Oil, Power, and Statecraft: The Geopolitics of Energy in a Changing World

The Assad regime collapsed early Sunday following a rebel offensive that captured Damascus, ending five decades of authoritarian rule. The Hayat Tahrir al-Sham (HTS) insurgents, led by Mohammed al-Julani, encountered little resistance from the Syrian army during their rapid advance into Damascus. The Iranian Embassy in the capital was ransacked, suggesting it had been abandoned prior to the rebels’ arrival.

Israel’s assassinations of Hamas leader Ismail Haniyeh in July, and Hezbollah’s Hassan Nasrallah in September, along with its military offensive in Lebanon, triggered these events that have significantly altered the region’s power dynamics.

Syria’s collapse raises key questions about the Middle Eastern power structure. As an ally of Iran and Russia, Syria was critical for maintaining supply lines to Hezbollah in Lebanon, underscoring its strategic importance in the region. Iran’s supply “land bridge” through Syria and Iraq stems from a decades-long strategy of supporting proxy groups (Figure 1). The Islamic Revolutionary Guard Corps (IRGC) orchestrates this strategy by supporting Hezbollah in Lebanon, Hamas in Gaza, and Yemen’s Houthis to destabilize pro-Western Arab states and undermine Israel.

The collapse of Iran’s land bridge supply lines could reshape the dynamics of the Israel-Hamas-Hezbollah conflict and undermine Iran’s regional power. This in turn links to the Ukraine war and broader global geopolitics, including China’s quest for oil security. Russia has now lost its only position of power in the Mediterranean which it gained in 2015.

Syria may lack significant oil reserves, but in the Middle East, nearly everything ties back to oil. This underscores the need to reassess U.S. foreign policy, especially with Donald Trump signaling aggressive stances toward Iran and China in his upcoming second term.

Some have suggested that the world is moving back to mercantilism, and that Trump’s protectionist policies and rhetoric are consistent with this shift. His “America First” stance, withdrawal from the TPP (Trans Pacific Partnership), and push for border taxes mark a departure from the global free-trade consensus. At the same time, China’s bid to lead the new RCEP trading bloc, the growing BRICS Group, and a greater willingness by governments to intervene in markets all underscore a changing trade landscape that increasingly resembles mercantilism.

John Authers echoed many of those themes in his recent article “A New World Order Is Here, and It Looks a Lot Like Mercantilism.”

“You’re left with a steady shift away from Friedmanite capitalism and even Keynes toward a new model with a larger welfare state, trade blocs protected by tariffs, and a government that can enforce its priorities on companies. Protectionism has returned, but the financial sector remains unshackled. Trump’s return ratifies an existing order.”

Authers is right, but the return-to-mercantilism story overlooks the central role of energy. Oil reshaped trade, geopolitics, and economic control, transforming the old mercantile framework. Its importance to industrialization, transportation, and military power made energy security the foundation of modern global strategy.

The United States’ dominance in global power stemmed from its early recognition of oil’s central role in shaping the modern world.

“The cry that echoed in August of 1859 through the narrow valleys of western Pennsylvania—that the crazy Yankee, Colonel Drake, had struck oil—set off a great oil rush that has never ceased in the years since. And thereafter, in war and peace, oil would achieve the capacity to make or break nations, and would be decisive in the great political and economic struggles of the twentieth century.”

Daniel Yergin, The Prize

The core logic of mercantilism—control resources, dominate trade, and accumulate wealth—remains. But oil rewrote the rules of statecraft entirely. Nations and corporations fought for control, driving military interventions, technological advances, and economic systems built around oil dependency and its role in industrial power.

The Two World Wars Were Won Because of Oil

The U.S. dominated oil production during both World Wars, supplying over 70% of the global total. Germany’s oil shortages sealed its fate in World War I, while inadequate fuel crippled both Germany and Japan in World War II (Figure 2).

