The end of the fiscal year has officially started, and the global economy’s trajectories seem poised to continue in 2023 on much the same volatile track they’ve been on for the last nine months (not to mention the preceding two years). Of course, energy markets are at the heart of that volatility: and, given the number of specific large-scale developments that are ongoing simultaneously, it seems appropriate to try to address those developments in as manageable a way as is possible.
Production Cuts
Although the announcement only officially came a week ago, the future of energy markets already appears to be centralizing around the decision by OPEC+ to cut production in November 2022. In response to the announcement of the pending production cuts, Jake Kirby, the Biden administration’s coordinator for strategic communications at the National Security Council (NSC), stated that the administration is debating “reevaluating” the US’s relationship with Saudi Arabia. Prior to that, the Secretary of State, Antony Blinken, had said that the administration was exploring multiple different strategic actions which could be taken in response to the move by OPEC+.
However, the administration also stated this week that any response will likely wait until after the midterm elections — which are less than a month away — are over. Based on the complexity of all the issues at hand, I don’t think it’s unrealistic to expect that a comprehensive proposal might not even materialize until the next session of congress starts in 2023.
Price Caps
While it’s certainly true that presidents never ignore political considerations, especially when it comes to high oil prices right before a crucial election, the necessity of taking a measured pause before coming to a decision on this specific issue is more rooted in the reality of the situation than is typical for the US political scene.
To grasp how narrow the US’s range of options is, here, one simply needs to consider the difficulties that the EU has had in attempting to enact meaningful sanctions on Russia, ever since the latter invaded Ukraine this past February. The economic bloc passed its eighth round of sanctions against Russia last week (not coincidentally, a day before OPEC+ formally announced the production cuts). This latest round seems to have led to the most agreement amongst member nations to date, concerning the issue of a cap on the price of Russian energy imports. And yet it remains unclear how successful the EU’s collective efforts will be, or if a price cap on Russian energy can indeed even be effectively executed. Moreover, the example set by the EU also must be viewed relative to the actions the US has taken to stabilize energy prices during the same time-frame. That is, Europe’s difficulties have occurred even with unprecedentedly large releases from the US’s Strategic Petroleum Reserve (SPR), the most effective tool for tamping down fuel costs that the west currently has in its arsenal.
Thus, since there’s no entity in NATO with greater control over the oil market than the US, the latter’s current options effectively seem limited to threats of cutting off US arm shipments to Saudi Arabia, and/or continuing the SPR releases—two ideas the administration has already floated, which both come with their own multitude of complications.
Policy Proposals
As is the point behind this column, the relationship between additive manufacturing (AM) and the two problems mentioned above — essentially, the difficulties in controlling (1) fossil fuel supply and (2) fossil fuel demand — is at once simple and complex. It’s simple in the sense that AM has realistic potential to serve as a uniquely powerful insurance policy for managing the old energy supply chains, while simultaneously facilitating the creation of new energy supply chains. It’s complex in the sense that all the same problems currently faced by all industries are also being faced by the AM sector, at the exact time when the sector is attempting to gain the momentum it needs to successfully scale-up.
Regarding the complex aspect, it would seem that, since supply chains are inescapably global, any winning strategy for AM’s scale-up that is not global will inevitably fall short. Another development that happened last week was the release of the National Strategy for Advanced Manufacturing by the Biden administration. This document bears out the relationship between energy markets and the need to restructure the US’s manufacturing economy, and also highlights the fact that any realistic plan to do so will necessarily happen on an international scale. Thus, calling it a “national” manufacturing strategy is a bit of a misnomer. The document of course doesn’t phrase it this way — it refers to the need for “greater visibility into supply chains”, “sharing data without risking intellectual property”, etc. — but the US is as reliant on the economies of other nations as those nations are on the US economy. Unless something like a NATO-wide manufacturing renewal program is implemented, the US risks losing more of its influence over the global economy, given that its providing security to energy markets is its last real bargaining chip on the international stage. And, of all the technologies making up what’s commonly agreed-upon to be advanced manufacturing, AM is clearly the one with the greatest potential to reduce emissions, which is the only realistic long-term energy security solution.
Partnerships
Why a “NATO-wide” manufacturing renewal program? First, it seems unlikely that any currently existing non-military organization has enough purchasing power over the relevant nations’ manufacturing capabilities to make an impact that’s big enough and rapid enough to count. Second, the NATO alliance has already been involved on the exact issue of economic sanctions against Russia from the start. And, finally, the military and intelligence supply chains of the NATO countries are farther along in their incorporation of AM than all other industrial sectors.
Fortuitously for the US’s long-term economic health, each of the G7 economies — which were responsible for initiating the price cap on Russian energy — has long had its own national advanced manufacturing strategy (or strategies), and all of these strategies are more or less similar. Additionally, five of the G7 economies are NATO nations; one, the EU, is of course not a nation, but does contain 27 NATO nations; and the last, Japan, is one of NATO’s most vital partners outside the alliance itself.
Perhaps the most important, and telling, recommendation in the National Strategy for Advanced Manufacturing is, “Ensure agility in the presence of pandemics and other low probability, high consequence events. Consider stress-testing supply chains against these events” (C-18). Many examples exist from this year alone, of cooperation between the US military and the AM sector, both domestic and international, in that exact context. There is no reason to assume that this won’t also be the case going forward regarding markets for energy, of all things. As the US’s greatest institutional consumer of petroleum, the Department of Defense has a real dog in that fight.