Trump owes his victory to America's shale revolution. Now beware hubris
The US could not have risked a showdown with Iran and an oil crisis in the Gulf at the nadir of its fortunes in 2008, a time when America was fast becoming an energy-import basket case and planners at the US energy department were having nightmares over security of supply.
America's shale frackers have been adding a new North Sea every three years. The Permian basin in Texas today produces more oil than Saudi Arabia's giant Ghawar field. The US became a net exporter of energy in 2020 and is now by far the largest combined producer of oil, petroleum products, and natural gas.
Imagine what would have happened to Europe after Vladimir Putin attacked Ukraine had there not been 'molecules of freedom' from the great American shale basins, rushed across the Atlantic in the form of liquefied natural gas (LNG).
Europe would have faced an invidious choice: either to endure extreme gas rationing, a winter freeze and an existential industrial crisis; or to capitulate and feed the monster of Russian revanchist imperialism.
The appeasers would have prevailed. Putin would have got his way. Europe would have been on the path to Finlandisation.
Dozens of fence-sitting states would be gravitating further towards the authoritarian proto-confederacy of Russia, China, North Korea and Iran. Instead, Russia has lost a million men for little gain beyond what it seized weeks into the war.
Donald Trump's assault on Iran's uranium enrichment facilities has given us another lesson on the new realities of fossil import geography. The US Energy Information Agency says 84pc of all Gulf oil exported through the Strait of Hormuz goes to Asia, principally to China, Japan, Korea and India. Much of Qatar's LNG also goes east.
US purchases from the region were down to 2pc of total US consumption of petroleum products last year, and most of that was opportunistic buying of Arabian high-sulphur crude to balance refineries. The US chiefly imports its heavy oil these days via pipelines from Canada's Alberta tar sands.
Cast your mind back to early 2008, when US crude production had collapsed to 4.8m barrels a day and the country had to import two thirds of its oil – pushing the current account deficit to 6pc of GDP. The country was on track to become the world's largest importer of LNG. The US dollar index was at an all-time low and every scribe was writing the obituary of the American Century.
We forget now but the idea of electric vehicles was then being pushed by neo-con strategic hawks. Jim Woolsey, a former head of the CIA, told me at the time that America needed a breakneck plan for the electrification of transport as an urgent matter of national security.
Had Washington bombed Iran in those circumstances, the oil, currency and equity markets would have seized up and America would have spiralled into an economic crisis. Instead we had the astonishing spectacle this week of tumbling oil prices and Wall Street euphoria after the fateful strike. Investors seem to be pricing in total Iranian capitulation.
It is a disaster for Putin. His hopes of an economic bailout from surging oil prices have been dashed, leaving him unable to both prosecute his war and to buy off Russians with welfare spending at the same time.
His ally and chief supplier of drones has been crushed and forced to swallow the bitter pill. It is 50:50 whether the clerical regime survives at all. Putin has to contemplate the serious possibility of a pro-Western government in Tehran that actively turns against him.
He has lost his longstanding regional client in Syria, with knock-on damage for Russian credibility through the Sahel. Russia is no longer a Middle Eastern power of much consequence.
It is a setback for China too. Xi Jinping has had to watch impotent from the sidelines as his Iranian confederate and semi-ally is broken on the wheel, and the Middle East is reordered to the taste of Israel and the US.
One can applaud the outcome without applauding the method. The US attacked Iran without cover under international law or even any attempt to secure a fig-leaf mandate. It is the world of the Melian Dialogue, where the strong do what they can, and the weak suffer what they must.
I hesitate to call this moment a triumph of the West because it was achieved by means that betray the West. It is undoubtedly a stunning political victory for Trump – and that too will have a long chain of consequences, making it easier for him to continue dismantling the institutional foundations of US democracy. Woe betide his domestic foes from now on.
Paradoxically, America's bunker-busting strike on the Fordow site lowered the risk of an oil crisis, although we still do not know what happened to 400kg of enriched uranium, or whether Israel's Benjamin Netanyahu has really given up his goal of regime change.
The immediate consequence is that Israel no longer needs to destroy the Iranian oil export facilities at Kharg Island and wage a war of economic attrition to stop Iran's uranium enrichment. Trump has done it a cleaner way.
The markets shrugged off calls by the Iranian parliament to shut the Strait of Hormuz and cut off 20pc of the world's oil and LNG supply, dismissing the vote as a pro forma and ritual exhortation. It would be a very blunt way to strike back at America.
Yes, partial obstruction of the Strait would hit America too, through the oil futures markets and multiple macroeconomic channels. But it would create infinitely more trouble for China, the world's biggest importer of both oil and LNG. It would shatter Iran's tentative rapprochement with Saudi Arabia. It would be economic self-strangulation for the clerical regime itself.
If a cut-off was sustained for more than a few weeks, Trump could and would ban US oil exports to trap America's abundant output within the US domestic economy, as president Gerald Ford did in 1975. This would split the global market and make it even clearer that the US remains the world's only full-spectrum hyperpower.
Trump did not have to make America great again. Wildcat frackers had already made it great again for him with 4D seismic imaging, AI, smart drills and all the hi-tech tools of the shale industry, literally turning worthless rock into strategic gold.
Hubris is now the danger. The strategic value of America's oil and gas resurgence has peaked and will henceforth roll over. Doubling down on fossils at this historical juncture is a trap.
We are moving into a different energy era where the long-term prize will go to the masters of electro-tech, a more competitive way to organise an energy system once you get over the investment hump. China is running away with this electric future.
Joe Biden recognised this with his Inflation Reduction Act (IRA), a China policy dressed up as a green agenda. Trump is not only gutting the IRA but also going to great lengths to obstruct the free market itself from judging what energy technology makes most commercial sense.
This is to surrender 21st-century energy dominance to rivals. America risks ending as sort of giant Cuba, driving around in archaic cars with tailpipes and smog long after the rest of the world has moved on to something much better. Victory always has a sting in the tail.
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