reducing vulnerability: a transatlantic approach to energy security

Located in Washington, D.C., the American Institute for Contemporary German Studies is an independent, non-profit public policy organization that worksin Germany and the United States to address current and emerging policy challenges. Founded in 1983, the Institute is affiliated with The Johns HopkinsUniversity. The Institute is governed by its own Board of Trustees, which includes prominent German and American leaders from the business, policy, andacademic communities.

Building Knowledge, Insights, and Networks for the Future

60AICGSPOLICYREPORT

REDUCING VULNERABILITY:A TRANSATLANTIC APPROACH TOENERGY SECURITY

Raimund BleischwitzSeverin FischerAndrew Holland

Corey JohnsonKirsten Westphal

AMERICAN INSTITUTE FOR CONTEMPORARY GERMAN STUDIES THE JOHNS HOPKINS UNIVERSITY

The American Institute for Contemporary GermanStudies strengthens the German-American relation-ship in an evolving Europe and changing world. TheInstitute produces objective and original analyses ofdevelopments and trends in Germany, Europe, andthe United States; creates new transatlanticnetworks; and facilitates dialogue among the busi-ness, political, and academic communities to managedifferences and define and promote common inter-ests.

©2015 by the American Institute for Contemporary German Studies

ISBN 978-1-933942-51-3

ADDITIONAL COPIES: Additional Copies of this Policy Report are availablefor $10.00 to cover postage and handling from the American Institute for Contemporary GermanStudies, 1755 Massachusetts Avenue, NW, Suite700, Washington, DC 20036. Tel: 202/332-9312,Fax 202/265-9531, E-mail: [email protected] Pleaseconsult our website for a list of online publications:http://www.aicgs.org

The views expressed in this publication are those of the author(s) alone. They do not necessarily reflectthe views of the American Institute for ContemporaryGerman Studies.

TABLE OF CONTENTS

Foreword 3

About the Authors 4

Introduction 7

Energy and Statecraft: A German Perspective 7

Energy and Statecraft: American Diplomacy for the Energy Revolution 17

The Global Resource Nexus: Water Challenges andPolicy Conclusions 27

Support for this publication was generously provided by theDaimler-Fonds im Stifterverband für die DeutscheWissenschaft.

Energy security has become a major concern for the transatlantic community in the twenty-first century. InEurope, Russia’s seizure of the Crimean peninsula has renewed focus on the European Union’s energy policy.Germany has been a leader in the field, with a long-term strategy (the Energiewende) that started well beforethe Fukushima crisis in 2011 to phase out nuclear and diversify to other types of energy. However, this hascome under renewed scrutiny given the country’s interdependence with major suppliers like Russia. TheEnergiewende itself has less to do with securing existing sources of energy and more with a societal shiftaway from nuclear and fossil fuels and leading the development of clean, alternative sources of energy.

In contrast, securing reliable access to sources of energy around the world has been a cornerstone of U.S.foreign policy. Traditional U.S. policy promotes a global free market for energy and this is unlikely to changeeven in the current period of energy abundance, which itself is a result of heavy investment in technology toextract non-renewables, particularly shale oil and gas. Few have analyzed the geopolitical implications of bothof these transformations in the energy sector.

Contrasting the German and American approach to changes in the global energy picture was the basis forAICGS’ project on “The Geopolitics of Energy.” In this Policy Report, German and American experts tacklethis issue from several different issues with global implications. The essays focus on the changing relationsbetween energy suppliers and importers and the problems of access to water and other basic resources,and offer important insights into shaping a transatlantic approach to the energy challenge.

This publication is an example of AICGS’ commitment to comparing and contrasting the interests and poli-cies of Germany and the United States in an effort to identify common policy challenges, choices, and oppor-tunities. AICGS is grateful to the authors for sharing their expertise, to the Daimler-Fonds im Stifterverbandfür die Deutsche Wissenschaft for its generous support of this Policy Report, to Parke Nicholson andKimberly Frank for their thoughtful contributions to and execution of the project, and to Jessica Riester Hartfor her editorial efforts.

Jackson JanesPresident, AICGS

FOREWORD

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reducing vulnerability:a transatlantic approach to energy security

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ABOUT THE AUTHORS

Dr. Raimund Bleischwitz is BHP Billiton Chair in Sustainable Global Resources at University CollegeLondon and Deputy Director at the UCL Institute for Sustainable Resources (UCL ISR). He was Co-Directoron “Material Flows and Resource Management” at the Wuppertal Institute in Germany from 2003 until 2013.Dr. Bleischwitz spent a fellowship at the Transatlantic Academy (TA) in Washington, DC in 2011 to 2012; hehad other fellowships at Johns Hopkins University (AICGS at Johns Hopkins) and in Japan (JSPS) and wasa visiting professor at the College of Europe in Bruges (Belgium) from 2003 to 2014. Dr. Bleischwitz has aPhD and a Habilitation in economics and some 200 publications on resource efficiency/productivity, eco-inno-vation and enabling conditions, sustainable growth/green economy, raw material markets and conflicts, andgovernance issues. His recent book written with five international co-authors is Want, Waste, or War? TheGlobal Resource Nexus and the Struggle for Land, Energy, Food, Water and Minerals (Routledge/EarthscanPublisher 2015).

Dr. Severin Fischer has been an associate at Stiftung Wissenschaft und Politik (German Institute forInternational and Security Affairs) in Berlin since 2011. He has six years of working experience in the field ofenergy and climate policy. Between 2008 and 2011, he worked as project coordinator at the Institut fürEuropäische Politik (IEP) in Berlin. During 2009 and 2010, he joined the office of the Chairman of theEnvironment Committee in the European Parliament as a policy advisor. In 2015, he earned his PhD for hisdissertation on the “Europeanization of German Energy and Climate Policies.” He is currently working on topicssuch as the creation of an Energy Union in the EU and new models of governance for energy and climate poli-cies in the EU.

Andrew Holland is the American Security Project’s Senior Fellow for Energy and Climate. He is a Washington-based expert on energy, climate change, and infrastructure policy, working at the center of debates about howto achieve sustainable energy security and how to effectively address climate change. He served as LegislativeAssistant on Energy, Environment, and Infrastructure for U.S. Senator Chuck Hagel of Nebraska for three yearsfrom 2006 to 2008. He has also served in the U.S. House of Representatives Ways and Means Committee.He holds a Master’s Degree in international strategy and economics from the University of St. Andrews inScotland and a Bachelor’s Degree in History and Economics from Wake Forest University in North Carolina.

Dr. Corey Johnson is an Associate Professor of Political Geography at the University of North Carolina atGreensboro. Dr. Johnson’s research and teaching areas include the political geography of Europe and Eurasia,borders, natural resources and energy geopolitics, and Germany. He has published three books and numerousarticles. He has held fellowships from the Robert Bosch Foundation, Fulbright Commission, and DAAD, andmost recently he was the Joachim Herz Fellow at the Transatlantic Academy in Washington, DC. Dr. Johnsonholds a PhD and MA in geography from the University of Oregon and a B.A. from the University of Kansas.

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Dr. Kirsten Westphal is based at the Stiftung Wissenschaft und Politik (SWP), the German Institute forInternational and Security Affairs in Berlin, Germany, where she works on International Energy Relations andGlobal Energy Security. Previously, she worked as a consultant in the energy industry and in several EU andOSCE (long term) missions in Latin America, Eastern Europe, the CIS, and Asia. She has published widelyon international energy relations and EU external energy relations, including, with Dries Lesage and Thijs vande Graaf, Global Energy Governance in a Multipolar World (Aldershot/Burlington: Ashgate, 2010); “RussianEnergy Supplies to Europe” and “The Crimea Crisis: Mutual Dependencies, Lasting Collateral Damage andStrategic Alternatives for the EU” (SWP Comments 2014/16); “Institutional change in European natural gasmarkets and implications for energy security: Lessons from the German case,” (Energy Policy, 2014); and,with Kacper Szulecki, “The Cardinal Sins of European Energy Policy: Nongovernance in an Uncertain GlobalLandscape” (Global Policy, 2014).

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energy and statecraft:a german perspectiveKIRSTEN WESTPHAL AND SEVERIN FISCHER

Introduction

Germany is the country of the “Energiewende.” TheEnergiewende, or energy transition, rests upon twomajor pillars: first, enlarging the share of renewableenergy in energy consumption and, second, phasingout nuclear power by 2022. A third pillar is comprisedof energy saving and energy efficiency. Germany’senergy transition is building upon a number of long-standing policies, despite its association with thedecision for a nuclear phase-out after Fukushima in2011. Since the 1980s, Germany has sought a“Green Energiewende” without nuclear and fossilfuels. Since then, renewable energies have beendefined as the backbone of a more sustainable energysystem. In that respect, Germany’s Energiewende isan issue of remarkable duration and rooted in devel-opments that started thirty years ago. The realizationof the energy transition has become a major politicalproject driven by environmental and climate concerns,and is subject to large discussions and potentialcorrections in the set of instruments.

The Russia-Ukraine crisis of 2014-2015 hasincreased political sensitivity for asymmetrical mutualdependencies, which make Germany sensitive oreven vulnerable to political pressure. A paradigm shiftis taking place in German foreign energy policies crit-ically analyzing interdependence with major supplierssuch as Russia. Under these circumstances, theenergy transition is perceived as a means also ofenlarging Germany’s political room for manoeuver.German energy policies have to be seen increasinglyas an integral part of the European Union’s (EU)policy approach, though. A number of competencieshave shifted to Brussels and the creation of theinternal market has resulted in a transition of naturalgas and electricity markets, transforming the politicalbackground within the EU, too. Moreover, the recent

price effects of the U.S. “fracking revolution” creatinga significant price advantage for the U.S. as well asthe conflict between Russia and Ukraine have alteredpriority-setting within the strategic triangle.Competitiveness and energy security have come tothe forefront, even more so within the EU.

Germany’s Import Mix and Foreign EnergyPolicy

Traditionally, German energy policy has been linked todomestic developments. Energy policy is primarilyconducted through the lens of the power sector,despite the country’s high import dependency on oil,gas, and hard coal. This tendency has even been rein-forced with its internal project of an energy transition(Energiewende).1

Germany conducts a variable geometry of externalenergy policies and relations based on a liberalapproach. The major energy supplier for oil and gasto Germany is Russia, accounting for 34 percent ofits oil imports and more than 38 percent of its gasconsumption (see Figures 1 and 2 on page 15).Further important oil suppliers are Norway and GreatBritain; substantial gas imports also come from theNetherlands and Norway. The share of Dutch gas inthe German market, however, will be shrinking veryquickly as the Netherlands has introduced a produc-tion cap on its Groningen field. Oil supplies from theMiddle East and North Africa play a very limited role,with 4 and 10 percent, respectively.

Despite Germany’s high important dependency, theexternal dimension has been less predominant in thepolitical discourse and energy security has beenclearly framed in commercial rather than strategicterms. Herein lies the major transatlantic difference:

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Energy is less defined as a strategic and foreignpolicy tool and rather as a commodity and service. InGerman foreign energy policies, creating andmanaging mutual interdependence has always beena paradigm, and not so much energy autonomy andautarchy. As a consequence of this paradigm, and inpractical terms, the energy mix is an outcome ofeconomic and corporate decisions: it is the privateutilities and companies that are primarily responsiblefor supply security. In doing so, they pre-shapeGerman energy relations with external partners.

Historical Patterns of German EnergyStatecraft

Russia has long been Germany’s primary energysupplier. For four decades, the German gas sectorwas characterized by long-term supply relationships,above all with the Soviet Union, and later with Russia.The Soviet Union first began supplying gas toGermany in 1973 under the “pipes for gas” deal,which was an important pillar of Chancellor WillyBrandt’s Ostpolitik and rapprochement with theSoviet Union. Later on, this energy partnership wasfurther developed—also in an attempt to diversifyaway from oil and the Gulf countries. As part of theconstruct, the institutional setting “bridged” andconnected two very different markets, was designedfor the long term, and was based on a bilateral polit-ical and commercial consensus. The cooperation builton complementary economic structures and onshared interests between an energy-abundant andan energy-consuming country, as well as on corre-sponding business models between an exporter thatdelivered gas to the border and an importer that wasresponsible for selling and marketing.2 Last but notleast, this German policy approach relied on huge(private) corporations such as Mannesmann andRuhrgas to realize the commercial side and securedthe financial side with state-backed Hermes credits.

In the 1990s and 2000s, bilateral German-Russianinstitutions were dominated by increasing interde-pendence, which translated into a business model ofever closer transnational alliances along the entirenatural gas value chain. Demarcation at the borderwas blurred. As a result of asset swaps and quid-pro-quo package deals, Germany’s BASF Wintershalland E.On Ruhrgas became involved in gas and gas-

condensate production in Western Siberia, whileGazprom expanded its transport, trading, and distri-bution activities in Germany.3 Business ties were veryclose: Ruhrgas was Gazprom’s largest foreign share-holder, with 6.5 percent. However, Ruhrgas and laterE.On Ruhrgas refused to sell strategic parts of thebusiness to Russia, despite several Russian attempts.The package deals included the building of the NordStream pipeline through the Baltic Sea. Establishingdirect pipeline links between Russia and Germanywas a priority for the Schröder government with itsclose (personal) relationship with President VladimirPutin, making the German gas market a major hub forRussian gas. A side effect of the strong symbioticrelationship was little diversification beyond theexisting trade. This was rational from the perspectiveof corporate business interests, but not necessarilyfrom a national economy’s point of view.

To summarize, the political framing of commercialrelations developed from “change through rapproche-ment” during the 1970s’ Ostpolitik to “rapproche-ment through interdependence” in 2006, and to a“modernization partnership” in 2009.4 Managingmutual interdependence became the major paradigm.From a German point of view, it was a remarkablesuccess—Germany has not yet faced an interruptionfor political reasons. This is the source of the Germanmantra on Russia’s reliability as an energy supplier: ithas endured difficult times and has built up trust andclose ties between companies and the political elites.However, a break with market structures initiated inthe EU transformed business interests and commer-cial patterns. Even more so, the mantra was chal-lenged by the reported experiences of Central andEastern European member states, which had beensubjected to Russian (price) pressure in their govern-mental energy supply agreements.

EU Energy Policy: Challenge andOpportunity for Germany’s EnergyStatecraft

For many years, national statecraft has dominatedenergy policy in Europe. Germany, France, and theUnited Kingdom had their specific ways of dealingwith security of supply and their special relationshipswith external suppliers. This situation has dramaticallychanged over the last couple of years. Germany has

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had to adapt to a shift of competences from thenational level to the EU level over recent decades.Thus, German energy policy—and the broader impacton foreign and security policy—cannot be understoodwithout taking the EU context into account.