Germany lost World War I largely due to its inability to secure adequate oil supplies. Germany failed to scale Romanian oil production to sustain its 1918 Spring Offensive. Its forces stalled at the Somme for lack of fuel. In contrast, Allied troops, fueled by American gasoline, maintained their momentum. After Germany’s 1918 defeat, Britain’s Lord Curzon summarized it: “The Allies floated to victory on a wave of oil.”

Inadequate oil supply similarly doomed both Germany’s and Japan’s efforts in World War II. The Battle of the Bulge in December 1944 was Germany’s desperate bid to turn the Ardennes into its “biggest gas station,” aiming to seize Allied fuel and sustain its faltering war effort.

“With the failure of the Ardennes offensive, Germany’s war effort, from a strategic point of view, was over.”

Daniel Yergin, The Prize

In the Pacific, U.S. submarines disrupted Japan’s oil supply by sinking tankers and cutting off shipping routes. Fuel shortages crippled Japan’s navy, grounded its air force, and strained its economy. By the war’s final year, Japanese planes could barely fly two hours a month.

U.S. Foreign Policy Lost Its Way

U.S. foreign policy in the first half of the 20th century prioritized oil security in the Middle East, despite America’s status as the largest producer and energy-independence through and after both world wars. A key principle was avoiding military entanglements in the region. George H.W. Bush broke that rule by sending troops during Iraq’s invasion of Kuwait in 1991.

George W. Bush compounded the error, occupying Afghanistan in 2001 and Iraq in 2003. The energy blindness of the Iraq invasion was especially perplexing—the U.S. was so obsessed with state building that it failed to secure Iraq’s substantial oil resources. Worse, it disrupted the carefully managed balance of power that had defined U.S. strategy for decades, paving the way for Iran’s rise as a dominant force in the Middle East.

Barack Obama deepened the missteps by sidelining the long-standing security partnership with Saudi Arabia to pursue a nuclear deal with Iran. When Iran’s Houthi proxies attacked Saudi Arabia’s key refinery complex in 2019, Donald Trump didn’t even extend formal condolences. Trump’s withdrawal from the Iran nuclear agreement and his poorly executed “maximum pressure” sanctions strategy backfired, causing massive investor losses in oil markets. This eroded confidence and led to a wave of capital flight from the U.S. oil industry.

Can the United States Reset?

Now, President-elect Trump plans to pursue a “drill-baby-drill” policy to boost domestic oil production. This is in direct conflict with oil company strategies aimed at regaining investor trust lost in Trump’s first administration and it ignores the physical limits to U.S. reserves.

The United States may be the world’s largest oil producer, but it’s a third-rate player when it comes to reserves. U.S. oil reserves are less than half those of Iran or Iraq and only about two-thirds of what Russia, Kuwait, or the UAE hold (Figure 3). The future of oil isn’t “America first”; it’s the Middle East first—just as it’s always been.

China doesn’t even make the chart for oil reserves. It’s the world’s largest importer, an “oil have-not,” which is a critical weakness for a nation aspiring to lead in military power. Armies, navies, and air forces run on oil, not EVs.

Eighty percent of China’s oil imports travel by sea, crossing the Indian Ocean and the vulnerable Strait of Malacca—choke points the U.S. Navy could easily block. Chinese strategists have long feared that the U.S. could sever these lifelines, crippling China’s economy and its ambitions.

An expansionist power needs far more oil than a status quo state, and China has a petroleum deficit that is likely to worsen over the next few decades. China’s current trajectory suggests that an alliance-based oil security strategy could be in the cards.

Currently, Iran and Russia together account for about 40% of China’s crude oil imports.

“In 2017, China opened its first-ever overseas naval base in Doraleh, Djibouti, on the Bab-al-Mandeb Strait linking the Indian Ocean to the Red Sea. The base is expected to house as many as ten thousand Chinese troops, along with ammunition stores, maintenance facilities, a midsize airfield, and other logistical support materials.”

Rosemary A. Kelanic

Kelanic further notes that China is building up to 18 dual-use ports in the Indian Ocean to secure energy routes and boost its military presence. It is also deepening ties with key brick-and-road partners like Pakistan, critical to its oil supply chain.

