Energy and NATO
Senator Lugar's keynote speech to the German Marshall Fund conference on Monday, November 27, 2006 in Riga, Latvia, in advance of the NATO Summit.

Read news articles in reaction to Senator Lugar's speech

It is a pleasure to be back in Riga and to deliver the keynote address here at this important German Marshall Fund conference. This conference and the participants it has drawn are evidence of the deep respect the Fund merits throughout Europe and North America.

In 1991 NATO stood at a crossroads. With the collapse of the Soviet Union and the Warsaw Pact, the Alliance could have declared victory and disbanded. Instead, NATO chose to adapt to the new security environment and build on its legacy of being the most successful security and defense organization in history.

Since that time, we have welcomed ten new members into the Alliance and have begun a dramatic transformation of our military capabilities. We have also undertaken missions in the Balkans and Afghanistan that have extended the purpose of the Alliance beyond the territorial defense of its membership. However, while NATO is busier than ever, these activities do not guarantee that the Alliance will remain strong and relevant.

For nearly half a century, NATO was oriented toward defending against an attack from the East by Warsaw Pact forces. Today, NATO’s posture is influenced by emerging threats such as the proliferation of weapons of mass destruction, rogue states, terrorism, and genocide. The security threats of the 21st century require NATO members to deploy forces rapidly over long distances, sustain operations for extended periods of time, and operate jointly as trans-Atlantic partners with the United States in high intensity conflicts. To be fully relevant to the security and well being of the people of its member nations, NATO must think and act globally.

The Test of Afghanistan

This is evident in the NATO mission in Afghanistan. That country presents a difficult environment, but NATO must be resourceful, resilient, and ultimately successful. The September 11 attacks were planned in Afghanistan, al-Qaeda still operates there, and the fate of the country remains inexorably tied to the Alliance. NATO’s International Security and Assistance Force (ISAF) is responsible for security operations throughout all of Afghanistan.

In recent months, Taliban attacks have occurred with greater frequency, coordination, and ferocity. They have extended well beyond the South and East, where most of the fighting has been located. Although the hunt for al-Qaeda terrorists continues, the primary threat to the stability of Afghanistan is Taliban insurgents who are challenging ISAF in greater numbers, sowing dissent among Afghanis, cooperating with the bourgeoning narcotics trade, and complicating security efforts in ways that inhibit the rule of law and reconstruction.

If the most prominent alliance in modern history were to fail in its first operation outside of Europe due to a lack of will by its members, the efficacy of NATO and the ability to take joint action against a terrorist threat would be called into question. Moreover, Afghanistan has a legitimately elected government and a long-suffering people, both of which deserve a chance to succeed without the threat of violent upheaval.

It is imperative that NATO fulfills its commitments to Afghanistan. The Alliance has found it difficult to generate the political will to meet NATO objectives. The reluctance in capitals to grant NATO requests for troops and resources have complicated this process. Despite months of intensive discussions, Supreme Allied Commander/Europe, General Jim Jones, disclosed in September that NATO was 2,500 troops short of the minimal commitment requested for ISAF. These troops did not materialize until General Jones and other NATO leaders publicly put Alliance nations on the spot for these shortfalls.

Afghanistan has become a test case for whether we can overcome the growing discrepancy between NATO’s expanding missions and its lagging capabilities. NATO commanders must have the resources to provide security, and they must have the flexibility to use troops to meet Afghanistan’s most critical security needs. Unfortunately, NATO capitals are making the military mission even more difficult by placing national caveats on the use of their forces. These restrictions, coupled with troop shortages, are making ISAF a less cohesive and capable force.

Similar problems are plaguing the NATO Response Force (NRF), which is slated to be NATO’s expeditionary fighting unit. As is often the case, the lack of transport capabilities is a glaring deficiency. I am hopeful that the plan to establish a fleet of C-17s under the command and control of NATO succeeds. To overcome these challenges and similar ones, we must reverse the downward spiral of defense budgets. Only a handful of members spend more than 2 percent of their gross domestic product on defense. Good intentions can only carry a military force so far -- the NRF and other NATO assets must have the equipment, training, and resources to fulfill their mission.

I believe strongly that NATO is capable of meeting the challenge in Afghanistan. NATO commanders have demonstrated that they understand the complexity of the mission. They know that success in Afghanistan depends on the attitudes of the people, the progress of reconstruction, the development of the economy and the building of civil institutions that can deal with the narcotics trade, as much as it depends on battlefield victories.

Most Afghanis have welcomed the advances in personal freedom, political participation, and educational opportunities that have come during the last five years. The recent increase in violence in Afghanistan clearly is not evidence of a popular uprising. But to the degree that there is discontent, disillusionment, or fear among the Afghan people due to their security situation, trust in the Afghan government and NATO will dissipate. Insecurity stemming from insurgent activity by Taliban forces has also caused Afghanis in some regions to seek the protection of tribal leaders and warlords, which in turn undercuts the authority of the Afghan government and increases the risk of civil conflict between tribal factions. Given these dynamics, we must dispel any doubts about the commitment of NATO and the West to Afghanistan’s emergence as a stable and free society.