EU energy policies have been informed by thestrategic triangle of sustainability, competitiveness,and supply security for many years. In general,balancing these objectives is a rather theoreticalideal; in reality, trade-offs and priority-setting takeplace. The EU’s political and institutional approachhas been influenced by a neoliberal market paradigm,putting a functioning internal energy market at thecenter of the debate and having a skeptical view onstate-owned and/or vertically integrated energycompanies. In addition, environmental policies havegained ground in EU energy policies since the begin-ning of the 2000s and are an important feature inenergy policies. The underlying paradigm of a state orpublic sector-based approach, relevant in most EUmember states, changed to a market-driven systemwith a decarbonization agenda.5

Regulatory and institutional change accelerated withthe Commission’s Green Paper in 2006, the internalenergy market packages, the Treaty on theFunctioning of the European Union (TFEU or LisbonTreaty), and a new Energy Strategy 2020.6 TheLisbon Treaty aimed at clarifying the division ofcompetencies between the EU and the memberstates; with Article 194, energy policy became a fieldof shared competencies for the first time in the historyof European integration. Although the Lisbon Treatystill grants national sovereignty on the energy mix, italso highlights the spirit of solidarity and the objectiveof a functioning integrated internal market. However,the greater need for coordination creates sometension: Member states retain their sovereign rights todecide about their respective energy mixes, but atthe same time, coordinated action is needed to imple-ment infrastructure projects of common interest, toface security of supply challenges, and to establish afunctioning and integrated internal market. In practice,the national and the EU regulatory processes takeplace in parallel, but not always in harmony. Thenational regulators act on the basis of the actual situ-ation in their respective national markets, which stilldiffers widely from state to state, and may serve to

preserve tendencies of fragmentation in EU markets.Further change is set to take place through harmo-nization and coordination of network codes and tariffs.

Looking specifically at European gas markets, threeinternal market packages7 were intended to establisha liberalized, competitive, well-functioning, and inte-grated EU gas market. The main components of thisnew order have been third party access, unbundling,and market opening, reinforced by ownershipunbundling, antitrust enforcement, the abolishmentof destination clauses in long-term contracts, accesstariffs, and network codes.8

The Commission started to bring regulatory changesinto the market that were intended to increase short-term transactions, spot price signals, and gas-to-gascompetition. The outcome today is that in the EU,spot market-based transactions are said to make upmore than half of trade settlements, while oil pricelinkages are losing ground.

Despite the regulatory developments on the internalmarket and the competition policy that changed themarket structures themselves, the EU also influencedand will influence gas consumption patterns in themember states by environmental legislation. Lookingto the future, the EU’s climate and energy package for2030 has produced a very ambivalent outcome.9 Thefuture outlook for gas strongly depends on the struc-ture of the framework and on its further implementa-tion. Against the background of demand uncertainty,supply security and aggregation of sufficient volumesremains a challenge.

In sum, the EU has gained more influence on nationalenergy policies, but with different effects in thevarious member states. In eastern Europe, the internalmarket package provided the tool to lessen the closedependencies on Russia and put energy trade on anew institutional basis. In Germany, the outcome wasmuch more mixed as it destabilized the traditionalbusiness models. Russia profited in its divide-and-rule strategy from a fragmented EU market and itsmarket dominance in eastern Europe. Finally, the busi-ness cases and economics—e.g., for Gazprom’sinfrastructure project Nord Stream, the connectingpipeline to Central European markets, OPAL, andSouth Stream10—changed under the Third Market

Package. The room for maneuver on the side ofGerman energy policy has become more limited, themore the role of the Commission is growing. Brusselsenergy statecraft is represented by its regulatorypower.11 The Commission’s legalistic and regulatoryapproach to shape integrated, competitive, and liber-alized markets increasingly determines the EU’sexternal energy policy, as it is the final authority toapprove specific agreements with non-EU suppliersunder the Third Market Package. Russia’s latestattempt to question the Commission’s role by nego-tiating bilaterally with Bulgaria on the South Streampipeline was stopped by legal action. Russia opted forTurk Stream instead, landing the off-shore section ofBlack Sea in the European part of Turkey.

Last but not least, if there is political willingness(depending on the course of the conflict in easternUkraine), there will be a need for energy diplomacy,political re-framing, and a new commitment to theenergy relationship with Russia; most likely, this willhave to be done in consensus among the EU-28.Germany will not embark on a bilateral approach.Business-as-usual beyond the existing long-termcontracts will hardly be possible. Finally, the searchfor a new balance, as well as the role of natural gasin the current EU energy mix, presupposes a long-term perspective, which in times of systemic uncer-tainty will have to be politically backstopped by aconsistent energy and climate package. TheCommission’s proposal to create a “resilient EnergyUnion” from February 201512 is shifting attentionagain toward EU-level action and the development ofan EU energy foreign policy. This includes a renego-tiation of the terms of trade with Russia and a clearfocus on diversification of natural gas imports. In howfar this will come true depends on the will of memberstate governments to accept a further integration andharmonization of their national approaches. In thepast, the EU Commission tried to export this norma-tive approach of liberalized markets and limited stateinfluence to its direct neighborhood to the east andsouth. However, European Neighborhood Policy andthe Energy Community showed very limited successin the Balkans and slow progress in Ukraine andMoldova.

German Actual Statecraft vis-à-vis MajorHydrocarbon Exporters

Germany is a taker of (price) developments in theglobal fossil fuel markets. Yet, Germany conductsstrategic energy partnerships with big energysuppliers (and consuming countries). These partner-ships aim to facilitate energy cooperation, particularlyoffering special technologies (hydrocarbon explo-ration/processing) and renewable and energy effi-ciency technologies. Surprisingly enough, Germanyhas not established an energy partnership with aMiddle Eastern country.

When it comes to the Middle East, Germany (as wellas the EU) relies on the U.S. role as a guarantor ofstability and free trade in the region. Germany hasalso joined the U.S. policies of an oil import embargofrom Iran. However, in 2010, imports from Iran madeup only 1.6 percent of all oil imports; oil productimports were negligible. For the EU as a whole,imports from Iran represented approximately 5percent.13 Yet the Middle East will remain importantfor Germany and Europe as the backbone of theglobal oil markets and determinant of price trends.While several southern EU member states arestrongly dependent on imports from the Persian Gulf,many others do not presently import strategicallysignificant proportions of their oil and gas suppliesfrom there. However, in Germany as well as in the EUthe impact of the shale revolution on U.S.’ role in theMiddle East is being discussed with some concern.Most likely, the EU will commit to more burden-sharing with the U.S.14 Germany (as well as the EU)has to rely on a functioning internal market and free,unrestricted global trade flows. Protecting maritimetrade routes will therefore remain a priority in transat-lantic relations, for global security and internationalenergy cooperation.

This may also be abetted because of the fact thatmajor shifts could happen in the European refiningsector, too. There are indications of a global refinerycapacity surplus. Refineries compete for cheap high-grade crude and for markets for their products. Thecompetitiveness of European refineries is declining,and in the future the continent might have to importmore of its oil products. But if refinery closures inEurope shift trade flows to such an extent that more

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oil products have to be imported from the Gulf regionor from the large refinery complexes in Asia, directdependency on the Gulf would increase for theEuropean Union as a whole. Germany’s approach tothe region will be conducted with and throughBrussels, e.g., in the European Security and DefensePolicy and/or the EU-OPEC dialogue.

Germany has been pursuing a liberal, commercial,and market-based approach to energy. This is why ithas relied on the U.S. with respect to strategic energyissues. This same held true in the past for the Caspianregion, where the U.S. was one of the major promo-tors to link the landlocked region to world markets bybypassing Russia with the Baku-Tbilisi-Ceyhanpipelines. EU projects of the Southern Corridor so farhave not materialized. Thus, German as well as EUconduct of foreign energy relations very muchconcentrates on the European Economic Area withNorway, the Mediterranean region, and Russia. Yet, itfailed to create a common Pan-European internation-ally-binding regime (e.g., comparable with NAFTA).The real test cases are the Mediterranean, the BlackSea, and the Caspian region—and if Germany andthe EU can get their energy landscape in order.

Russia is the best case to illustrate Germany’s limita-tion in exercising statecraft in and through energyrelations, in particular vis-à-vis big hydrocarbonproducers. The integration of Germany in EU energypolicies and the effect of EU market regulationresulted in a break of path dependencies: the closecommercial ties and corresponding business modelsno longer exist. As a result, the relationship betweenRussia and Germany flared with contentious issueson the Russian-EU level (contractual mismatch, OPALand South Stream exemptions, an anti-trust caseagainst Gazprom, and Russia’s WTO suit against theEU) even before the Russian-Ukrainian crisis. A solu-tion to these issues was outside Berlin’s realm. Thiswould have required political dialogue in order tohedge the conflicts and find a solution. Yet, this isstalled with the overall deterioration in the Russian-German relationship. In turn, energy relations areincreasingly combative, destroying the traditionalchannel of interest-balancing and rapprochement.With the Crimea annexation in March 2014 andcontinuing military conflict in eastern Ukraine over thecourse of 2014 and 2015, the level of import depend-

ency on Russia has become a source of concern.This is a clear paradigm shift, as interdependence isno longer seen as a part of a solution, but defined asa problem.

One observation worth highlighting is that, inGerman-Russian (and previously German-Soviet)relations, Germany’s tools of statecraft were mostprevalent in times of corresponding political,economic, and commercial interests. However, thishas not resulted, as many hoped, in a harmonizationof the legal framework in Russia. Interdependent busi-ness relationships cannot be seen as a substitute oran automatic inroad for creating a level playing fieldand institutionalized reciprocity under an enhancedrule of law. Instead, the relationship was limited to aparticularly close corporate alliance. Gazprom inter-nationalized its business in the EU, but this did notpromote an area of common rules and norms. The gasmarkets remained fragmented and characterized byconflicting modes of governance. This reinforcescompetition over the integration of transit countries inbetween, because institutional settings determinemarket power.

The new market design in the EU had an ambivalentoutcome for Germany’s political and market power.Final approval of the OPAL exemption, for example,has shifted from Berlin to Brussels as a consequenceof institutional change. Moreover, competition intrading, distributing, and marketing has increasedinside Germany, but the oligopoly of suppliers basi-cally persisted due to the German pipeline-basedimport structure:15 Germany’s top supplier remainsRussia (Gazprom), followed by Norway (mostlyStatoil), the Netherlands (mostly Gasterra), domesticproducers, and other countries. Diversification istaking place only at the margins. Moreover, the EU’smarket package had an impact on the companies,which are major instruments for supply security. Largeexporters like Gazprom are dealing with “unbundled”companies, with much smaller market capitalizationand less leverage, representing a shift in relativepower if aggregation of market power downstreamdoes not really work. To put it very bluntly: the formerbackbone of the German gas market, Ruhrgas,merged with E.On, later downgraded to E.OnCommodities and Trading, and is now vanishing fromE.On’s core business because of the announced split

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of the company in December 2014.

Given new market conditions and political deteriora-tion, Gazprom is revisiting its downstream engage-ment in Europe. It has withdrawn from a number ofprojects (the OPAL exemption, a 100 percent take-over of WINGAS, and South Stream). In that respect,the Russian-Ukrainian crisis is a watershed, as inter-dependence is viewed through the lens of depend-encies creating vulnerabilities to politicalpressure—even more so in the EU context. This canbe explained by the fact that eastern EU memberstates face high dependencies on Russia, leading toa perception that natural gas supplies have beenused as blackmail and even as an integral part ofhybrid warfare in Ukraine.16

Last but not least, Germany and the EU have agreedon sanctions as part of their statecraft, but these havebeen thoroughly limited to oil companies (not tacklingrefinancing of e.g. their refining activities in theEuropean markets) and to Arctic and shale oil explo-ration. For good reasons, the EU’s sanctions are notcovering gas production and trade.

Finally, there is a major factor with global implica-tions: Germany is no longer the home country for alarge company in the fossil fuel markets. Even moreso, as a consequence of the existing structures anda laissez-faire (non-strategic approach to energyissues) of the German government, its major oil andgas companies have merged (into electricity compa-nies) and/or have been unbundled, split, and soldsuch as Ruhrgas, Veba Öl, or Deminoil. With the take-over of RWE DEA by Fridman’s Alfa Group,Wintershall will remain the only oil and gas producer,not playing in the league of IOCs. There exist no bigcompanies that have the market capitalization torealize huge infrastructure projects on their own. Thisalso sets Germany apart from the U.S. The fact thatGermany lacks an international energy company is adetermining factor (and not really discussed inGermany) that plays out vis-à-vis Russia as well asalternative suppliers in the Caspian and Central Asianregion, North Africa, and the Middle East.

German Statecraft and InternationalGovernance

The above illustrates why Germany (and the EU) hasput so much emphasis on bilateral partnerships andmultilateral governance. It is a rational step for a “softenergy power”—without the hardware of hydrocarbonresources and an IOC—to push for energy partner-ships (in particular for a sustainable energy transition),know-how, and technology transfer (in particular forrenewable and energy efficiency technology). In orderto pursue this approach successfully, Germany needsa strong transatlantic partnership.

Historically, international governance such as theOECD and the G7 has developed from joint initiativeswith other big consuming countries, i.e., the U.S. andJapan, which were exposed to similar supply andprice risks. Beyond the EU neighborhood, interna-tional governance has been developed in close coop-eration with the U.S.: primary examples are theInternational Energy Agency (IEA), the JointOrganisations Data Initiative (JODI) of theInternational Energy Forum (IEF), and the G20. Sincethe oil crises in the 1970s, transatlantic cooperationon global oil markets has been and still remains close.

One of the major outcomes of the moving geogra-phies is that the trade picture between the EU and theU.S. and among OECD countries changes. Energyavailability highly affects the wealth and security of astate. The U.S. is a key player not only as a consumer,but also as a producer and exporter of energy. U.S.exports of natural gas and (crude) oil can be seen ascrucial for globalization of natural gas markets. TheU.S. net import-export balance has improved signifi-cantly, whereas the position of OECD partner coun-tries such as the EU and Japan, as well as China andIndia, is moving in the opposite direction.

