America's explosive independence plays

As US energy independence moves closer to reality, it will be a destabilising force for Iran and an increasingly disruptive influence on the rest of the world.

It’s tempting to think that with the United States becoming self-sufficient in energy and needing big cutbacks in military spending, Israel is going to be increasingly alone as it faces its many risks.
After all, so much of American engagement in the Middle East has been about protecting oil supplies and keeping the price of energy low, but the International Energy Agency has recently forecast that the US will overtake Saudi Arabia as the world’s biggest oil producer by 2020. Soon it will become an exporter of LNG.
The US now gets only 12 per cent of its oil from the Middle East and horizontal drilling and hydraulic fracturing of shale oil and gas deposits has raised the real prospect of energy independence for the US, after decades of dreaming about such a thing.
And Israel’s leaders must be watching the soaring production of oil and gas in the US and the approaching fiscal cliff with growing alarm: in fact, maybe that’s why they've been coming down so hard on Hamas in the Gaza Strip in the past few days.
It’s much more complicated than that of course. It will always be in America’s national interest for it to keep the shipping lanes open and Persian Gulf oil flowing, even if, miraculously, the US doesn’t need any itself.
Energy independence for the US is still a long way off and any defence spending cutbacks coming out of the negotiations on the fiscal cliff are likely to be fairly small, but the balance of power and energy in the world is shifting nonetheless.
As American reliance for energy on the Middle East declines, China’s is increasing. China, and the rest of Asia for that matter, is counting on America to keep something resembling the peace there, to keep the oil flowing.
The key remains Iran, and increasing US oil and gas production is making the sanctions against Iran much more successful.
Iran denies supplying Hamas with Fajr-5 rockets that can get from Gaza to Tel Aviv, but they were made there. Thanks to the effectiveness of the sanctions, Iran is now risking a lot by supporting Hamas.
The other great global impact of America’s rapidly growing production of oil and gas is on manufacturing.
Once the fiscal cliff is dealt with, the focus of President Obama’s second term is going to be jobs and these days that means making the most of shale gas and oil. Already 1.7 million jobs have been created as a direct result of the US energy revolution, according to analysis by the consulting firm, IHS.
The deputy chairman of IHS, Daniel Yergin, writing in the Financial Times over the weekend, said billions of dollars of investment are now slated for US manufacturing because of inexpensive gas, and that by 2020 the number of new jobs resulting from it will be 3 million.
The effect of this on the global economy is hard to overestimate.
The technocrats now in charge of both Europe and China have a tremendous amount of work to do in reforming their economies to make them more productive and generally bring them into the 21st century.
To improve productivity, China, Japan, Italy, France and Spain all have to rapidly deregulate their economies and introduce market forces, as Australia has been doing since 1983. Failure to do so will eventually be catastrophic – and that goes for China as much as the others.
America is already deregulated (arguably too much so) and very productive. Cheap energy is likely to make it a manufacturing powerhouse once more – if not as an exporter, then certainly enough to supply itself (A highly flammable gas bubble for US manufacturing, November 14).
As my colleague Robert Gottliebsen wrote last week (Sheikh Kloppers and BHP's 'new Saudi', November 14), cheap plentiful energy in the United States potentially changes everything, for Australia as well as the world.

Follow @AlanKohler on Twitter

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