Free Ukraine By Freeing Energy Markets

  • Date: 15/03/14
  • Nicolas Loris and Jack Spencer, The Heritage Foundation

Whether military, diplomatic, economic, or otherwise, the U.S. government has an array of policy options to bring to bear in response to Russia’s unacceptable aggression against Ukraine. However, one must not discount the impact that free markets and free trade can ultimately have on the situation.

Much of Russia’s power in the region is the result of its control over energy supplies and distribution systems. Diminishing Russia’s economic leverage over the region should be a key component of America’s response. This could be largely accomplished simply by liberalizing global energy markets. The U.S. has antiquated and unnecessary restrictions on exporting liquefied natural gas (LNG) and crude oil, and Congress should make lifting these restrictions a priority.

Loosening Russia’s Energy Grip

Ukraine understands that energy diversification is a key to its own future. In 2013, the Ukrainian government reached agreements with Royal Dutch Shell and Chevron to explore and develop the country’s two large shale gas fields in Yuzivska and Olesska. Chevron’s 50-year contract consists of a $350 million exploratory phase that could potentially result in $10 billion in investment. Shell’s investment is of similar size, and both would yield significant natural gas supplies in a few years’ time.[1]

But to truly diminish the power that a nation garners from its control over energy markets and supplies, the U.S. needs to lead broad liberalization of global energy markets. This means not only encouraging private-sector development around the world but also allowing for market-driven increases in production in the U.S.

The U.S. could maximize its influence by increasing opportunities for exports. To some extent, this is already occurring as the U.S. is now a net exporter of refined petroleum products, doubling its exports to Europe from 2007 to 2012.[2]

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