Refocusing the agendas of existing institutions,expanding membership, and providing more coher-ence are major imperatives. During its G8 presidencyin 2007, Germany initiated the Heiligendammprocess—later transformed into theHeiligendamm/L’Aquila process, which kicked-offcloser cooperation in energy and climate policies withemerging countries. From an energy perspective, theEU has to seek broad, inclusive, and intensified coop-

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eration with the U.S. and its North American neigh-bors, with Russia, and with new emerging powers insuch formats as the IEA association process, G20,and the International Renewables Energy Agency(IRENA), among others. Russia has always been aspecial (bilateral) partner that stayed outside theregulatory and legal reach of the EU. The deteriora-tion of the West’s relationship with Russia over theUkraine crisis in 2014 has stalled any continental andinternational governance initiative, such as the IEA’sassociation process with key emerging powers likeBrazil, China, India, Indonesia, Mexico, Russia, andSouth Africa. EU external energy governance withChina, India, Brazil, and South Africa is a majorcomponent in addressing the global trilemma andmoving international energy governance forward. Itremains a pressing issue, and should be pushedforward with or without Russia. Certainly, the EU willneed a functioning transatlantic tandem to move inter-national energy cooperation forward.

Conclusions

Germany is a “taker” of developments and prices. Ithas no big commercial player to pursue a security ofsupply strategy. Its major energy companies are elec-tricity companies. The attractiveness of the German(and EU) market builds on prices, infrastructure, anddemand expectations. Yet, demand is flattening oreven decreasing for oil and gas. Germany has reliedon companies, markets, and free trade flows and asa result, a strategic approach to energy security hashardly been formulated. It remains to be seen how andwhether the EU balances its legally and regulatorybased approach internally with a more strategicconduct of foreign energy relations. In any case, thereis an inherent tension between markets and state-craft as well as moving competencies between thenational and the supranational level.

In this environment, Germany’s statecraft is best usedin promoting an energy transition, determining bestand worst practices in policy formulation, and inte-grating industrial and technology policy. Internationalgovernance is important, and transatlantic partnersare key. Even within the OECD, positions increas-ingly diverge: The U.S. is embarking on a completelydifferent trajectory with the fracking revolution. Theshale gas and light tight oil revolution has increased

energy security due to increasing self-sufficiency; theU.S. has seen relatively lower energy prices and, withnatural gas substituting coal and oil, the U.S.’ green-house gas emissions have decreased significantly.17

Across the Atlantic, meanwhile, America’s shale revo-lution and its impact on relative prices and GHGemissions has prompted a debate on competitive-ness.

Germany’s integration in EU energy markets and theemerging EU external energy policy will be crucial foranalyzing German statecraft in energy matters. Thesuccess of German actors in shaping this new policywill be decisive for Europe’s bilateral and multilateralimpact on traditional supply partners.

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Notes

1 see in more detail: sybille röhrkasten and Kirsten Westphal, “energysecurity and the transatlantic dimension: a view from germany,” Journal

of Transatlantic Studies 10(4) (december 2012), p. 328-342.

2 for more detail, see Kirsten Westphal, “institutional change ineuropean natural gas markets and implications for energy security:lessons from the german case,” Energy Policy vol. 74 (2014), p. 35-43.

3 for more detail, see Kirsten Westphal, “germany and the eu-russiaenergy dialogue,” in Europe’s Future Energy Supply, ed. pami aalto(hampshire: ashgate, 2007), p. 93-118; “the russian factor in thegerman energy market: energizing europe revisited,” in political

Economy of Energy in Europe, ed. gunnar ferman (berlin: berlinerWissenschaftsverlag, 2009), p. 129-148; and “institutional change ineuropean natural gas markets and implications for energy security:lessons from the german case,” Energy Policy vol. 74 (2014), p. 35-43.

4 susan stewart, “prämissen hinterfragen. plädoyer für eineneugestaltung der deutschen russlandpolitik,” SWP-Aktuell 50 (august2012).

5 see also Kim talus, “united states natural gas markets, contracts andrisks: What lessons for the european union and asia-pacific natural gasmarkets?” Energy Policy vol. 74 (2014), p.28-34.

6 severin fischer, “auf dem Weg zu einer gemeinsamen energiepolitik,strategien, instrumente und politikgestaltung in der europäischenunion,” Series of the Institut für Europäische Politik, Europäische

Schriften (baden-baden: nomos, 2011).

7 specifically, directive 1998 (directive 98/30/ec) and the internalmarket packages 2003 (especially directive 2003/55/ec) and 2009(especially directive 2009/73/ec).

8 Kim talus, “united states natural gas markets, contracts and risks:What lessons for the european union and asia-pacific natural gasmarkets?” Energy Policy vol. 74 (2014), p.28-34.

9 severin fischer, “the eu’s new energy and climate policy frameworkfor 2030. implications for the german energy transition,” SWP

Comments 2014/c 55 (december 2014).

10 south stream was the russian project of an offshore pipeline throughthe black sea linking into bulgaria, with potential onshore routing tobaumgarten or italy. the project was problematic under the third marketpackage. there were no real provisions for new infrastructure, russianever applied for an exemption (as for opal), but instead went forintergovernmental agreements, which in turn was not accepted by thecommission. this resulted in a deadlock. in december 2014, russiacancelled the south stream project in favor of turk(ish)stream.

11 Keith Johnson argues in the same direction, see: Keith Johnson, “letslip the bureaucrats of War,” Foreign Policy, 27 february 2015,<http://foreignpolicy.com/2015/02/27/let-slip-the-bureaucrats-of-war-eu-gazprom-russia-gas/>.

12 european commission, “a framework strategy for a resilient energyunion with a forward-looking climate-change policy,” com (2015) 80final (brussels, 2015).

13 hella engerer and manfred horn, “eu-Ölembargo gegen iran wenigwirksam,” DIW Wochenbericht nr. 22/2012, p.16.

14 see in detail: Kirsten Westphal, marco overhaus, and guidosteinberg, “the us shale revolution and the arab gulf states. theeconomic and political impact of changing energy markets,” SWP-

Research Paper 2014/rp 11 (november 2014).

15 bafa energieinfo Website <www.bafa.de/bafa/de/energie/erdgas/energieinfo/> (28 march 2015).

16 michael rühle and Julijus grubliauskas, “energy as part of hybridWarfare,” Energlobe, 27 January 2015 <energlobe.eu/aspects/energy-as-part-of-hybrid-warfare>.

17 susanne dröge and Kirsten Westphal, “shale gas for a betterclimate?, the us fracking revolution challenges european andinternational climate policy,” SWP Comments 2013/ c 25, august 2013.

15


Figure 1: Oil Imports 2014 (January to November)

Russia34%

Norway17%

Great Britain

11%

Nigeria8%

Kazakhstan7%

Azerbaijan5%

Algreia4%

Libya3% Other

countries11%

Russia38%

Netherlands25%

Norway23%

Other countries4%

Domes!c produc!on

10%

source: federal office of economics and export control,<www.bafa.de/bafa/de/energie/mineraloel_rohoel/engergieinfo_rohoel/2014/november.pdf>

source: bmWi, gesamtausgabe der energiedaten - datensammlung des bmWi,letzte aktualisierung: november 2014, <bmwi.de/bmWi/redaktion/pdf/e/energiestatistiken-

grafiken,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf>.

Figure 2: Gross Gas Consumption 2014

Introduction: America’s Energy Outlook isRooted in History

Part of the American “founding myth” is that to makeyour fortune, one must “go west, young man” becauseof the country’s vast resources on an open frontier.These seemingly limitless resources powered thecountry’s industrial expansion, helped it win two worldwars, and helped turn the country into the richestnation on earth—or so the story goes. And there istruth to it: on the eve of U.S. entrance into WorldWar II in 1940, American oil fields produced 63percent of the world’s oil.1

This endowment has proved to be a curse as well asa blessing. Of the world’s major economies, theUnited States ranks near the bottom in terms ofenergy efficiency.2 Furthermore, it created aconsumer dependence in the postwar years on lowoil prices that drove cars, trucks, and the rest of theeconomy to guzzle ever more petroleum.

To understand American foreign policy and statecraftregarding energy, one has to first understand thelongstanding history of abundance, and then pair thatwith the trauma to policymakers when it becameapparent that the infinite resources actually had alimit.

That trauma was instigated four decades ago, withthe 1973 OPEC oil embargo in which global oilprices shot up, price controls were enacted, andAmericans were forced to wait in gas lines. As thenarrative of astounding natural abundance abruptlychanged, the American public and their electedrepresentatives were rudely awakened to their vulner-ability.

Today, the narrative is changing again. The United

States is in the midst of an energy revolution. Thecountry is producing more oil than it has in almostthirty years. The country has gone from a positionwhere it was expected to need to import significantamounts of natural gas to where it holds more than acentury of gas reserves and is completing plans andinfrastructure to export significant quantities of gas.This revolution is not just about fossil fuels, though:installation of solar and wind power for electricity isgrowing at an almost exponential rate, and new stan-dards for efficiency mean that the country can domore with less energy.

The energy revolution is altering America’s geopolit-ical outlook. Around the world, foreign crises haveelements of energy diplomacy in them, from theUkraine crisis, to disputes over territory in the SouthChina Sea, and even the disputes over Iran’s nuclearprogram, among others. Some policymakers haveargued for the U.S. to use energy as a “weapon,”while others argue for the country to husband itsresources for domestic use only.

This essay argues that the role of energy in America’sinternational relations has echoes of both the days ofabundance and the days of shortage. For that reason,American actions and policies can sometimes seemcontradictory. However, as a global trading powerwith the naval power to ensure open sea lanes, theU.S. bias is always toward free and open markets.The United States is unique among the world’s greatpowers in that it is both one of the world’s largestproducers of energy and one of the world’s largestconsumers. That means that how energy affectsAmerican foreign policy is very different than its alliesin Europe or Asia, whether Germany, Japan, France,Singapore, or others. American energy statecraft hasoften been used to support these allies and to

17


energy and statecraft:american diplomacy for theenergy revolutionANDREW HOLLAND

18


buttress their energy security (sometimes even whenthey have not asked for it), but that does not meanthat American and allied interests always converge.As a general rule, American interests will convergewith allies when they favor free and open markets, butwhen allies seek preferential treatment or work withmonopoly producers, then their interests will diverge.

The remainder of this essay will first discuss howAmerican policies have evolved since the 1970s, andhow that has affected American national security andforeign policy. It will then discuss how the Americanbias toward free markets has evolved. Finally, it willoffer several case studies for how energy plays intoAmerican foreign policy.

A NOTE ABOUT AMERICAN PERCEPTIONS OFENERGY SECURITY

Because of the bounty of American energy resources,concerns about energy security by American policy-makers and the public are almost exclusively about oil.Unlike most other major economies, the United Statesis able to produce virtually all of the energy domesti-cally that it uses to produce electricity and to heat andcool its buildings. Vast resources (and the infrastruc-ture to utilize them) of coal, natural gas, hydropower,sun, wind, and nuclear power ensure that domesti-cally-produced energy can meet the country’s needs.It is only in transportation—with its 94 percentdependence on oil—that American consumers arevulnerable to global swings in prices and to concernsabout security and availability. This vulnerability in oilhas driven domestic energy policy, national securitypolicy, and foreign policy for four decades since thetrauma of the OPEC crisis.

Energy Policy Stuck in the 1970s

To understand U.S. statecraft on energy security, ithelps to begin with the response to the OPECembargo. It is from this crisis that much of Americanpolicy on energy stems.

The OPEC crisis was a true economic crisis for theUnited States, just as it was for American allies inEurope and Asia. As major oil consumers, all of thedeveloped economies were harmed by the steep oilprice increases brought about by the OPEC

embargo. It initiated the era of “stagflation” in whichinflation was paired with mass unemployment. Theeconomic crisis was paired with vast upheavals inboth foreign and domestic policy as well. TheWatergate scandal, breaking at the time of theembargo, would bring down a president and foreveralter the public’s trust in government; the withdrawalfrom Vietnam would humble the country’s foreignpolicy for a decade and leave scars that last throughtoday. When paired with the oil crisis, it seemed thatthe country no longer controlled its own destiny. In his1974 State of the Union address, President RichardNixon exhorted the country: “By the year 1980, theUnited States will not be dependent on any othercountry for the energy we need to provide our jobs,to heat our homes, and to keep our transportationmoving.”3 Even though the ensuing years proved thatstatement to be misguided and virtually impossible toachieve, in the four decades since that statement,every presidential administration has identified someversion of “energy independence” as a central goal.The elusive goal of “energy independence” hasanimated both American foreign and domestic policy,even if such a goal is neither desirable nor possiblein today’s globalized world.

Reforms Have Ensured American EnergySecurity

Today, the United States is one of the most energy-secure large countries in the world, by almost anymeasure.4 Importantly, “energy security” does notmean “energy independence” in the sense that all ofthe energy used in the United States comes fromwithin its borders without international trade. In addi-tion, energy security does not depend on thepercentage of supply that is imported. In a world ofglobally traded commodities, it is no longer possibleto be truly energy independent: even domesticallyproduced energy sources are subject to fluctuationsin global commodity markets.

In any realistic view, the United States no longer facestraditional “energy security” threats that are existen-tial: the country is not at war with a nation that couldstop our access to global markets, nor is there anypotential adversary who could possibly take such anaction. Since the oil price crises of the 1970s, the riskof absolute oil supply shortages has been reduced

significantly. The creation of the International EnergyAgency (IEA) and its requirement that all membercountries hold oil stocks capable of replacing ninetydays’ worth of imports acts as a buffer against disrup-tions in oil supplies. The Strategic Petroleum Reserveacts as a strategic buffer against threats and manip-ulation by energy-producing states that would seek toaffect American policy.

It is not accurate to say that the U.S. relies on anysingle country for any percentage of oil imports—because those percentages change daily. Instead,the U.S. relies on markets to provide the oil theeconomy needs. As the world’s pre-eminent maritimepower, one of the prime missions of the U.S. Navy isto assure freedom of the seas—ensuring that globalmarkets are allowed to function. This policy of favoringmarkets over preferred access to certain countries,regions, or companies is a unique aspect of Americanforeign and economic policy.

Deep and liquid markets for energy allow price signalsto give warnings of impending supply and demandimbalances. Today, then, for the United States, energysecurity concerns are no longer about physicaldisruptions in supply. These concerns instead stemfrom a fear of price increases causing undue harm toeconomic growth. Finally, as the world faces an unan-ticipated fall in oil prices, we know that concernsabout energy security will once again fall down thepolitical priority list.

