The Russian takeover of the Crimea, as well as many of our problems in the Middle East, was funded by high oil prices. Since there is no military solution to the Crimea conflict, President Obama should look closely at the successful pages of the Reagan playbook.
Before the Reagan and Gorbachev Summits could begin, Reagan needed to rebuild our defenses to bring the Soviets back to the bargaining table. The Kremlin was pressured to end the Cold War on America’s terms because of President Reagan’s policies of supporting the mujahedeen in Afghanistan, deploying Pershing cruise missiles in Western Europe (to counter Soviet SS-20s), advocating the Strategic Defense Initiative (SDI), and doubling the defense budget.
The Saudis worked with the Reagan Administration to keep the pressure on Moscow by increasing oil production to drop prices during the mid-1980s. Since oil and gas accounted for more than half of the Soviets’ cash exports, the decision of Saudi Oil Minister Sheik Ahmed Yamani to discontinue the policy of limiting oil production dropped the price of oil from a monthly average of $29.18 in November, 1985 to $9.88 in July 1986.
By the time Reagan met Gorbachev at Reykjavik in October 1986, oil prices had only partially rebounded to a monthly average of $14.01. The Soviet leader would angrily tell Reagan that he didn’t have the money for the grain he had agreed to buy from America’s farmers.
Gorbachev said: “The money we would have used is still in the United States, or maybe Saudi Arabia, because of the fall in oil prices.” As the Saudis were increasing their oil production, the Soviets were losing $20 billion a year. If Gorbachev could not persuade Reagan to give up the Strategic Defense Initiative at Reykjavik, then the Russians would have to eventually capitulate. Reagan said, “no.”
Today, horizontal drilling and hydraulic fracturing has made it possible to help revive American manufacturing and keep oil prices from rising. It is also important to realize that “Peace Through Strength” was about more than challenging the Soviets to an arms race they couldn't win. When Reagan and Gorbachev sat down to negotiate, they were looking to plant the seeds for a future partnership between Washington and Moscow. Fortunately, they both had the inner strength to overcome political pressure that could have stopped smaller men from ending the Cold War.
If President Obama is to restore the Russian reset, he must have the resolve to lead Democrats and Republicans in Congress to be committed to keeping oil prices low. Only lower oil prices can force Russia to institute political reforms that would result in more political freedom and foreign direct investment.
This will be difficult. Keeping oil prices low will require accepting ideas that do not have bipartisan support. There are the Republicans ideas that could lower prices such as increasing the production of oil and natural gas on both public and private lands, building the Keystone pipeline, more nuclear plants, increasing the number of refineries, and, in time, selling liquefied natural gas to Europe.
As for Democrats, beyond the environmental lobby, there are many liberals who strongly believe that keeping the price of gas high is the only way to make alternative energy sources competitive in the market.
While we can find some bipartisan support for efficiency, it will be likely difficult to craft a bipartisan energy reform. The only real chance that any serious legislation will pass is the threat of substantial election losses for the Democrats in the 2014 elections.
The war on terror needn’t be a multi-decade struggle like the Cold War. If we want to revive manufacturing, prevent another Cold War with Russia, and deprive terrorists from their chief source of revenue, we need to be commit the nation to bringing down oil prices.
If Republicans and Democrats were to work together on energy reform, the war on terror, as well as the rule of Vladimir Putin, could end much sooner than most experts have thought possible. The real question is can President Obama convince his liberal base to work with the Republicans to pass meaningful legislation to prevent some losses in the 2014 elections?
Nearly every decision Mr. Obama makes is seen through a political prism. Will he be able to make the connection between keeping oil prices down and saving some of his party’s seats in November.