Energy Alarmism: The Myths That Make Americans Worry about Oil

Many Americans have lost confidence in their country's "energy security" over the past several years. Because the United States is a net oil importer, and a substantial one at that, concerns about energy security naturally raise foreign policy questions. Some foreign policy analysts fear that dwindling global oil reserves are increasingly concentrated in politically unstable regions, and they call for increased U.S. efforts to stabilize -- or, alternatively, democratize -- the politically tumultuous oil-producing regions. Others allege that China is pursuing a strategy to "lock up" the world's remaining oil supplies through long-term purchase agreements and aggressive diplomacy, so they counsel that the United States outmaneuver Beijing in the "geopolitics of oil." Finally, many analysts suggest that even the "normal" political disruptions that occasionally occur in oil-producing regions (e.g., occasional wars and revolutions) hurt Americans by disrupting supply and creating price spikes. U.S. military forces, those analysts claim, are needed to enhance peace and stability in crucial oil-producing regions, particularly the Persian Gulf. Each of those fears about oil supplies is exaggerated, and none should be a focus of U.S. foreign or military policy. "Peak oil" predictions about the impending decline in global rates of oil production are based on scant evidence and dubious models of how the oil market responds to scarcity. In fact, even though oil supplies will increasingly come from unstable regions, investment to reduce the costs of finding and extracting oil is a better response to that political instability than trying to fix the political problems of faraway countries. Furthermore, Chinese efforts to lock up supplies with long-term contracts will at worst be economically neutral for the United States and may even be advantageous. The main danger stemming from China's energy policy is that current U.S. fears may become a self-fulfilling prophecy of Sino-U.S. conflict. Finally, political instability in the Persian Gulf poses surprisingly few energy security dangers, and U.S. military presence there actually exacerbates problems rather than helps to solve them. Our overarching message is simply that market forces, modified by the cartel behavior of OPEC, determine most of the key factors that affect oil supply and prices. The United States does not need to be militarily active or confrontational to allow the oil market to function, to allow oil to get to consumers, or to ensure access in coming decades

Correspondence - New Era or New Error? Technology and the Future of Deterrence

Ryan Snyder and Benoît Pelopidas respond to Keir A. Lieber and Daryl G. Press's spring 2017 article, “The New Era of Counterforce: Technological Change and the Future of Nuclear Deterrence.

Too Big to Fail — U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

The multi-trillion-dollar market for, what was at that time wholly unregulated, over-the-counter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress to be a remedy for this troublesome deregulatory problem. The legislation required the swaps market to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent the use of extraterritorial trades as an attempt to “evade” Dodd-Frank. In July 2013, the CFTC promulgated an 80-page, triple-columned, and single-spaced “guidance” implementing Dodd-Frank’s extraterritorial reach, i.e., that manner in which Dodd-Frank would apply to swaps transactions executed outside the United States. The key point of that guidance was that swaps trading within the “guaranteed” foreign subsidiaries of U.S. bank holding company swaps dealers were subject to all of Dodd-Frank’s swaps regulations wherever in the world those subsidiaries’ swaps were executed. At that time, the standardized industry swaps agreement contemplated that, inter alia, U.S. bank holding company swaps dealers’ foreign subsidiaries would be “guaranteed” by their corporate parent, as was true since 1992. In August 2013, without notifying the CFTC, the principal U.S. bank holding company swaps dealer trade association privately circulated to its members standard contractual language that would, for the first time, “deguarantee” their foreign subsidiaries. By relying only on the obscure footnote 563 of the CFTC guidance’s 662 footnotes, the trade association assured its swaps dealer members that the newly deguaranteed foreign subsidiaries could (if they so chose) no longer be subject to Dodd-Frank. As a result, it has been reported (and it also has been understood by many experts within the swaps industry) that a substantial portion of the U.S. swaps market has shifted from the large U.S. bank holding companies swaps dealers and their U.S. affiliates to their newly deguaranteed “foreign” subsidiaries, with the attendant claim by these huge big U.S. bank swaps dealers that Dodd-Frank swaps regulation would not apply to these transactions. The CFTC also soon discovered that these huge U.S. bank holding company swaps dealers were “arranging, negotiating, and executing” (“ANE”) these swaps in the United States with U.S. bank personnel and, only after execution in the U.S., were these swaps formally “assigned” to the U.S. banks’ newly “deguaranteed” foreign subsidiaries with the accompanying claim that these swaps, even though executed in the U.S., were not covered by Dodd-Frank. In October 2016, the CFTC proposed a rule that would have closed the “deguarantee” and “ANE” loopholes completely. However, because it usually takes at least a year to finalize a “proposed” rule, this proposed rule closing the loopholes in question was not finalized prior to the inauguration of President Trump. All indications are that it will never be finalized during a Trump Administration. Thus, in the shadow of the recent tenth anniversary of the Lehman failure, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers and their U.S. affiliates to their newly deguaranteed foreign affiliates where Dodd- Frank swaps regulation is not being followed. However, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer. While relief is unlikely to be forthcoming from the Trump Administration or the Republican-controlled Senate, some other means will have to be found to avert another multi-trillion-dollar bank bailout and/or a financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called “parens patriae” actions in federal district court to enforce, inter alia, Dodd- Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute’s extraterritorial provisions is now badly needed