The reforms instituted in the 1970s gave the UnitedStates and other developed countries real energysecurity, in the sense that they assured access toenergy in a global marketplace. The StrategicPetroleum Reserve, and others like it around theworld, provide a shield against possible marketmanipulation by adversarial energy producers. TheIEA provides the world’s policymakers and energyprofessionals with a much deeper level of knowledgeabout energy production and global prices than wasavailable in the early 1970s. Finally, global tradingmarkets allow for a true global price of oil—seen onnewscasts every night—that allows market partici-pants to see potential shortages and problems beforethey occur. Global energy markets are very differenttoday than they were in the early 1970s.

Oil Dependence Drew America into theMiddle East

Even though the United States may not actually bethreatened by an energy shortage, for many years,policymakers and the public have come to believethat their security is under threat from oil depend-ence. Even though good policy reforms have largelysolved the country’s energy security problems(combined with the luck of living in a countryendowed with vast resources), American policy-makers came to believe that they must protect thesources of oil with American power. This militarizedsolution to what is essentially a domestic problemhas had long-lasting repercussions on America’s rela-tionship with the Middle East.

Once policymakers felt that American dependence onimported oil was a threat, and that access to oil coulddetermine the economic future of the United States,it was inevitable that the U.S. military would be drawninto protecting the oil. The foreign policy response tothese developments was the creation of the “CarterDoctrine.” In response to Soviet aggression inAfghanistan and threats toward the Middle East,President Jimmy Carter pronounced the doctrine inhis 1980 State of the Union address, stating that “anattempt by any outside force to gain control of thePersian Gulf region will be regarded as an assault onthe vital interests of the United States. And such anassault will be repelled by any means necessary,including military force.”5 The clear reason for thisstrategic interest in the Persian Gulf was oil stability.This was the first formal commitment of U.S. militarypower to the Middle East.

To enforce this doctrine and to counter an increas-ingly belligerent Iranian Revolutionary state, the Carteradministration created the Rapid Deployment JointTask Force. Its mission was to deter Soviet invasionor influence, discourage conflict among regionalstates, and protect the flow of Persian Gulf oil to theUnited States and its allies. The Task Force would bereorganized by the Reagan administration into U.S.Central Command, the military command that existstoday overseeing operations across the Middle Eastand Central Asia.

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Although the U.S. would not fight a war in the PersianGulf for another eleven years after President Cartermade his guarantee, the military was swiftly drawn intolocal conflicts: during the Iran-Iraq War, the U.S. Navyescorted oil shipments in convoys through thePersian Gulf in the so-called “Tanker War.” Notably,thirty-seven sailors were killed aboard the U.S.S.Stark when it was attacked by an Iraqi Air Force plane(even though it can be argued that American policy inthis period tilted toward Iraq over Iran). From there (tovastly oversimplify): the 1990 Iraqi invasion of Kuwaitled to President George H.W. Bush’s security guar-antee for Saudi Arabia, the victory over Iraq in DesertStorm, the implementation of a no-fly zone over Iraq,the permanent presence of American troops in SaudiArabia, extremist reaction against that American pres-ence, the attacks of 9/11, the 2003 invasion of Iraqand the instability and insurgency that followed, theAmerican military surge then withdrawal, the ArabSpring, ISIS, and American military re-engagement inIraq.

All the while, the American Fifth Fleet based inBahrain has been guaranteeing oil shipments throughthe straits of Hormuz—a mission that a 2009 RANDreport estimated to cost between $86 billion and$104 billion per year.6 From what started as a rela-tively small “Rapid Reaction Force” intended to keepthe Soviets from meddling with the flow of oil out ofthe Persian Gulf, American military engagement inthe Middle East has turned into a massive and contin-uing part of American foreign policy.

The original sin of American military involvement in theMiddle East was the understanding that the U.S. nolonger controlled its ability to provide its citizens witha stable, secure source of petroleum. This awarenessled to a series of military engagements that continueto this day—and have a momentum all of their own.Today, even as the American energy outlook haschanged dramatically, the U.S. will remain hopelesslyentwined in Middle East security for the foreseeablefuture. Oil once drove the U.S. to the Middle East.Now, it seems, nothing can pull the U.S. out.

The American Energy Revolution Has NowChanged Everything—And Nothing

Today, more than thirty years past Nixon’s deadline,

the United States may actually be on a course to meetthat elusive goal of energy independence. AlthoughAmerican oil imports will never completely go away,and in a global marketplace, no country can ever betruly “independent,” America is much more in controlof its energy future than it has been for at least fiftyyears.

The U.S. is seeing an unprecedented boom in oil andgas production, as the impacts of the technologiesand expertise around hydraulic fracturing and hori-zontal drilling have expanded America’s accessibleresources. The shale gas boom means that the U.S.now has more than a century of gas reserves. Similartechnology opened up new shale oil fields in placeslike the Bakken field in North Dakota and Eagle Fordin Texas. Since January of 2011, U.S. crude oilproduction has increased from 5.5 million barrels ofoil per day (mbd) to over 9 mbd in October 2014 (themost recent date for which numbers are available).7

See Figure 1 on page 25.

Put together, the combination of rapid growth inrenewable sources of energy, a boom in productionof oil and gas, and increasingly greater efficiency is areal American energy revolution. The implications aremostly positive: the U.S. is poised to become a majorexporter of natural gas over the next decade—whileless than a decade ago, energy companies werebuilding natural gas import facilities. Low costs forelectricity and natural gas are driving a “manufac-turing renaissance” that is seeing a massive “re-shoring” of industrial production. Greenhouse gasemissions have dropped since their peak in 2006 dueto a combination of greater efficiency, fuel switchingfrom coal to gas for electric power, and the recession.A globalized market for solar photovoltaic productionhas caused a drop in installed prices of solar panelsto less than $1 per watt. In a time of recession andlow job growth, energy has proved to be a valuabletool of economic growth.

Importantly, the American energy revolution was aproduct of choices about energy made decades agoby politicians and business leaders. Scientists, finan-ciers, and entrepreneurs then sustained their invest-ments in these choices through a variety of marketconditions and predictions. Repeatedly, the story fortoday’s energy revolution starts in the energy crisis of

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the 1970s—and while some investments from thattime failed, others are bearing fruit today.

How the American Government UsesEnergy in Statecraft

However, policymakers are slow to respond to therevolution—just like the cliché about generals, theyare always fighting the last war. American politics isstill stuck in the energy battles of the 1970s, with a“Drill, baby, Drill” crowd arguing for expanded accessto fossil fuels, while environmental campaignersorganize to block any projects that emit greenhousegasses or intrude on the habitat of any animal. Theresult of this is a stalemate in which changes toenergy and environmental policy can only moveforward by going around Congress.

Fortunately, in this case, most foreign policy is madeoutside of Congress. After the first QuadrennialDiplomacy and Development Review (QDDR) in2010, Secretary of State Hillary Clinton created anew Bureau for Energy Resources in order to bettermanage the diplomacy of energy and strategicresources. Under the leadership of first AmbassadorCarlos Pascual and now Special Envoy AmosHochstein, this Bureau has brought energy to thecenter of many of the State Department’s initiatives.

In the Department of Defense, a growing awarenessof both the strategic and tactical risks of dependenceon oil—and the growing ability to reduce that depend-ence—led to the creation of a new office ofOperational Energy Plans and Programs under thenAssistant Secretary of Defense Sharon Burke, as wellas empowering energy officials within each of themilitary services.

Thanks to these bureaucratic changes and to theattention from high-level policymakers in both theObama administration and Congress, energy is nowat the center of American statecraft. However, itcomes in many different forms: this is not simply anissue that is the same around the world. Whether it isinitiatives like Power Africa or the Caribbean EnergySecurity Initiative, the response to crises in Ukraine,or the global effort to address climate change, energyis at the center of American foreign policy. A few casestudies will show how it works.

RUSSIA AND EUROPEAN ENERGY SECURITY

Ever since the Trans-Siberian Pipeline was firstproposed in the late 1970s to link Soviet natural gasto Western European markets via Ukraine, Americanpolicymakers have warned European leaders aboutexcessive dependence upon Soviet, and thenRussian, energy. In the early 1980s, this concern wentso far as for the Reagan administration to place anexport embargo on supplies for the pipeline and sanc-tions on Western European companies that helpedbuild it—leading to one of the most difficult transat-lantic disagreements of the Cold War.

Throughout the last two administrations, Americanpolicy in Europe has been to promote alternativesupplies of energy—especially natural gas—toEurope. The predominant method for this has been topromote the building of a pipeline for gas through the“Southern Corridor” through Turkey, which wouldprovide gas from Azerbaijan outside of the Russianpipeline network. In the winters of 2006 and 2009,the project of energy security in natural gas was givena boost by the cutoff of gas through Ukraine overpricing disputes between Russia’s Gazprom and theUkrainian state energy company. American diplomacyfocused on helping European allies find alternativesources and offering support for building an internalnatural gas market.

When the crisis in Ukraine began, with the Russiancovert invasion and then annexation of Crimea, energywas again at the center of the crisis. For over sixmonths in 2014, no gas flowed from Russia intoUkraine due to a pricing dispute. Fortunately, thisdispute happened in the summer, when demand forgas is low, and no one is in danger of freezing todeath. American diplomacy accelerated Europeanefforts to provide gas to Eastern European states asa buffer. In addition, the American response toRussia’s aggression in the crisis also put energy atthe center, as sanctions were placed on energy firmsthat were invested in helping Russian firms drill for oiland gas in the Arctic. Meanwhile, the concurrentdecline in oil prices has dealt a damaging blow to theRussian economy and the ruble.

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IRAN

The problem of how to prevent Iran from building anuclear weapon has bedeviled American foreignpolicy for almost two decades. However, for all thepressure and unilateral sanctions placed on theIranian government by the Clinton and Bush admin-istrations, it was only in early 2014, after the 2013election of Hassan Rouhani as president, that Iranagreed to come to the table and negotiate over itsnuclear program.

While it is difficult to know the motivations of agovernment as opaque as Iran’s, it is likely that theeconomic hardship brought on by sanctions was whatbrought the country to the table. And, unlike thedecades of sanctions before, the reason that thesanctions implemented on Iran’s oil productionstarting in 2012 were so successful was theircomprehensive, multilateral nature. The governmentsof the U.S., EU, Japan, the Republic of Korea, Canada,and others agreed to targeted sanctions that wouldreduce the amount of oil Iran could export. Althoughit has seldom been stated officially, the reason thesecountries agreed to take Iran’s oil production off theglobal marketplace is that the surge in oil productionfrom American shale producers could replace the lostIranian oil in the marketplace. Although not explicit,this is probably the closest that American diplomacyhas come to using its newfound energy as a“weapon.”

CARIBBEAN ENERGY SECURITY INITIATIVE

On islands with few resources, virtually all energymust be imported. Because of the lack of scale, costsfor infrastructure are often much higher than for main-land, continental states. In the small states of theCaribbean, outside powers have used this vulnera-bility to their advantage. The best current example ofthis is the Petrocaribe program, where Venezuela sellsfuel oil at reduced costs to Caribbean nations. Insome countries, like Jamaica or Haiti, these subsidiesamount to around 4 percent of GDP.8 One of thehallmarks of Hugo Chavez’s presidency, this agree-ment has essentially brought accession toVenezuela’s preferred policies in the region.

However, there are alternatives to a dirty depend-ence on subsidized petroleum imports—the tworesources the islands have in abundance are sun andwind, making renewable energy attractive evenwithout subsidies. The American revolution in naturalgas could provide an alternative source throughimports of Liquefied Natural Gas (LNG) or in fuels likepropane and other liquefied petroleum (LP) gases. Inthe longer run, the domestic renewable resources ofthe islands could provide more than enough power fortheir energy needs. Recognizing that the upfrontcosts in infrastructure and technology, as well asgovernance issues, have held back progress, VicePresident Joe Biden and the State Department haveinitiated a new Caribbean Energy Security Initiativethat directly engages with the governments andstakeholders on each island in order to help facilitatesolutions to the problems each faces. While the initia-tive is in its infancy, this shows a model for how theU.S. can directly engage with countries in the future.

PROSPECTS FOR FOSSIL FUEL EXPORTS

The American Energy Revolution could provide theUnited States with a new tool of geopolitics, if thegovernment chooses to allow it: natural gas exports.Unlike oil, the market for natural gas is not truly global.Rather, natural gas is priced differently in differentparts of the world. This is due to the nature of naturalgas—it is not easily transportable.

This means that there are geopolitical opportunitiespresented by allowing LNG exports to move forward.Permitting new LNG export capacity in the UnitedStates will provide more liquidity to the global LNGmarket, provide alternative sources of energy for ourallies, and accelerate the trend away from the oil-linked pricing system in Asia and Europe. LNG exportcapacity will undermine the ability of major energysuppliers to use energy as a political weapon.

LNG exports will help American allies in two keyregions—Europe and Asia—by undercutting the polit-ical clout of dominant producer states and byexpanding the quantity of total energy supplied toallies starved of energy. As of February 2015, theDepartment of Energy has approved nine LNG exportfacilities, with a further twenty-nine applications underreview.9 If only the approved are all built, the U.S. will

22


have a combined export capacity of 12.2 billion cubicfeet (bcf) per day, more than the consumption of anysingle European country (Germany, the largestconsumer, averages about 8.6 bcf per day).

In the negotiations for the Transatlantic Trade andInvestment Partnership (TTIP), European negotiatorshave asked for unfettered access to American energyexports. However, the global marketplace seems toindicate that most gas would flow from the U.S. toAsia, where prices have been almost double that ofEurope.

Ironically, though, it does not matter if a single mole-cule of American gas reaches European shores forthe geopolitical benefits of American LNG exports toaccrue to importers. Because the potential supply ofU.S. LNG is so vast, American exports will help createa more liquid marketplace, with deliveries based onsupply and demand fundamentals, not based onmonopoly rules, political connections, and extortedtransit fees. In essence, buying natural gas wouldbecome more like buying oil. This would allowAmerica’s allies to diversify their energy sources,reduce the burden on their economies, and free them-selves from dependence on monopoly providers—countries like Russia.

CLIMATE POLICY

Ever since the negotiations leading up to the KyotoProtocol in the 1990s, climate change was seen asa separate part of diplomacy. It was seldom talkedabout by the same people who handled energy, eventhough they are two sides of the same coin. That isincreasingly changing. The 2005 G8 meeting inGleneagles Scotland prioritized action on globalwarming, and was the first multilateral statement vali-dating that humans were responsible for warming.

Today, action on climate change has returned to theinternational stage: it is a central part of the agendaof every major international meeting. Over the comingdecades, one of the measures of a country’s “softpower” is likely to be how it is perceived to be actingon climate change.

