategy appears to be a way to accomplish that, under appropriate circumstances, at minimal, if any, cost to the taxpayer.

o Increase Efforts to Conserve Energy in Ways That Make Sense: Ordinarily, it is very difficult to induce consumers in a democratic society voluntarily to decrease their energy consumption. Of course, involuntary adjustments can be imposed via higher prices induced by increased taxes -- but not without significant costs to both the American quality of life and economy, and therefore, usually only with considerable political difficulty.

In time of war, however, mandatory reductions in energy consumption may be more easily imposed, albeit it again not without costs. Those costs -- at least in terms of popular sentiment -- can be mitigated somewhat were political leaders to ask the public to do its part for the war effort by voluntarily cutting back on energy usage. Such an appeal, and the American people’s response to it, would likely be all the greater if it were made clear that the goal is to deny oil revenues to those who are using them to wage war against us.

In addition, the federal government -- and especially the military -- can be empowered to effect energy savings. If done properly, this need not interfere with the performance of critical wartime missions. For example, in the case of the military, energy savings from the application of "smart construction" techniques and greatly expanded retrofitting of existing infrastructure with energy efficient materials and controls, would more than offset the costs of such activities.

o Exploit Bio-tech Breakthroughs to Reduce Foreign Energy Dependency: In the medium-term, it appears that the United States may be able dramatically to reduce its requirement for oil used in transportation-related applications. In 1999, former CIA Director James Woolsey and Senator Richard Lugar recommended the use of genetically modified biocatalysts to transform agricultural wastes, grasses and even urban garbage into fuel. Mr. Woolsey believesthat progress made in the interval in the relevant technologies makes the case for such an approach to increased energy independence still stronger than it was three years ago.

The so-called cellulosic biomass concept is not to be confused with grandiose plans to transform corn- or other starch-based ethanol into a major source of U.S. energy. Even with huge taxpayer-subsidies, the costs of the latter approach appear likely to ensure that it will never be economically viable. By contrast, according to Mr. Woolsey, the vastly larger quantities of source material for cellulosic biomass could make it competitive even if the price of petroleum were as low as $10-13 per barrel.

Such cellulosic ethanol is compatible with the Nation’s existing transportation infrastructure and could make up 85% of the fuel consumed by so-called Flexible Fuel Vehicles -- an inexpensive option that should be made standard in all new U.S. vehicles. It also happens to be clean-burning, a boon to the environment and public health. If combined with more fuel-efficient "hybrid" engines, moreover, the resulting reductions in American demand for foreign oil could be quite significant.

I commend to the Committee the proposals made by Messrs. Lugar and Woolsey with respect to a coordinated government-wide support for private sector work in this field, including expanded federal research and development funding, and tax incentives for private investment that will help realize the potential of cellulosic biomass.

o Exploit Nuclear Power: Finally, over the longer-term, I believe the United States must bring on-line a new generation of "inherently safe" nuclear power reactors. Some years ago, the Department of Energy pursued several such designs as part of its New Production Reactor program to permit renewed production of the radioactive gas, tritium. One promising approach involved a gas-cooled reactor that would burn plutonium -- a particularly attractive feature given the vast quantity of plutonium associated with the former Soviet Union’s nuclear weapons program that is at risk of falling into the hands of would-be proliferators.

This Committee, and the Congress more generally, should make the approval and facilitation of construction of inherently safe reactors an integral part of an enduring solution to the national security challenges posed by our reliance on foreign energy supplies. In this connection, I would like to commend the House of Representatives for its recent favorable action on the Yucca Mountain long-term repository for nuclear wastes, which I consider to be indispensable to the ability of present generation reactors, let alone future ones, to make an important and safe contribution to our energy independence.

In closing, Mr. Chairman, let me simply say that you have your work cut out for you. As a practical matter a country that requires energy as much as ours does has no choice but to make itself less reliant on foreign suppliers. At a time when we are properly taking a hard look at, and applying immense resources towards, homeland security, there are few threats that could be more detrimental to that security -- to say nothing of our economic well-being -- than serious and sustained interruptions in our energy supplies.

Accordingly, I applaud the Committee for engaging in today’s assessment of the dangers associated with our present, vulnerable posture and hope that my suggestions for corrective actions will prove helpful to your efforts to rectify the situation.