How To Trigger A Global Recession In One Easy Step: Ban Fracking
In a time long ago, seven years this month, President Obama and candidate Mitt Romney sparred in their second debate over the extent to which Obama deserved credit for increasing America’s oil and natural gas production. Three years later President Obama would, without fanfare, sign epic legislation reversing a 40-year-old petroleum export ban.
The United States used to be the world’s biggest importer of oil. Now, for the first time since 1949, the U.S. is a net exporter of petroleum thanks to fracking technology. America’s new role in global energy markets has already blunted others using energy as a geopolitical weapon.
So, what would happen if America’s next president were to make good on a promise to ban fracking? We know the answer.
Enthusiasms for alternatives aside, solar and wind combined supply less than 2 percent of world energy, while 54 percent still comes from oil and natural gas. Many analysts have pointed to the domestic jobs and revenues that will be lost were America to shut down fracking. But that’s the least of it. Far more significant: removing that quantity of fuel from world markets would trigger the biggest energy price spike in history, and a global recession.
We know that because history has witnessed the effect of similar amounts of oil suddenly taken from markets for political reasons. During the infamous 1973 Arab oil embargo, a share of oil trade comparable to what a frack-ban would cause, was taken off the market by the Saudis. That episode drove world oil prices up over 350% and triggered a global recession. Again in 1979, a similar loss to energy markets happened when Iran’s Mullahs revolted and that nation’s exports collapsed. That event caused a 200% global price spike and triggered another recession.
It bears noting that an American frack-ban would in our time constitute a kind of double ‘whammy’ as it would also take off global markets a Saudi Arabia’s worth of oil in the form of liquefied natural gas. The latter is the fastest growing source of global energy trade. And according to the International Energy Agency, America is expected to supply the majority of new energy traded on global markets.
Many assume talk of a ban is mere posturing during a contentious election season. But that proposal is repeatedly front and center.
While VP Biden and many of the other presidential aspirants merely promise to “phase-out all fossil fuels,” Senators Warren, Sanders and Harris and four other candidates have all called for an outright frack ban. Apparently they read the polls showing 58% of democratic primary voters would support a ban.
Executive orders have impact. Even more, a president’s authority over the Administrative branch can engender creative interpretations of the labyrinth of rules, and the issuance of aggressive “notices” from myriad agencies. A fusillade of such actions can slow-walk or outright stop all manner of industrial activities up and down the supply chain, from permitting to moving materials, to building pipelines and ports. Similar friction can be generated in capital markets that have, thus far, enthusiastically funded fracking.
Frack-banners have honed shut-down tactics at the state level. Consider the highly choreographed protests in 2017 over the Dakota Access pipeline, a project that simply paralleled an already existing pipe. Another bellwether; New York State’s elastic use of groundwater regulations to effectively ban a hundred-mile gas pipeline, to the detriment of New Yorkers, despite 4,000 miles of similar pipes in that state and 300,000 miles more nationally.
Lest we forget, if the Democratic Party also wins both houses of Congress, frack-banning lawmakers could just pass a law. It wouldn’t be the first time. Back in 1972 and 1982, Congress banned oil production on over 90% of America’s offshore domains. And that happened despite fears back then of Middle East oil hegemony.
Meanwhile, on-shore hydraulic fracturing of oil- and gas-bearing shale has eliminated the need for over $1 trillion of energy imports during the past decade; and by lowering prices, saved U.S. consumers over $2 trillion. America’s production resurgence also lowered global prices, thereby transferring trillions of dollars from producers, like Russia and OPEC, into consumers’ pockets.
America’s emergence as a third major source of oil and gas on world markets should be considered in the context of a geopolitical reality: 75% of the global economy is found in five regions: North America, Europe, China, Japan and India. All, except North America, are major net energy importers. Incalculable, if subterranean, geopolitical consequences would follow from America exiting the export market.
It is magical thinking to believe that shale production could be replaced quickly by wind and solar – at any price, and regardless of climate change motivations. To put this in perspective: since 2007, American fracking technology has added 500 percent more energy to markets than have all of the planet’s wind and solar farms combined.
Thus the wild card actually on the table this political season is whether America might literally pull the rug out from under the world’s economy. Consumers here and abroad might take seriously a phrase that’s become popular in our political lexicon: elections have consequences.
Mark P. Mills is a senior fellow with the Manhattan Institute and author of the recently released report, “The New Energy Economy: An Exercise In Magical Thinking.”