Developments in late 2014 provide an example ofhow climate policy is becoming a mainstream part of

diplomacy along with energy. The United States andChina came to an agreement about emissions at the2014 APEC Summit in Beijing that will commit Chinato peaking its emissions before 2030. Later in thatsame week, at the G20 meeting in Brisbane,Australia, the U.S. and other nations came together topledge over $10 billion to a new Green Climate Fundthat will help developing nations adapt to climatechange and move to low-carbon, sustainable devel-opment. Put together, these developments show howaddressing climate change has become a key part ofdiplomatic engagement.

In 2015 and for the foreseeable future, the U.S. willbe at the center of international diplomacy on climatechange. With Germany chairing the June 2015 G7summit in Schloss Elmau, Chancellor Merkel andPresident Obama have pledged to work closely on acommitment from the G7 to move toward a globalagreement on climate change. Europe and the U.S.have a long history of both collaboration andconfrontation in climate diplomacy. For now, renewedAmerican domestic action on climate change meansthat Europe and the U.S. are moving in the samedirection. In November 2015, leaders from aroundthe world will converge on Paris in an attempt to forgea global agreement to effectively address climatechange. Success will only follow if the world’s majoremitters, especially the U.S., Europe, and China, canfind common ground to work together.

Conclusion: The American Bias is TowardFree Markets

America’s energy revolution is also proving to be arevolution in its diplomatic engagement. Whilediscrete decisions like licensing exports of naturalgas would help America strategically, this is not reallyabout the energy: it is about American support for freetrade. Since the end of World War II, the U.S. hasbeen the world’s champion in creating a free globaltrading system. The U.S. is a beneficiary of the global,open trading system and it is not in its interest torestrict trade or to provide preferential or monopolisticaccess.

The most important thing energy can do for Americandiplomacy is to help build an open trading system—with U.S. energy as a part of that system. That means

23


the U.S. must re-engage with and complete both theTrans-Pacific Partnership (TPP) and the TransatlanticTrade and Investment Partnership (TTIP). Once atrade deal is formalized, U.S. law ensures that naturalgas exports are deemed in the “national interest,”allowing access to exports to all parties in these deals.

American support for free markets will inevitably bringit into conflict with monopolistic energy producerslike Russia, Venezuela, and the other members ofOPEC. However, if these countries embrace thediscipline of free and open markets in energy, theycan also benefit over the long run.

American policy will sometimes clash with allies likeGermany over their relations with monopolistic energyproviders. For example, few American policymakerscan understand the desire of Germans to build theNord Stream pipeline to Russia, further deepeningthe energy relationship with a country that hasdemonstrated its desire to use energy for geopoliticalends. While Americans have no doubt that Germanycan protect its own interests against Russia, they areconcerned that such exclusive agreements betweenthe two major powers will allow Russia to causetrouble with more vulnerable neighbors along itsborders.

It is not in the U.S. government’s interest to useAmerican energy resources as a “weapon” againstany nation. In the long term, U.S. energy resources willprovide a significant strategic benefit to the U.S.through American advocacy for a free and opentrading system. Such a system will prove to be evenmore powerful than any energy “weapon” becauseAmerican energy in a free global market will neuter theweapons that other countries think they have built.

Notes

1 Jeffrey record, Japan’s Decision for War in 1941: Some Enduring

Lessons (carlisle, pa: the strategic studies institute, february 2009),15 <http://www.strategicstudiesinstitute.army.mil/pdffiles/pub905.pdf>.

2 see the international energy efficiency scorecard,<http://www.aceee.org/portal/national-policy/international-scorecard>.

3 richard nixon, address on the state of the union delivered before aJoint session of the congress, 30 January 1974, <http://www.presi-dency.ucsb.edu/ws/?pid=4327>.

4 see, for example, the international index of energy security risk bythe u.s. chamber of commerce’s institute for 21st century energy,<http://issuu.com/energyinstitute/docs/internationalindex>.

5 Jimmy carter, the state of the union address delivered before a Jointsession of the congress, 23 January 1980,<http://www.presidency.ucsb.edu/ws/?pid=33079>.

6 Keith crane, andreas goldthau, and michael toman, et al., Imported

Oil and U.S. National Security (santa monica, ca: rand, 2009).

7 see the data for u.s. production of crude oil,<http://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m>.

8 “cheaper oil: Winners and losers,” The Economist, 25 october 2014,<http://www.economist.com/news/international/21627642-america-and-its-friends-benefit-falling-oil-prices-its-most-strident-critics>.

9 u.s. department of energy, “long term applications received bydoe/fe to export domestically produced lng from the lower-48states,” <http://energy.gov/sites/prod/files/2015/01/f19/summary%20of%20lng%20export%20applications.pdf>.

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25


Introduction

Resource security issues, despite being around forcenturies, are much debated these days. This essayconsiders the resource nexus, i.e., the interlinkagesbetween the use of various resources. Such inter-linkages are manifold, as all resources need others fortheir production and delivery to final customers. Yet,planning for future production and management oftenis organized in resource silos. With increasingdemand becoming more erratic and uncertain, andsupplies being dependent on some producingregions under stress, the nexus amplifies singleissues and drives regions toward instability andconflicts. Our proposition is that these nexus issuesraise new security challenges in different realms, beit for supply chain security and markets, or be it forinterstate conflicts, or for public services and humansecurity on the ground. Scholars and analysts thusshould pay attention and search for solutions thatengage with actors in those different realms.

Grappling with the resource nexus is easier said thandone. Some interlinkages are relatively well knownand not yet fully conveyed into action, such as thewater demand for energy production or the water –energy – food nexus for biofuels. Predominantly,however, the future demand by the multitude of usersis not taken into account and will become aggravatedby stress multipliers resulting from weather extremes,climate change, and a number of socio-economicfactors.

Three factors make these resource nexus uncertain-ties relevant for a geopolitical perspective: first, globaldrivers exert considerable pressures on fragile localmanagement structures and reduce the resilience oflong-standing mechanisms. Second, the intercon-nectivity of global flows allows local turbulences to

spread farther and faster, with greater risks of impactson other resources and outbreaks in other regions.Third, powerful countries are affected and may notadhere to principles of a liberal order that have longcharacterized international relations.

This essay describes the resource nexus in moredepth in the next section, explaining the scope andrelevance for international business leaders and poli-cymakers. The paper will analyze water, its interlink-ages with other resources, and the multitude ofservices derived from water, in subsequent steps. Itwill address potential socio-economic impactsresulting from water stress, the human security angle,transboundary river management issues, and thepotential threats to international shipping lanes.

Written as a discussion paper, our aim is to stimulatea debate. Recognizing the potential for a “perfectstorm,”1 a confluence and mutual exacerbation ofchallenges in these areas in the next few decades, thecontribution also underlines potential opportunitiesby addressing common challenges across sectorsand across the realms of markets, interstate relations,and the people on the ground. Developing a step-by-step strategy of grasping some opportunities whileestablishing capacities to deal with risks and unleashfurther action is probably the wider aim of ourapproach.

The Resource Nexus

The simple meaning of what we are calling theresource nexus should be readily apparent: under-standing the interconnections between demand for,production of, and use of multiple natural resourcessimultaneously. That these interlinkages exist mayseem painfully obvious. Mesopotamian agriculturalists

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the global resource nexus: Waterchallenges and policy conclusions RAIMUND BLEISCHWITZ AND COREY JOHNSON*

five thousand years ago knew about the ties betweenwater, fertilizer, land, and energy, and they certainlyknew that the interplay among different inputs woulddetermine whether there was enough food in theirpots at the end of a growing season. They also under-stood that weather, population growth, conflict, andpolitical decisions were additional variables toconsider, and they did not just throw their hands upin the air and hope for the best, but rather planned,adapted, and on occasion took up arms. The Stele ofthe Vultures, the earliest known monument to a battle,commemorates a battle over the fertile, irrigated landthat lay between the city-states of Girsu and Ummain what is now southern Iraq.2 Much more recently,the ability to cope with such interconnections is partof the wider debate about “planetary boundaries”where earth scientists give a warning that some ofsuch limits might be transgressed and, inter alia,feature the resources nitrogen, phosphorus, andfreshwater.3

In spite of the intuitive importance of thinking acrossthe artificial boundaries between different categoriesof resources, the structures of governments, corpo-rations, and the globalized economy more broadly arenot set up to acknowledge, much less make produc-tive interventions in, the resource nexus. Moreover,policymakers and business leaders are effectivelydiscouraged from thinking about the unintendedconsequences of the use or production of oneresource on another.

Take, for example, recent trends in car sales. InJanuary 2015, automakers sold 1.5 million new vehi-cles in the United States, 14 percent more than in theprevious January.4 Of those, more than half weretrucks and sport utility vehicles (which saw nearly 20percent higher sales than the year before),suggesting that low gasoline prices coupled with astrong economy are making gas guzzlers attractiveagain after years of pallid sales (see Figure 1 on page41). No serious observer of energy markets viewsthe precipitous drop in the price of oil since summer2014 as a trend that will continue—and most see theprice stabilizing and rising over the next few years.American consumers, though, like consumers else-where, typically do not consult the InternationalEnergy Agency (IEA) forecasts when thinking aboutwhat car to buy; rather, they make decisions based on

needs, wants, and short-term price signals.Governments and businesses, though, also treat oilas if it exists in its own silo, fundamentally distinctfrom water, food, minerals, and materials.

This is where we are not well positioned to under-stand how such developments cascade beyond justthe increased demand for petroleum that more SUVson the road should create. One might expect cheapoil to cause the markets for biofuels in the U.S.,European Union (EU), Brazil, and elsewhere are likelyto perform below expectations, with resulting down-ward pressures on the prices for corn, soybeans,palm oil, and sugarcane, and less new land beingconverted to grow biofuel crops. However, policyinterventions such as the U.S. Renewable FuelStandard (RFS) mean that ethanol and biodiesel willstill need to be produced in large quantities, at leastin the U.S. But outside the U.S. and Europe, cheap oilin some cases is already depressing food prices,making farmers less likely to plant crops that will bemore costly to produce than their selling price. Willthis cause a Chinese investor to decide againstpurchasing and deforesting a plot of land in Indonesiato plant oil palm trees? As Ford makes more F-150sand Porsche more Cayennes to meet demand, theywill be consuming more steel, aluminum, rubber, poly-ester, leather, and a host of chemical elements, all ofwhich require in various quantities water, energy, andland to produce. The automakers and producers ofmined materials will use more water. The increaseddemand for cheap oil, brought on in part by morepeople driving longer distances in their new SUVs,will have its own impacts on supplies and prices, aswell as on the environment and the use of otherresources. In varying degrees, each of these micro-events has implications for the climate and for secu-rity as well. These are explored below.

The fact of the matter is that we do not understand theresource nexus very well. Governments and individ-uals tend to compartmentalize such issues becausetheir interrelationships are too complicated to capture,too difficult to model, and too challenging to address.Yet if the transatlantic community is going to play aconstructive role amid the profound changes in theglobal economy, population, and consumption habits,and in light of the profound threats to livelihoods andsecurity posed by climate change, better under-

28


standing the resource nexus will be of utmost impor-tance.

A number of academics, policymakers, and othershave in recent years taken up the theme of theresource nexus, but yet there is little consensus as towhat precisely is meant by the idea. Early conceptu-alizations from the policy community and think tankscame out of the 2011 Bonn Nexus Conference,5 bypapers from the Dutch environmental assessmentagency,6 the Transatlantic Academy,7 the EuropeanUnion’s development report,8 and Chatham House.9

Most of these reports foreground the ties amongwater, food, and energy. A number of academicstudies examined various aspects of the resourcenexus as well,10 including specific facets such aswater and electricity,11 land,12 and geographicallyspecific cases in South Asia13 and the Middle Eastand North Africa.14 In several instances, governmentorganizations have included resource nexus analysisin their planning, such as the United NationsEconomic and Social Commission for Asia and thePacific15 and the U.S. National Intelligence Council,which identified the food, water, and energy nexus asone of four “megatrends” in its most recent quadren-nial “Global Trends” report.16

Figure 2 (page 41) shows the many ways in which keyresources interact. Some nexus issues may be moreobvious than others, such as the connection betweenfood and water suggests. Others have become morepressing recently, such as the water inputs needed forenergy production. The implication for decision-making is that all activities that are intended tomanage a specific resource shall have knowledgeabout the estimated inputs needed from otherresources.

If these ideas are gaining some traction in academicand policy communities, it is nevertheless importantto ask whether this is simply a re-branding of what wehave known for a very long time. In other words, whatis new? Earlier accounts focused attention on phys-ical scarcity of natural resources: that unregulatedpopulation growth and consumption meant that wewould literally run out of the stuff (“limits to growth”).Current analysis treats physical scarcity as a secondor third order problem (“planetary boundaries,” seeabove). The cases of fossil fuels and minerals are

illustrative. The problem with oil is likely its abundancerather than its scarcity, as new technologies haveopened up new possibilities from tight oil and gas tooil sands. The exceedingly low price of oil currentlydoes not signal that oil is inexhaustible—of courseeventually on present course we will have burnedmost of it by some point in the future—but rather thatthere is likely very little incentive to make changesnecessary to avoid the alarming impacts related toclimate changes17 that will accompany releasing allof that carbon into the atmosphere. Minerals such asrare earths and iron ore are fairly abundant as well.The issue with scarcity is not so much physicalscarcity (with the notable exception of water in partic-ular geographic contexts) but rather the scarcitiescreated by governments, poorly functioning markets,environmental change, and geopolitical upheavals. Itis probably one of the strengths of the nexusapproach that these governance and security ramifi-cations are actively addressed rather than implicitlysuggested.

In addition, there have been tectonic shifts18 in theglobal economy, political geography, and the envi-ronment that require us to re-visit nearly all assump-tions about resources. Humans are a formidablegeophysical force, causing the global climate towarm, putting more nitrogen into the earth’s systemthan the earth does on its own each year,19 likelycausing tectonic activity with oil and gas extraction20

and dam building.21 Further highlighting the law ofunintended consequences, carbon capture andstorage schemes—injecting carbon dioxide intounderground reservoirs to help mitigate climatechange—if put into place may cause more earth-quakes,22 potentially harming not only lives and prop-erty but also re-releasing the CO2. Humans have alsodrastically altered the earth’s biodiversity. In light ofanthropogenic changes to the environment, somescientists have waved goodbye to the Holocene andpronounced a new geological epoch, theAnthropocene.23 As the U.S. Department of Defenseand many others have argued, climate change itself isa “threat multiplier.”24 The long and the short of it isthat these changes to the natural environment, andpolicy responses to them, will also impact naturalresource production and consumption on a variety oflevels.