Meanwhile, Donald Trump intends to maintain Biden’s tariffs on Chinese exports, signaling continuity in the U.S. stance on trade tensions with China. Why this emphasis on mercantile issues when oil is the real basis of power?

Biden’s Inflation Reduction Act, aimed at reindustrializing America as a renewable energy competitor to China, misses the mark. Let’s be clear: China’s push for dominance in renewables and electric vehicles isn’t about climate change—it’s about energy security. As an oil have-not, China sees renewables as its only path to reduce dependence on oil imports. The same applies to Europe.

The U.S. is unlikely to beat China in the renewables race, so why try? Let China take the lead while America focuses on its strengths—oil and natural gas—and rebuilds ties with key Middle Eastern producers. Power in the 19th century was about manufacturing; in the 20th and 21st, it’s about oil. I wish this weren’t true from an ecological standpoint, but geopolitics demands a clear-eyed, pragmatic approach.

What About Ukraine and Europe?

Which brings us to Europe, Russia, and NATO. John Mearsheimer captures the narrative held by Tulsi Gabbard, Trump’s pick for Director of National Intelligence: the U.S. provoked Russia’s invasion of Ukraine by pushing NATO and EU expansion while steering Ukraine toward a pro-American liberal democracy. He points to NATO’s 2008 Bucharest Summit, where plans to include Ukraine and Georgia crossed what Russia viewed as an existential red line.

The story makes sense up to a point but notably ignores energy as a factor. Natural gas was central to tensions leading up to the Ukraine war because Ukraine has long been the principal pipeline path to Europe from Russia (Figure 4). Additionally, Russia’s push to export LNG has been central to its strategy in Ukraine, both before and after the invasion.

Russia’s 2014 annexation of Crimea blocked Ukraine’s push for energy independence and kept it reliant on Russian gas. It was a calculated show of force, reinforcing Moscow’s control and sending Europe a clear message about its dependence on Russian energy.

Russia’s 2022 invasion of Ukraine was a bid for territory. Putin aimed to neutralize Ukraine’s defenses and annex Russian-speaking regions in the east. Instead, it was a disastrous miscalculation. Putin underestimated Urkaine’s military resolve and the West’s unity over Ukraine—he mistakenly bet Europe wouldn’t risk sanctions due to its gas dependency. Instead, Russia lost its European gas market—a costly economic mistake.

This post is about oil, not natural gas, but the point is the same: modern geopolitics almost always comes back to energy. That said, it’s doubtful that Russia ever intended to occupy all of Ukraine. The idea of a domino effect of Russian aggression sweeping Eastern Europe is overblown.

Given Russia’s struggles against Ukraine—a country with limited military capability—it’s hard to imagine it taking on a real European military power, let alone risking direct conflict with NATO.

“Western leaders…have frequently framed the invasion of Ukraine as the first step in a Russian plan of broader European conquest. However, a close examination of Russian intent and military capabilities shows this view is dangerously mistaken.

Russia likely has neither the capability nor the intent to launch a war of aggression against NATO members — but the ongoing brinkmanship between Russia and the West still poses serious risks of military escalation.

Quincy Institute for Responsible Statecraft, July 2024

From A Patchwork to Statecraft

For 75 years, Europe has distracted U.S. foreign policy from oil, draining American resources at an unreasonable cost. If Russian aggression is appropriately discounted, the hard truth is this: Europe’s primary strategic value to the U.S. lies in being a strong market for American oil and natural gas. Donald Trump is likely right that Europe should handle more of its own issues.

Repairing ties with Russia and accepting a limited return to Russian natural gas makes more sense than the path Europe is on—a downward spiral of deindustrialization fueled by unrealistic ambitions of a renewable future. Risking nuclear war over Europe’s disputes with a third-rate economic and military power—nuclear-armed or not—is plainly unreasonable.

In the early 2000s—before China’s rise, the U.S. disasters in Afghanistan and Iraq, and the 2008 Financial Crisis—America’s undisputed dominance made idealistic foreign policy seem plausible. That era is over. The world is more contentious now, and it’s time to replace outdated ideological ambitions with more practical approaches to foreign policy.

