Perception, Reality, and the Consequences of the U.S. Oil & Gas Boom

Cliff Krauss and Eric Lipton have an epic, must-read piece in today’s New York Times on the boom in U.S. oil and gas. It includes a quote from me that I ought to briefly expand on:

“There is no question that many national security policy makers will believe they have much more flexibility and will think about the world differently if the United States is importing a lot less oil.”

It’s not the snappiest line, but it’s convoluted for a reason. In particular, the words “believe” and “think” are essential.

Analysts have an awful habit of confusing the ways that they think policymakers should behave with the ways that policymakers do behave. If basic economics tells analysts that eliminating imports from OPEC would do nothing to shield the United States from the vagaries of Middle East conflict, they conclude that policymakers will not alter their approach to the region in the face of tectonic oil market shifts. If the literature tells them that consumption, not production, is what matters most to the fate of the U.S. economy in the face of volatile oil prices, they’ll conclude that leaders will not fundamentally alter their overseas strategies simply because production has surged.

This is a terribly blinkered way of looking at the world of international politics. Leaders act upon their beliefs, not upon what economic theory says – and, to judge, from the volume of writing by analysts attacking politicians for misunderstanding basic energy economics, it’s pretty clear that those beliefs don’t always line up with reality.

That’s a big part of why the changing U.S. position in the energy world will likely have big consequences – leaders think it’s important, and they’re going to act on that. To be certain, there are also real economic consequences that follow from the changes underway in the energy scene, and real geopolitical implications that follow regardless of how leaders react. But that may be the smaller part of the puzzle. Those who ignore the role of leaders’ perceptions may be mighty surprised with how the future unfolds.