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The shift in the center of gravity of the global economywill also continue to impact natural resources. Thearrival of China on the stage of global economicpowerhouses is by now a truism, but it is only one ofthe key trends shaping the twenty-first century.25

Global trade has expanded from $5.5 trillion in 1998to $16 trillion in 2012. The physical volume of stufftraded has increased by 250 percent over the lastthirty years; 10 billion tons of goods are now traded,many of them moving vast distances by ship, rail, andtruck.26 Robust economic growth in various cornersof the globe has also fed into and led to American andEuropean consumption habits being copied else-where. Governance institutions and supply chains—not to mention the natural environment—are beingstretched to cope with the desire of billions of earth’sresidents converging on consumption ideals that seeknot only a chicken in every pot, but a car in everygarage and a television in every room. The evidenceis striking:27

Since 2008, non-OECD countries have consumedmore energy on an annual basis than the OECD. Ifeveryone in the world burned fossil fuels asAmericans do, CO2 emissions would increase by400 percent.

There are more people in the world now classifiedas overweight (1.4 billion) than undernourished (842million), and the shift to meat-heavy diets means evermore land, water, and energy are required. One-thirdof food produced in the world goes to waste.

Global water use over the past century has growntwice as fast as the population.

Humans extract 50 percent more natural resourcesthan they did thirty years ago, and now pull the equiv-alent to 41,000 Empire State Buildings by weight outof the ground each year.

Of course, not everyone has seen or will see benefitsfrom this unbalanced growth, so that yawning globalinequality also impacts the resource nexus innumerous ways.

There are also geopolitical shifts that make the currentsituation different. The rising power of China, Russia’sregional hegemonic posturing, and America’s shifting

focus to the Pacific carry with them important conse-quences for natural resources. These are importantand well documented, from China’s investments inAfrica and naval maneuvers in the South China Seaand Indian Ocean, to Russia in Ukraine, and U.S. basebuilding in the Philippines. But this just scratches thesurface of the political re-ordering that is occurringglobally and regionally. There are ninety democraciesin the world today, but the beginning of a transition todemocracy does not guarantee accountability ofleaders, functioning state institutions, inclusion ofmarginalized communities, civil tranquility, etc. Indeed,the order of the day in far too many places is violenceand migration, which are but two of the possiblescenarios that usually have clear ties to resourceissues. The headlines are filled with cases: NorthAfrica, Syria, South Sudan, Bangladesh, and else-where.

The resource nexus offers a fresh look at these inter-linkages and an analytical tool for dealing with boththe metrics of key technology developments and thediverse security and governance ramifications. Toillustrate this approach in light of the theme of thepapers in this AICGS project, we now turn to theissue of water.

Water-Related Challenges

ENVIRONMENTAL AND ECONOMIC DIMENSIONS

Water is fundamental for human life and well-being.While access to clean drinking water is a key UNMillennium Development Goal and considered ahuman right, the current provision is unsatisfactory forsome 750 million people lacking such access, and forthe 2.5 billion people without access to improvedsanitation.

The challenges of supplying 7 billion people withclean and safe water, with a further 1 billion expectedby 2030, are likely to increase. Just 1 percent of theworld’s total supply of water is freshwater, with a highproportion being badly managed, spoiled, andpolluted. Looking ahead, the growing middle class,ongoing urbanization, and the risks of climate changeare all adding to the pressure.

Environmental research highlights the “planetary

30


boundary” of transgressing the safe operating spacefor using freshwater.28 Such freshwater flows anduse occur at the largest sub-global level in the majorriver basins around the world, transforming the localand regional challenges into international and globalones. While rivers, lakes, reservoirs, and renewablegroundwater stores replenish a stream of “blue water”to overall availability, wide-spread eutrophication fromagricultural fertilizers and land-use changes perturbsupply especially at a regional scale. Accordingly,research seeks to estimate a maximum monthly with-drawal as a percentage of mean monthly riversflows29 (which may change over the course of a year)that’s being transgressed in some areas worldwide,indeed with a lot of economic and security ramifica-tions.

Environmental research also underlines water supplyas an essential service that can be derived fromecosystems, if those are properly managed. Indeed,the estimate for the value of total global ecosystemservices in 2011 is $125 trillion/year with losses overthe last few years in the order of approximately 10 -15 percent and more deterioration going on.30 Whilesuch monetary values may be contested for a numberof methodological and other reasons, the importantpoint to stress is that water is more than a constituentto all those ecosystems (open ocean, coastal zones,forests, grasslands, wetlands, lakes and rivers, desert,tundra, ice, cropland, and urban ecosystems): thesupply of water is dependent on the ability of ecosys-tems to perform both their regulatory and provisioningfunctions as part of the wider natural capital thatunderpins all economic activities.31

A resource nexus view may be helpful to deal with thecomplexities of environmental change, water, andsupply issues. It is often placed centrally in the nexusdebate and is strongly interrelated with energy andfood, but also quite relevant for the use of mineralsand land. The interesting angle from a nexus perspec-tive is the intersection with drivers for demand, secu-rity of supply, governance, and innovation.

Analyzing the water challenges as part of a nexusapproach, therefore, are likely to allow better deci-sion-making for cooperation across sectors, alongvalue chains, and for transboundary managementstructures. That is also been the main message from

the 2014 Bonn conference on the resource nexus.32

More recently, business has become worried aboutfuture access to water. Acknowledging the waterdependencies of many industrial processes and elec-tricity generation, the water disclosure report33 canbe seen as a wake-up call. Conducted on behalf of573 investors with assets of $60 trillion, it states that68 percent of responding companies say water is asubstantial risk to their businesses. The perceivedrisk is not just a short-term one: the data indicate thatbusiness is more worried about long-term waterstress rather than responding to short-term droughts.In contrast, the response strategy of water produc-tivity and its implications for production and innova-tion is not yet high on the priorities of strategicmanagement. (See Figure 3 on page 42.)

Wide-ranging efforts and investments will be neededto improve water productivity, from stemming leaks tomaking better use of recycled water on to collabo-rating with users about overcoming wastefulconsumption of water. Are the utilities prepared tomeet such challenges? Are their regulatory agenciesand customers willing to accept a need for higherinvestments and, most likely, higher downstreamcosts for using water? A 2012 survey conducted onbehalf of The Economist Intelligence Unit reports thatmost utilities will increase their investments but arefaced with a number of barriers and risks.34 Mostimportant will be changes in the behavior of regula-tion, customers and consumers, and effective strate-gies to cope with the risks of pollution and impacts ofchanging weather patterns. Again, the nexusperspective kicks-in here as a way of looking at waterin a more integrated manner and organize demandmanagement.

In a wider perspective research underpins the impor-tance of water for economic growth and human devel-opment. It’s a common misunderstanding to assessthe importance of resources according to their rela-tive share in GDP (such as the share of the watersector), which evidently would suggest a low rele-vance. In contrast, it should be quite clear that water(as is the case with other resources) affects theeconomic performance of downstream manufacturingsectors, services, and private consumption. A recentOECD paper looks at market distortions and

31


concludes that water shortages can have a devas-tating impact—particularly in the near term and at alocal scale, with power outages, retirement of irri-gated crop land, and unemployment.35 If societiesare unable to manage water much more sustainably,this could become a significant drag on the economy.

Looking at affected countries and regions such asIndia, China, the MENA region, and many others(including the southwestern U.S. and southernEurope), the strategic implication is that relevant hubsof the world economy are at risk. Water stress willmost certainly correlate with food stress in manyregions, and is likely to have an impact on electricitygeneration, manufacturing, and extraction activities.This article will analyze the implications for energy,transboundary river management, and internationalshipping lanes in subsequent sections below.

Climate change is increasingly seen as a stress multi-plier. If current trends continue, the world would warmby 4°C by the end of this century, i.e., twice as muchas the commonly agreed 2°C target suggests.Drawing upon IPCC findings, a recent report36

names the regions that are likely to experience adecline in precipitation of 20-50 percent and otherswith severe flooding risks, all contributing toenhanced global food security issues and risks ofpoverty, displacement, and migration as well as foreconomic assets. The agriculture-water-food securityare probably most obvious in North Africa and theMiddle East,37 a region strongly dependent on virtualwater imports (i.e., water embedded in the trade ofagricultural commodities), but also in Central andSouth Asia where irrigation-based agriculture andgroundwater pumping are common practices.

We conclude here in line with a previous paper38

that water-nexus related conflicts are likely to increaseand may escalate in a number of countries, many ofwhich are relevant for the global supply of strategicmaterials or essential as suppliers of key productcomponents. The critical variables go beyond a stove-pipe approach of water management and require awider analysis of how water is used as an input forother purposes and how societies cope with the chal-lenges of security and adaptive governance.

ACCESS TO WATER

Access to fresh water is considered a fundamentalhuman right by the United Nations. This normativeideal hits up against the challenges of how to provi-sion huge and growing urban populations with water,especially as climate change alters the availabilityequation in unpredictable ways.

There are now around 600 cities in the world with apopulation of over 750,000. By 2050, there will bemore city dwellers than the entire world population of2004. Population growth and the dramatic concen-tration of people in urban areas pose a set of nexus-related challenges, especially surrounding access toclean, fresh water. Most urban population growth isoccurring in the poorest parts of the planet, and inplaces where local water supplies are insufficient tomeet demand. Urban and industrial use of water isprojected to double by 2050.39 Poor people, mean-while, pay more for the water they use than the rich:the slum dwellers of Kibera in Nairobi, Kenya, who relyon private vendors for their water, pay up to seventimes more per liter of water than a North American,and fifty times more than their richer neighbors inNairobi.40 While the percentage of people living inslums decreased over the last decade, the actualnumber of slum dwellers increased over the sameperiod because cities are growing so rapidly.

This is a multi-layered challenge, then, for policy-makers: one is infrastructural, in investing in supplies,laying the pipes, building pump stations and treatmentfacilities. But another more daunting challenge ispolitical, in securing access to water supplies locatedin many instances long distances away from the cityitself, in other political jurisdictions.

Water transfers, the process by which water is phys-ically moved across basin boundaries from source toconsumer, are nothing new. In the early twentiethcentury, Los Angeles tapped into Owens Valley water(runoff from the Sierra Nevada) and the ColoradoRiver, both sources 200+ miles away, in legendaryfashion. Chinatown-esque scenarios are bound to setthe stage for conflicts in the future as cities digdeeper and build pipes farther afield to meet the waterneeds of growing populations. Mexico City, one of thelargest cities in the world, gets 43 percent of its water

32


from inter-basin transfers over distances of up to 154km, and 0.6 percent of the country’s electricityproduction goes toward pumping the water over themountainous terrain to the Valley of Mexico.41

As for the transatlantic community, issues of waterprovision in lesser developed countries have bothhumanitarian and security ramifications. Consider this:in 2010, nearly all of the megacities (greater than 10million population) in the world experienced watershortages of one form or another. As cities continueto grow, their leaders will have no other choice but toseek additional sources of fresh water (or risk socialunrest if they are unable to meet local needs). Yet themeans at their disposal are limited: additional with-drawals from local sources such as groundwater,rivers, and reservoirs, at some point are no longerpossible. Drawing from well outside the cities raisesthe potential for conflict, especially between citiesand the farmers who depend on water as well andwho resent outsiders taking “their” water.

How those conflicts are resolved is highly dependenton governance, but it does not take an overly fertileimagination to envision regional flare-ups in whichstruggles over water act at least as a stressor. LasVegas, Nevada, is faced with massive shortages ofthe Colorado River water upon which it depends, andbillions are being spent to build a third intake pipeunder Lake Mead (the so-called “third straw,”42 and,in the longer term, to pipe Great Basin groundwater300 miles from northern Nevada. The latter projecthas been hugely controversial with Native Americanand environmental groups and is currently held up inthe courts. The potential for armed conflict over waterin Nevada is perhaps not great (Cliven Bundynotwithstanding43), but water has been the genesisfor urban riots in various quarters of the world inrecent decades. For example, there are thirteen docu-mented incidents of water violence and conflict inPakistan since 2001, much of it related to water allo-cation in rural areas and municipal service delivery.44

The nexus approach is likely to facilitate thinking aboutdifferent water users and their needs, thereby helpingto establish participatory planning methods able todeliver on the right to water.

WATER AND ENERGY

Energy and water go hand in hand. Everything frommaking electricity to refining transportation fuelsrequires water, while treating and conveying waterfor human use requires large quantities of energy(about 4 percent of U.S. power generation).Meanwhile, the ways we use water in homes andbusinesses use an even larger quantity of energy:water heating and clothes washing and drying areresponsible for 14 percent of California’s electricityconsumption and 31 percent of natural gas consump-tion, for example.45 Given the changes in the globaleconomy, political geography, and environmentdescribed in previous sections, the water-energynexus will only grow in importance globally asAmerican and European lifestyles are replicated inother parts of the world. These changes will posepolicymakers, businesses, and individuals with a hostof challenges.

Fossil fuels require water in their production phases,and newer “unconventional” forms of fossil fuelextraction, such as hydraulic fracturing, require evenmore water than their conventional counterparts.Refining and processing of fuels such as oil, gas, anduranium requires large quantities of water. Much ofthe coal used in power generation is transported asslurry—ground coal mixed with water—and coal is thelargest fuel source for electricity.46 Meanwhile, emis-sions controls at power plants use water to extractmaterials such sulfur, mercury, and CO2 from emis-sions. Biofuels contain massive quantities of“embodied water,” when one considers the amount ofwater needed to grow the biomass and then processit into combustible hydrocarbons. When irrigated cornor soybeans are used to make bioethanol or biodiesel,water use per gallon of fuel exceeds that of the equiv-alent quantity of refined petroleum by a factor of1,000 or more.47 (See Figure 4 on page 42.)

Electricity production is a major user of fresh water.In the U.S., upward of 90 percent of electricity isproduced using thermally driven water-cooled energyconversion (thermoelectric power plants),48 while theremaining power generation comes from hydroelec-tric dams, solar panels, and wind turbines.Thermoelectric plants use 39 percent of all waterwithdrawals in the U.S., with only agriculture requiring

33


a larger percentage.49 Much of this use is notconsumptive, since most of the water used for coolingor turning turbines is not lost to evaporation, but someis, and the water leaves the plant warmer than whenit entered. Both thermoelectric and hydroelectricplants require dependable access to water.