My colleague Michael Every makes a compelling case for economic statecraft based on realism in a multi-polar world versus economic policy based on idealism in a more unipolar world.

He explains that economic policy works in an idealistic, cooperative world. But when realist powers step in, the rules change. Economic statecraft takes over, spreading realism across the geopolitical map. Realism deals with hard truths; idealism clings to hope.

“Today, one should start by asking what a state’s key interests are in a challenging geopolitical environment; what its grand strategy is; then considering if this can be achieved best with economic policy, or idealist or realist economic statecraft.

“Finally, one asks what GDP and associated macro variables and market forecasts will be in that environment. Clearly, this approach differs from the output from static, purely economic models.

“A more geopolitical world, by definition, should arguably preclude sole reliance on business-as-usual economic or market thinking.”

Michael Every

He asks, “What is GDP for?” It’s a question I don’t recall hearing before. GDP isn’t just a metric for progress—it should serve as a means to an end, not the end itself.

Helen Thompson has insightfully noted that the last decade’s disruption is often blamed on populist nationalism, the 2008 crash, and the decline of a liberal international order. What’s missed is the central role of energy in shaping the geopolitical and economic fractures.

Statecraft in the modern world should be framed around the primary driver of political power—oil.

If China is the main challenge to U.S. interests, why not focus on America’s strengths and China’s vulnerabilities? Shale has given the U.S. an advantage in oil, while China faces a significant and enduring oil deficit. Why is the U.S. sending China 400,000 barrels per day of oil and petroleum products to fuel its military (Figure 5)?

Instead of waiting for China to address its energy vulnerabilities, the U.S. could threaten “maximum pressure” by restricting oil exports and targeting Russian and Iranian supplies. This strategy could cut China’s oil supply by up to 5 million barrels per day.

The real risk lies in potential retaliation, such as a blockade or attack on Taiwan’s semiconductor industry. Statecraft could turn this into an opportunity—leveraging oil for chips and negotiating broader agreements to reduce tensions and foster more productive outcomes between the two nations.

Tariffs are the wrong tool—they hurt the U.S. economy more than they help, and are an artifact from an economic system that has passed. This is not about outdated mercantilism; it’s about recognizing oil’s central role.

Let China dominate the production of solar panels, wind turbines, and EVs. The U.S. can’t compete anyway. Those industries, while important, are no substitute for oil in the balance of power. Armies, navies and air forces run on petroleum, not electricity.

The solution to future U.S. oil supply isn’t doubling down on domestic drilling, as Trump suggests. It’s about leveraging U.S. technological strengths and building alliances with the major reserve holders—Saudi Arabia, Iraq, Kuwait, the UAE, and even Russia. Results will vary, but the first step is acknowledging the need and recalibrating stratecraft to meet it.

This isn’t a policy prescription—I’m not a policy expert, but I understand energy. Any realistic economic strategy must put energy at the center, yet I see leaders enacting policies stuck in a mercantile framework that ended 75 years ago.

What I’m suggesting is pragmatic—call it Machiavellian if you like. I’m willing to set aside my deeply held environmental concerns, at least temporarily, to entertain a thought experiment. The idea is to begin with the extreme and work backward toward balance because the current trajectory leads inevitably to political, economic, and environmental disaster.

Decades of climate summits and initiatives have done little to alter humanity’s dangerous trajectory. As my friend Nate Hagens points out, the most immediate risks are financial collapse and a geopolitical spiral. Addressing these crises is a prerequisite for meaningful action on growth and the ecosystem.

The stakes—for global stability and the environment—are too high for idealism or half-measures. It’s time to act decisively and strategically. If we don’t find ways to defuse the geopolitical escalation, the environment is lost. The business-as-usual status quo isn’t working. That way must be through a well-developed plan of economic statecraft.

America has elected a leader who claims to be a man of action who is skilled at making deals. Let’s see if there’s anything behind the bluster.