Why Shale Could Rebalance the Economic Scales with China

As the Presidential candidates exchange barbs over whose policy will be a stronger bulwark against a rising China, the American oil industry may in the end accidentally provide the best solution. Growing North America shale resources look poised to strengthen the US economic and diplomatic position vis a vis China just as it has already done vis a vis Russia.  US shale gas has already played a key role in weakening Russia’s ability to wield an energy weapon over its European customers by displacement.

The strength of the US economy and fate of the US dollar come under pressure when rising oil prices raise our massive oil import bill, worsening the US trade deficit. Such economic pressures are multiplied when we are forced by oil dependence to deepen our military commitments in the Middle East, thereby similarly adding to the US deficit. All this weakens the United States relative to China, which holds a large chunk of US indebtedness and free rides off expensive US naval activities to guarantee the free flow of oil from the Persian Gulf. In fact, China may feel it benefits strategically if the US is bogged down in Mideast conflicts, a possible explanation for its support of Iran and Syria.

Over time, shale development will reverse this strategic and economic disadvantage. Over time, it may well be the Chinese economy that is more exposed than the US to Middle East developments. Read more on this on my blog at University of Texas’ The Burn Blog http://burnanenergyjournal.com/the-burn-blog-october-18-2012/