As water becomes more precious, the water-energynexus becomes more apparent. Periods of droughtscan lead to blackouts in electricity, or put electricityproduction at risk. The shutdown of nuclear powerplants in France in 2003 may serve as an example.Furthermore, water-stressed regions in the MiddleEast, Australia, and North America are looking todesalination as a means of ensuring stable suppliesof freshwater. Desalination is an extremely energy-intensive method to obtain freshwater, and the saltierthe water, the more energy-intensive it is. In California,there are seventeen desalination plants in the plan-ning stage, with the largest plant in the WesternHemisphere under construction at Carlsbad near SanDiego.50 California’s recent drought has led farmersto intensify their groundwater withdrawals in theCentral Valley, so that water-intensive high valuecrops such as almonds can continue to be harvested,while coastal communities attempt to speed progresstoward desalination as a silver bullet to deal withgrowing demand amid constrained supplies. In April2015, Governor Jerry Brown announced mandatory25 percent cuts to municipal water providers butspared farmers, who account for 80 percent of thestate’s water use.

In the Persian Gulf region, several countries haveembarked on plans to construct nuclear power plants.The UAE signed contracts with a South Koreanconsortium to build four reactors by 2020, with a totalcapacity of 5.6 gigawatts.51 The original feasibilitystudy for developing nuclear power capacity in theGulf cited desalination as a major need for the addi-tional energy capacity need.

Like California, much of Brazil has faced an epicdrought last year, its worst in eighty years. Despitebeing the country with the largest volume of fresh-water in the world—12 percent of the global total—the geography of Brazil has most of the population inthe south and most of the fresh water in the north,while high inter- and intra-annual variability of rainfall

make planning for water shortages challenging.Shortages and extreme heat have affected many ofthe country’s key commodities, including coffee,sugar, soy, and beef.52 There are numerous rippleeffects of drought on energy production in Brazil.Reservoirs in southeastern Brazil (close to the majorpopulation centers of Rio and Sao Paulo) producemost of the country’s hydroelectric power, whichaccounts for two-thirds of electricity generation.Dramatically low water levels could lead to electricityrationing in the country if conditions do not improve,and a massive blackout in January 2015 may be aharbinger of future challenges. The causes of thedrought are undoubtedly complex, but deforestationis emerging in the scientific community as a majorculprit. Amazonia’s forests churn huge quantities ofwater vapor into the air, described as “flying rivers,”which then circulate elsewhere in South Americaproviding a moisture source for otherwise dry areas.53

So the sinister nexus scenario is thus: deforestingthe Amazon to advance an agricultural frontier so thatfarmers may grow soybeans and sugar, much ofwhich goes toward Brazil’s massive and growingappetite for beef and biofuels, may in fact be cuttingoff the water that supplies not only the megacities ofSouth America with water, but also much of the elec-tricity fueling its economic growth. One can easilysee how social unrest would result from drought-induced brownouts.

In short, water and energy are thoroughly integrated,yet they are not treated as such by policies andmarkets. Water efficiency measures are de factoenergy saving measures, and the waste of either ofthese resources constitutes waste of the other. Theresource nexus suggests that accounting for theinterlinkages across these resources, and numerousothers, would have benefits in a variety of realms,bolstering human security and national security whilealso making markets more efficient and making a dentin anthropogenic climate change.54

TRANSBOUNDARY RIVER MANAGEMENT

In 2012, the National Intelligence Council released astudy that began with the following sobering state-ment: “We assess that during the next 10 years, waterproblems will contribute to instability in states impor-tant to U.S. national security interests. Water short-

34


ages, poor water quality, and floods by themselves areunlikely to result in state failure. However, water prob-lems—when combined with poverty, social tensions,environmental degradation, ineffectual leadership,and weak political institutions—contribute to socialdisruptions that can result in state failure.”55

The report paid particular attention to transboundaryrivers, and concluded that water in shared basins waslikely to become more politicized as demandincreases and climate change alters its availability. Itfurther said that transboundary water was likely to beused by terrorists to further their causes in comingyears.

Indeed, although there are legion examples of coop-eration between states that share transboundarywater resources, such as rivers and lakes, thecentrality of water to life, transportation, energy gener-ation, and agriculture, also provides ample tinder forconflict as well. Hydropolitics are central to theresource nexus. The strength of institutions designedto manage water resources across boundaries,meanwhile, varies widely across geographic contexts,as do vulnerability and resilience to changes thatoccur naturally or artificially that affect waterresources.56 A host of factors impact transboundaryrivers and a population’s ability to utilize the resource,from upstream dam building, to pollution, to droughtand floods (and the management of drought andflood). Some changes occur rapidly, others over longtime spans. While certain ripple effects of changescan easily be predicted, others are incredibly difficultto model and predict. Because transboundary riversinvolve state security and sovereignty, incentives tocooperate and negotiate are too often trumped bypolitical gamesmanship and hubris.

Positive examples of transboundary cooperation onissues of water management include several from thetransatlantic community. The Columbia River Treaty,for example, has governed relations between the U.S.and Canada over the Columbia since the 1950s, andhas generally been viewed as a positive example ofcollaborative management of transboundary water,although it is worth noting that after 2024 the treatymay be renegotiated or terminated by either side.57

The European Union requires every member state towork with neighboring states on managing water

resources through its Water Framework Directive,and the history of managing the European river of theDanube also dates back to times of the Cold War.Both examples highlight the role that institutions playin successfully managing competing demands andinterests and avoiding conflict, which is not to saythat in either North America or the EU that conflictover water is out of the question.

Several additional cases outside transatlantic spaceserve to highlight transboundary water issues andhow the resource nexus can help shed light on them.

The Nile Basin covers 3.2 million square kilometers,spanning 35 degrees of latitude and eleven coun-tries. The river is the basis for Egypt’s economy andpopulation, but most of its flow originates in upstreamstates, especially Ethiopia, where an estimated 82-95percent of the water comes from in the form of runofffrom the highlands to Nile tributaries.58 There aretremendous growing pressures on the Nile’s waterresources and on the institutions that currently governthe river. Population is growing in the basin, its watersare increasingly being viewed by Ethiopia and Sudanas an engine of economic development in the form ofhydro power, and climate change is impairing wateravailability in the basin. The Nile Waters Agreement of1959, which currently governs the river’s water allo-cations, only has Sudan and Egypt as signatories,and other upstream countries view it skeptically andhave pursued their own instruments to govern theriver.59

Enter Ethiopia and its ambitious Grand RenaissanceDam. Ethiopia is a largely agrarian country that never-theless has seen double digit growth rates recently.60

The dam is being built on the main stream of the BlueNile near the country’s border with Sudan, and its6,000 MW of generating capacity is part of thegovernment’s plan to lift much of the population outof poverty by 2025. Egypt has voiced numerousconcerns about the dam’s possible impacts on flowsin the Nile, and some, including former Prime MinisterMohamed Morsi, have used bellicose languagetoward Ethiopia. What is clear is that the new dam willhave not only impacts on the flow downstream uponwhich Egyptian agriculture depends, but also impactson electricity generation at existing Nile dams inSudan and Egypt.

35


South and Southeast Asia present further, even morecomplex, cases of the resource nexus and hydropol-itics.61 China’s downstream states, basically all ofthe countries in mainland South and Southeast Asia,depend on rivers rising in China and are worriedabout China’s massive dam construction and theimpact this will have on both the quantity and qualityof water flowing through their territories. The majorrivers of these regions all originate on the TibetanPlateau, and climate change threatens source watersbecause of glacier melt. More immediately, perhaps,the spate of dam building on the Mekong poses aserious challenge to downstream populations thatdepend on fisheries, dependable flow patterns, andsilt and nutrients to sustain agriculture. While theMekong River Commission (MRC) is a reasonablysuccessful multilateral institution governing the riverbasin, China—which of course manages the head-waters and three provinces of the country throughwhich the river flows—only participates in the MRC asa “dialogue partner.” China’s seven megadams andtwenty further planned dams are a source of seriousdownstream concern, but even downstream statesare planning or constructing an additional elevenhydro dams.62 A bevy of research suggests that thedam building will have negative impacts on food secu-rity—fisheries and agriculture—in Southeast Asia.Plus, the plans require energy and materials for theirconstruction and will have impacts on regionalecosystems. Looking at water and energy issues aswell as at other resource interlinkages in a more inte-grated manner, the nexus approach is likely toenhance risk analysis and facilitate the deliberation forsolutions in transboundary river management acrossscales.

WATERWAYS, INTERNATIONAL TRADE, ANDMARITIME SECURITY

There is yet another dimension related to water andthe resource nexus that should be of interest: theworld’s oceans and the many waterways used forshipping and international trade.

Again, this is not entirely new. Dating back to theBible, mankind always has had a strong religious andsymbolic notion of oceans. The ancient Romanscalled “Mare Nostrum” what is today theMediterranean Sea, considering it a homeland for

their citizens. What’s relevant today is the amount ofgoods traded on international shipping lanes and theerosion of an international order that was establishedafter World War II.

Some 80 percent of all goods traded internationallyuse international shipping lanes according toUNCTAD data. Oil, coal, iron ore, bauxite and otheraluminum pre-products, phosphate, and a few othercommodities make up for roughly one-third of inter-national maritime trade measured by tonnage, withstaple goods, mass goods, and containerscontributing other significant shares. The share ofcontainers is rising constantly due to internationalsupply chains, and one may also expect a rise in lique-fied natural gas (LNG).

The environmental importance of the oceans isincreasingly recognized.63 Research shows thatbeing used as sinks for waste—including chemicalhazardous substances such as persistent organicpollutants (POPs), radioactive waste, and plastics—gives alarming signals about acidification, warming,and the pollution of oceans. The waste water dimen-sion is especially important from a nexus perspective,as nutrients flowing into the oceans cannot easily berecovered and contribute to lower yields in fisheryand other parts of the food chains. No surprise thatthe estimations about the world’s natural capital giveoceans and coastal ecosystems highest values.64

There are high the expectations about using theoceans and the seabeds as a future source for extrac-tion of energy and materials. Existing processesfeature sand and gravel extraction used for manyconstruction purposes, but also diamonds, pearls,salt, manganese, and gas hydrates. Future seabedmining is seen as lucrative because the quantity ofminerals occupying the ocean floor is potentially large.The EU is fascinated about a future “blue growth,”65

while companies with illustrative names such as“Nautilus Minerals Inc.” have started activities all overthe world.

Besides environmental concerns about potentiallynegative impacts and safety and health issues, thereare also severe maritime security ramifications thatneed to be considered.

36


The rise of China to exploit the “string of pearls,” acolloquial term for Chinese-funded ports and relatedinfrastructure along the Indian and Pacific Oceans,becomes more and more visible. It stretches fromsmall islands such as the Kingdom of Tonga in theSouth Pacific on to the Indian Ocean and theEuropean port of Piraeus. One may expect raw mate-rial partnerships to arise that give China a preferredexploration right or access to seabeds located in the200 mile zones of those areas.

Gunboat diplomacy continues in the Chinese Seas.The Chinese claims on “their” South and East ChinaSeas are antagonizing the neighbors in Japan, thePhilippines, and Vietnam. The now more nationalistgovernment in Japan has started to develop a toughposition. With historians such as Herfried Muenklerreminding us that the Great War emerged out of asimilar constellation in Europe in 1914,66 one shouldclearly be worried about what potentially could esca-late into a serious confrontation. Access to the mani-fold resources is clearly one of the driving forces inthis conflict. (See Figure 5 on page 43.)

What also adds to the picture are asymmetric threatssuch as piracy and maritime terrorism along essentialchoke points of international shipping.67 Piracy in andaround the Strait of Malacca has been on the riserecently, despite accounts of ongoing stringent meas-ures by the concerned littorals. The situation off theWest African Gulf of Guinea is also serious. Piracy offSomalia has been another example of the maritimeconsequences of instability and lawlessness on land,albeit the situation there has become slightly bettersince 2011. With volatile adjoining regions, one mayexpect more “professional” types of piracy with moreengagements of terrorists and international organizedcrime using ungovernable spaces as territory.

We have called this a “redux of the resource curse”68:triggered by the emergence of a food and/or watercrisis—whatever the causes may be—local andnational governance mechanisms are vulnerable andmay not be able to cope with such a shock. If peoplestart rioting for access to water and food and if theexisting institutional resilience is low, fragile statesand regions will be put at risk of further instability,where the mechanisms of piracy, fundamentalism,secessionism, terrorism, and organized crime might

escalate. Any such escalation may then lead to inter-ruptions of supply chains for essential materials andhave international repercussions.

To a certain extent, shipping is immune to securityrisks because if one area of the ocean becomesunsafe then ships will re-route. For example, if Suezbecomes impassible, then it would be possible formore ships to go around Africa. In the present marketthere may even be enough spare capacity for this tohappen with only a minimal impact on freight rates.Industry now uses Automatic Identification System(AIS), which enables the positioning of vessels asthey move around the globe. The other way that theindustry has dealt with piracy is just to treat it as aninsurance cost—plenty of operators who are stillactively trading with, for example, East Africa chargea higher price and buy back the ship with ransommoney if it is captured. There is also a rise in the useof privately contracted armed security personnel(PCASP). That’s not to say that there are not strategicsea lanes; clearly a conflict that blocks the Straits ofHormuz and Malacca would be enormously disruptiveto world oil supply and other value chains.

The International Maritime Organization (IMO) isactively dealing with those issues. They host a registryof piracy incidents and security arrangements. Forthe Strait of Malacca, for instance, it shows 148allegedly committed attacks, 40 attempted attacks,and further 405 incidents without a geographicalposition system. There are amendments to the 1974Safety of Life at Sea Convention (SOLAS), the mostfar-reaching of which enshrined the International Shipand Port Facility Security Code (ISPS Code), whichcontains detailed security-related requirements forgovernments, port authorities, and shipping compa-nies in a mandatory section (Part A), together with aseries of guidelines about how to meet these require-ments in a second, non-mandatory section (Part B).Regional cooperation among states has an importantrole to play, too, as evident through the RegionalCooperation Agreement on Combating Piracy andArmed Robbery against ships in Asia (RECAAP) andthe Djibouti Code of Conduct. In addition, there is anunprecedented international mobilization of maritimesecurity coalition between the EU naval forces ofOperation Atalanta, plus two U.S. and NATO taskforces, along with ships from other countries (China,

37


Japan, South Korea, and Russia).

A main root cause for piracy, however, is the povertyand lack of livelihood along major coastlines that moti-vates people to join criminal gangs. It is here wherethe resource nexus might become a key abatementstrategy: securing a better management for water,energy, and food in rural areas is probably the beststrategy to minimize the risks of piracy and environ-mental degradation. It is here where the actionemerging for a sustainable energy for all, a right towater, a responsible supply chain management, lowcarbon shipping, and eco-innovations shall converge.

