Great Decisions 2012 Spring Update: Energy geopolitics

Great Decisions Updates are issued seasonally and provide groups with the latest news and analysis on topics. The Spring 2012 Update is current as of May, 2012. Download the Spring 2012 Update as a PDF here.

by Leslie Huang, assistant editor

 

After the Solyndra scandal last year, renewable energy companies are facing difficulties. In March, the New York Times reported that more than $16 billion in loans promised by Congress prior to the bankruptcy of Solyndra—which had received over $500 million in federal loan guarantees—was in limbo. Many companies, including Chrysler and Carbon Motors, withdrew their loan applications after lengthy negotiations. The Advanced Technology Vehicle Manufacturing (ATVM) program was intended to encourage the development of fuel-efficient cars.
 

Meanwhile, solar energy companies in the U.S. are struggling with vanishing capital, a low market price for solar panels and the comparative attractiveness of energy sources such as natural gas. Amid these challenges to the commercial viability of clean energy, a report released in April by the Breakthrough Institute, the Brookings Institution and the World Resources Institute warned that renewable energy will sputter out without government support in the form of renewed tax breaks and subsidies.

 On May 4, TransCanada reapplied for a federal permit to build part of the Keystone XL pipeline. In January, President Obama had vetoed the company’s original permit for a pipeline that would transport oil from Alberta’s tar sands to refineries in Texas.  The new route will pass from Canada to Nebraska and will avoid the Sandhills, an environmentally sensitive region. The State Department must review the application, and a decision is not expected until early 2013. Another planned pipeline, the Northern Gateway, would bring oil from Alberta to China via the West Coast of Canada.

On April 23, the Iranian oil ministry was the victim of an apparent cyberattack. In an effort to contain the virus, Iran disconnected many oil terminals and rigs from the Internet. No group has claimed responsibility for the attack, which rattled the Iranian government as an EU oil embargo—set to be fully implemented by July 1—looms. Ahead of the embargo, Iran cut off exports to Britain and France on February 19 and has threatened to stop selling to other European customers, and President Mahmoud Ahmedinejad remains defiant about the country’s nuclear program. Ahmedinejad declared in April that Iran had the financial means to survive without “sell[ing] a single barrel of oil for two or three years.” Energy analysts, however, have dismissed these claims, as oil accounts for 80 percent of Iran’s foreign revenues.
 

The U.S. and its allies have been pressing Iran’s other buyers, particularly in Asia, to cut imports in order to increase pressure over Iran’s nuclear program. The U.S. has placed sanctions on countries that continue to import Iranian oil, and the difficulty of shipping and insuring oil imports from Iran has discouraged many buyers. In addition, sanctions against financial institutions that do business with Iran’s bank have cut imports from other buyers, such as India. On February 5, President Obama signed an executive order placing more stringent sanctions on the Central Bank of Iran.
 

The sanctions, however, are not airtight: In March, the State Department exempted 11 nations from the sanctions based on their reduction of Iranian oil imports. Japan, which has an exemption, has significantly cut imports of Iranian crude oil. South Korea, another U.S. ally, does not have an exemption but has also cut imports. For unrelated reasons, China also significantly cut its oil imports from Iran in March. Saudi Arabia and Kuwait have increased exports to meet the market demand and stabilize prices.

Simmering animosity between Sudan and South Sudan, the world’s newest country, threatens to erupt into war, ostensibly over the Heglig oil field. Since South Sudan gained independence last year, the two countries have had disputes over oil revenues, and in April South Sudan captured Heglig and held it for 10 days before withdrawing on April 20. South Sudan has accused Sudan of cross-border raids, and each side claims the other is arming rebel militias. As the region has already been ravaged by years of conflict and is heavily dependent on oil revenues, the international community reacted swiftly and called upon both sides to prevent the conflict from escalating.