Preventing Escalation During Conventional Wars

PASCC Grant No. N00244-­‐14-­‐1-­‐002

What causes credibility? : reputation, power, and assessments of credibility during crises

Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Political Science, 2001.Includes bibliographical references (leaves 255-263).Year after year, Americans are told that their country's reputation is on the line. If we do not carry out our commitments, our foreign policy leaders warn, no one will believe our threats and promises in the future. This claim rests on the hypothesis, which I call the "reputation hypothesis," that tomorrow's enemies will assess America's credibility on the basis of U.S. actions today. Is the reputation hypothesis true? Will our adversaries predict our future actions by looking at today's decisions? More generally, do decision makers predict their adversaries' actions in a crisis by looking at the adversaries' previous actions? I test the reputation hypothesis against a hypothesis which I call the "power/interests" hypothesis. This hypothesis posits that decision makers assess the credibility of an adversary's threats by assessing the current balance of power and interests; commitments are credible when they support important interests and are backed up by the power to carry them out. I test these theories by studying American and British decision making during three crises. From 1958-1962, the Soviet Union and the NATO allies faced each other in a series of crises over Berlin and Cuba. I use evidence from American and British archives to discover how decision makers assessed Soviet credibility during these crises. I look for evidence that they based their assessments of Soviet credibility on past Soviet actions, and for evidence that they assessed Soviet credibility by evaluating the current balance of power and interests. The results are striking: during this period the Soviets repeatedly made threats and then backed down. But years of unfulfilled threats did not damage Soviet credibility. In fact, Soviet credibility grew from 1958-62, as the power/interests hypothesis predicts. American and British decision makers worried constantly about their own reputation, but they did not use Soviet past behavior to assess Soviet credibility. This research suggests that countries should not fight to build a reputation for credibility - threats will be credible if and only if they promote substantial interests and are backed up by sufficient power.by Daryl Grayson Press.Ph.D

Coorespondence, The Short Shadow of U.S. Primacy?

Keir Lieber and Daryl Press’s recent article presents a compelling case for the rise of U.S. nuclear primacy in the twenty-ªrst century. The authors, however, fail to address what they maintain is a central question in international relations scholarship: “Does nuclear primacy grant the superior side real coercive leverage in political disputes?”1 Their passing discussion of the theme does little justice to the merit of the question, and as a result the article seems incomplete. In fact, the United States already enjoys primacy in the vast majority of its relations with other countries, but recent events suggest that this preponderance of power has not led to coercive leverage