Conclusions

The resource nexus raises a number of challenges forinternational security. It deepens existing conflicts andleads to new ones.

Quite often, water is at the heart of such dynamicinstabilities. The provision of water is essential forenergy production and a number of industrialprocesses, for human life, and for the provision ofecosystems services that are essential for foodproduction. The resource nexus helps to understandwhich resources depend on a well-functioning waterprovision, what risks may emerge in case of distur-bances, and what opportunities may arise fromcrossing the silos of water, energy, and others. If soci-eties are unable to manage water much more sustain-ably, this could become a significant drag on theeconomy.

The security implications are manifold. Water hasbeen the genesis for urban riots in various quarters ofthe world in recent decades, with nexus ramificationsamplifying outbreaks of fundamentalism, piracy,terrorism, threats for supply chain security and home-land security, and international conflicts.

Probably most important is to understand theresource nexus as a preventive tool to understandsuch interlinkages and translate them into action onthe ground where business, citizens, and policy coali-tions have a role to play to minimize risks and turnthem into opportunities for sustainable resourcemanagement. The transatlantic policy toolbox shouldbe widened to include resource efficiency, supplychain security, and greening international trade.

38


Notes

* We wish to thank tristan smith, tim boersma, and steve szabo forhelpful comments and remarks on a draft version of this paper.

1 professor sir John beddington, speech at the sustainabledevelopment uK conference, 19 march 2009, available at:http://www.govnet.co.uk/news/govnet/professor-sir-john-beddingtons-speech-at-sduk-09

2 i. J. Winter, “after the battle is over: the ‘stele of the vultures’ and thebeginning of historical narrative in the art of the ancient near east,”Studies in the History of Art, vol. 16 (1985): 11-32

3 J. rockström et al., “a safe operating space for humanity,” Nature, vol.461, no. 7263 (2009): 472-475; W. steffen et al., “planetary boundaries:guiding human development on a changing planet,” Science, vol. 347,no. 6223 (2015).

4 James r. healey, greg gardner and alisa priddle, “trucks, suvspower blazing January auto sales,” USA Today, 3 february 2015,<http://www.usatoday.com/story/money/2015/02/03/january-auto-sales/22765369/>

5 h. hoff, “understanding the nexus (background paper for bonn 2011conference: the Water, energy and food security nexus),” stockholmenvironment institute (stockholm, 2011).

6 pbl, “scarcity in a sea of plenty?” pbl-netherlands environmentalassessment agency (the hague, 2011).

7 p. andrews-speed et al., The Global Resource Nexus: The Struggles

for Land, Energy, Food, Water, and Minerals (Washington, dc:transatlantic academy, 2012) and Want, waste or war? : the global

resource nexus and the struggle for land, energy, food, water and

minerals (london, new york: routledge, 2015).

8 european union, “confronting scarcity: managing water, energy andland for inclusive and sustainable growth,” European Report on

Development (brussels, 2012), http://erd-report.eu/erd/report_2011/documents/erd_report%202011_en_lowdef.pdf

9 b. lee et al., “resources futures,” chatham house (london, 2012).

10 m. bazilian et al., “considering the energy, water and food nexus:towards an integrated modelling approach,” Energy Policy, vol. 39, no.12, (2011): 7896-7906.

11 f. ackerman and J. fisher, “is there a water–energy nexus in elec-tricity generation? long-term scenarios for the western united states,”Energy Policy, vol. 59, no. 0 (2013): 235-241.

12 c. ringler, a. bhaduri, and r. lawford, “the nexus across water,energy, land and food (Welf): potential for improved resource use effi-ciency?“ Current Opinion in Environmental Sustainability, vol. 5, no. 6(2013): 617-624.

13 g. rasul, “food, water, and energy security in south asia: a nexusperspective from the hindu Kush himalayan region,” Environmental

Science & Policy, vol. 39, no. 0 (2014): 35-48.

14 a. siddiqi and l.d. anadon, “the water–energy nexus in middle eastand north africa,” Energy Policy, vol. 39, no. 8 (2011): 4529-4540.

15 unescap, “the status of the Water-food-energy nexus in asia andthe pacific,“ united nations economic and social commission for asiaand the pacific (bangkok, 2013), http://www.unescap.org/sites/default/files/Water-food-nexus%20report.pdf

16 national intelligence council, “global trends 2030: alternativeWorlds,” national intelligence council (Washington, dc, 2012).

17 World bank, “turn down the heat: confronting the new climatenormal,” World bank (Washington, dc, 2014); see also the assessmentreports published by the intergovernmental panel on climate change(ipcc).

18 national intelligence council, “global trends 2030: alternativeWorlds,” national intelligence council (Washington, dc, 2012).

19 J.n. galloway et al., “the nitrogen cascade,” BioScience, vol. 53, no.4 (2003): 341-356.

20 K.m. Keranen et al., (2014) “sharp increase in central oklahoma seis-

micity since 2008 induced by massive wastewater injection,” Science,vol. 345, no. 6195 (2014): 448-451.

21 c.d. Klose, (2013) “mechanical and statistical evidence of thecausality of human-made mass shifts on the earth’s upper crust and theoccurrence of earthquakes,” Journal of Seismology, vol. 17, no. 1 (2013):109-135.

22 m.d. Zoback and s.m. gorelick, (2012) “earthquake triggering andlarge-scale geologic storage of carbon dioxide,” proceedings of thenational academy of sciences, vol. 109, no. 26 (2012): 10164-10168.

23 W. steffen, p.J. crutzen, and J.r. mcneill, “the anthropocene: arehumans now overwhelming the great forces of nature,” AMBIO: A

Journal of the Human Environment, vol. 36, no. 8 (2007): 614-621.

24 u.s. department of defense, “Quadrennial defense review 2014,”defense department (Washington, dc, 2014),http://www.defense.gov/pubs/2014_Quadrennial_defense_review.pdf (3 may 2014).

25 e. economy and m. levi, By All Means Necessary: How China’s

Resource Quest is Changing the World (oxford: oxford university press,2014).

26 p. andrews-speed et al., Want, waste or war? : the global resource

nexus and the struggle for land, energy, food, water and minerals

(london, new york: routledge, 2015).

27 ibid.

28 W. steffen et al., “planetary boundaries: guiding human developmenton a changing planet,” Science, vol. 347, no. 6223 (2015).

29 note that this indicator does neither capture groundwater nor thecollection of rainwater suggesting that future supply might becomebetter, if measures are taken.

30 r. costanza et al., “changes in the global value of ecosystem serv-ices,“ Global Environmental Change, vol. 26 (2014): 152-158.

31 uK natural capital committee, “towards a framework for definingand measuring changes in natural capital,“ Working Paper 1 (london:natural capital committee, 2014).

32 see “sustainability in the Water-energy-food nexus,” internationalconference, berlin, germany, 19-20 may 2014, http://wef-conference.gwsp.org

33 cdp, “from water risk to value creation: cdp global Water report2014,” carbon disclosure project (london, 2014).

34 economist intelligence unit, “Water for all? a study of water utilities’preparedness to meet supply challenges to 2030,” The Economist

(2012).

35 t. hertel and J. liu, “implications of water scarcity for economicgrowth,” ENV/EPOC Report 17, oecd (paris, 2014).

36 World bank, “turn down the heat: confronting the new climatenormal,” World bank (Washington, dc, 2014).

37 ibid., 130.

38 see r. bleischwitz, c. m. Johnson, and m. g. dozler, “re-assessingresource dependency and criticality. linking future food and water stresswith global resource supply vulnerabilities for foresight analysis,”European Journal of Futures Research, vol. 2, no. 1 (2014): 1-12.

39 un-Water decade programme on advocacy and communication,“cities coping with water uncertainties,” media brief, www.un.org/water-forlifedecade/swm_cities_zaragoza_2010/pdf/02_water_uncertainties.pdf

40 see K. engel, et al., “big cities. big Water. big challenges. Water inan urbanizing World,” WWf germany (berlin, 2011); ibid.

41 K. engel, et al., “big cities. big Water. big challenges. Water in anurbanizing World,” WWf germany (berlin, 2011).

42 see K. thompson, “last straw: how the fortunes of las vegas willrise of fall with lake mead,” Popular Science, 11 June 2014.

43 bundy has been involved in a two decade legal dispute with the u.s.bureau of land management over grazing lands in southeasternnevada. in april 2014 there was an armed confrontation between lawenforcement officers and bundy and his supporters.

44 d. mustafa, m. akhter, and n. nasrallah, “understanding pakistan’s

39


Water-security nexus,” Peaceworks, united states institute of peace(Washington, dc, 2013).

45 cited in u.s. department of energy, “energy demands on Waterresources: report to congress on the interdependency of energy andWater,” doe office of environmental management (Washington, dc,2006).

46 “how it Works: Water for electricity,” union of concerned scientists(cambridge, ma), http://www.ucsusa.org/clean_energy/our-energy-choices/energy-and-water-use/water-energy-electricity-overview.html

47 u.s. department of energy, “energy demands on Water resources:report to congress on the interdependency of energy and Water,” doeoffice of environmental management (Washington, dc, 2006).

48 p. torcellini, n. long, and r. Judkoff, “consumptive Water use foru.s. power production,” u.s. national renewable energy laboratory(golden, co, 2003), http://www.nrel.gov/docs/fy04osti/33905.pdf

49 ibid.

50 Kevin fagan, “desalination plants a pricey option if drought persists,”SF Gate, 15 february 2014, http://www.sfgate.com/news/article/desalination-plants-a-pricey-option-if-drought-5239096.php

51 “nuclear power in the united arab emirates,” World nuclearassociation (march 2015), http://www.world-nuclear.org/info/country-profiles/countries-t-Z/united-arab-emirates/

52 anna flavia rochas and roberto samora, “brazil water supply, cropsstill at risk a year after epic drought,” Reuters, 9 January 2015,http://www.reuters.com/article/2015/01/09/us-brazil-rain-idusKbn0Ki1eJ20150109; andrew maddocks, tien shiao and sarahalix mann, “3 maps help explain são paulo, brazil’s Water crisis,” Worldresources institute blog (4 november 2014), http://www.wri.org/blog/2014/11/3-maps-help-explain-s%c3%a3o-paulo-brazil%e2%80%99s-water-crisis

53 Jan rocha, “drought takes hold as amazon’s ‘flying rivers’ dry up,”Climate Central, 28 september 2014, http://www.climatecentral.org/news/drought-takes-hold-as-amazons-flying-rivers-disappear-18097

54 m. howells and h.-h. rogner, “Water-energy nexus: assessing inte-grated systems,” Nature Climate Change, vol. 4, no. 4 (2014): 246-247.

55 national intelligence council, “global Water security,” intelligencecommunity assessment, nic (Washington, dc, 2012).

56 J.d. petersen-perlman et al., “case studies on Water security:analysis of system complexity and the role of institutions,” Journal of

Contemporary Water Research & Education, vol. 149, no. 1 (2012): 4-12.

57 b. cosens, ed., The Columbia River Treaty Revisited: Transboundary

River Governance in the Face of Uncertainty (corvallis: oregon stateuniversity press, 2012).

58 J.c. veilleux, “the human security dimensions of dam development:the grand ethiopian renaissance dam,” Global Dialogue, vol. 15, no. 2(2013): 1-15.

59 p. andrews-speed et al., Want, waste or war? : the global resource

nexus and the struggle for land, energy, food, water and minerals


60 J.c. veilleux, “the human security dimensions of dam development:the grand ethiopian renaissance dam,” Global Dialogue, vol. 15, no. 2(2013): 1-15.

61 b. chellaney, Water : Asia’s new battleground (Washington, dc:georgetown university press, 2011).

62 “mekong mainstream dams,” international rivers (berkeley, ca),http://www.internationalrivers.org/campaigns/mekong-mainstream-dams

63 german advisory council on global change, “World in transition:governing the marine heritage,” Wbgu (berlin, 2013),http://www.wbgu.de/en/flagship-reports/fr-2013-oceans/ (29 march2014).

64 r. costanza et al., “changes in the global value of ecosystem serv-ices,” Global Environmental Change, vol. 26 (2014): 152-158.

65 european commission, “blue growth: opportunities for marine andmaritime sustainable growth,” european commission (brussels, 2012).

66 see herfried münkler, “lessons from 1914,” The European, 10february 2014, http://en.theeuropean.eu/herfried-muenkler—2/7984-the-misleading-analogy-between-1914-and-2014

67 unitar, “unosat global report on maritime piracy: a geospatialanalysis 1995-2013,“ united nations institute for training and research(geneva, 2014).

68 r. bleischwitz, c. m. Johnson, and m. g. dozler, “re-assessingresource dependency and criticality. linking future food and water stresswith global resource supply vulnerabilities for foresight analysis,”European Journal of Futures Research, vol. 2, no. 1 (2014): 1-12.

40


41


Figure 1: U.S. Auto Sales and Gas Prices

Figure 2: The Resource Nexus

source: Wall street Journal, http://online.wsj.com/mdc/public/page/2_3022-autosales.html

source: p. andrews-speed et al., Want, waste or war?:

the global resource nexus and the struggle for land, energy, food, water and minerals

(london, new york: routledge, 2015): 9.

42


Figure 3: The Water, Energy, and Security Nexus

Figure 4: Water and Energy Nexus

source: h. hoff, "understanding the nexus (background paper for bonn 2011 conference: the Water, energy and foodsecurity nexus)," stockholm environment institute (stockholm, 2011).

43


Figure 5: China Seas

source: p. andrews-speed et al., Want, waste or war?:

the global resource nexus and the struggle for land, energy, food, water and minerals


Located in Washington, D.C., the American Institute for Contemporary German Studies is an independent, non-profit public policy organization that worksin Germany and the United States to address current and emerging policy challenges. Founded in 1983, the Institute is affiliated with The Johns HopkinsUniversity. The Institute is governed by its own Board of Trustees, which includes prominent German and American leaders from the business, policy, andacademic communities.

Building Knowledge, Insights, and Networks for the Future

60AICGSPOLICYREPORT

REDUCING VULNERABILITY:A TRANSATLANTIC APPROACH TOENERGY SECURITY

Raimund BleischwitzSeverin FischerAndrew Holland

Corey JohnsonKirsten Westphal

AMERICAN INSTITUTE FOR CONTEMPORARY GERMAN STUDIES THE JOHNS HOPKINS UNIVERSITY

reducing vulnerability: a transatlantic approach to energy security

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