The Centrality of Energy

NATO’s challenges continue to come in new formations. We have to understand not only the military configuration of threats before us, but also the likely basis for future conflict. The NATO alliance has been successful, not because it fought wars, but because it prevented them. If the NATO alliance is to be fully relevant to the security of its members, it must expand beyond the mission of military defense and begin to think about how to prevent the conditions that will lead to war.

In the coming decades, the most likely source of armed conflict in the European theater and the surrounding regions will be energy scarcity and manipulation. It would be irresponsible for NATO to decline involvement in energy security, when it is abundantly apparent that the jobs, health, and security of our modern economies and societies depend on the sufficiency and timely availability of diverse energy resources.

We all hope that the economics of supply and pricing surrounding energy transactions will be rational and transparent. We hope that nations with abundant oil and natural gas will reliably supply these resources in normal market transactions to those who need them. We hope that pipelines, sea lanes, and other means of transmission will be safe. We hope that energy cartels will not be formed to limit available supplies and manipulate markets. We hope that energy rich nations will not exclude or confiscate productive foreign energy investments in the name of nationalism. And we hope that vast energy wealth will not be a source of corruption within nations that desperately ask their governments to develop and deliver the benefits of this wealth broadly to society.

Unfortunately, our experiences provide little reason to be confident that market rationality will be the governing force behind energy policy and transactions. The majority of oil and natural gas supplies and reserves in the world are not controlled by efficient, privately owned companies. Geology and politics have created oil and natural gas superpowers that nearly monopolize the world’s oil supply. According to PFC Energy, foreign governments control up to 79 percent of the world’s oil reserves through their national oil companies. These governments set prices through their investment and production decisions, and they have wide latitude to shut off the taps for political reasons.

The vast majority of these oil assets are afflicted by at least one of three problems: lack of investment, political manipulation, or the threat of instability and terrorism. As recently as four years ago, spare production capacity exceeded world oil consumption by about ten percent. As world demand for oil has rapidly increased in the last few years, spare capacity has declined to two percent or less. Thus, even minor disruptions of oil supply can drive up prices. Earlier this year, a routine inspection found corrosion in a section of BP’s Prudhoe Bay oil pipeline that shut down 8 percent of U.S. oil output, causing a $2 spike in oil prices. That the oil market is this vulnerable to something as mundane as corrosion in a pipeline is evidence of the precarious conditions in which we live.

Within the last year and a half, the international flow of oil has been disrupted by hurricanes, unrest in Nigeria, and continued sabotage in Iraq. Al-Qaeda and other terrorist organizations have openly declared their intent to attack oil facilities to inflict pain on Western economies. We should also recognize that NATO members are transferring hundreds of billions of dollars each year to some of the least accountable, autocratic regimes in the world. The revenues flowing to authoritarian regimes often increase corruption in those countries and allow them to insulate themselves from international pressure and the democratic aspirations of their own peoples. As large industrializing nations such as China and India seek new energy supplies, oil and natural gas may not be abundant and accessible enough to support continued economic growth in both the industrialized West and in large rapidly growing economies. In these conditions, energy supplies will become an even stronger magnet for conflict.

Under the worst case scenarios, oil and natural gas will be the currency through which energy-rich countries leverage their interests against import dependent nations. The use of energy as an overt weapon is not a theoretical threat of the future; it is happening now. Iran has repeatedly threatened to cut off oil exports to selected nations if economic sanctions are imposed against it for its nuclear enrichment program. Russia’s shut off of energy deliveries to Ukraine demonstrated how tempting it is to use energy to achieve political aims and underscored the vulnerability of consumer nations to their energy suppliers. Russia retreated from the standoff after a strong Western reaction, but how would NATO have responded if Russia had maintained the embargo? The Ukrainian economy and military could have been crippled without a shot being fired, and the dangers and losses to several NATO member nations would have mounted significantly.

We are used to thinking in terms of conventional warfare between nations, but energy could become the weapon of choice for those who possess it. It may seem to be a less lethal weapon than military force, but a natural gas shutdown to a European country in the middle of winter could cause death and economic loss on the scale of a military attack. Moreover, in such circumstances, nations would become desperate, increasing the chances of armed conflict and terrorism. The potential use of energy as a weapon requires NATO to review what Alliance obligations would be in such cases.

Energy as an Article Five Commitment

We must move now to address our energy vulnerability. Sufficient investment and planning cannot happen overnight, and it will take years to change behavior, construct successful strategies, and build supporting infrastructure.

NATO must determine what steps it is willing to take if Poland, Germany, Hungary, Latvia or another member state is threatened as Ukraine was. Because an attack using energy as a weapon can devastate a nation’s economy and yield hundreds or even thousands of casualties, the Alliance must avow that defending against such attacks is an Article Five commitment. This does not mean that attempts to manipulate energy for international political gain would require a NATO military response. Rather, it means that the Alliance must commit itself to preparing for and responding to attempts to use the energy weapon against its fellow members. NATO must become a reliable refuge for members against threats stemming from their energy insecurity. If this does not happen, the Alliance is likely to become badly divided as vulnerable members seek to placate their energy suppliers. In fact, no issue in the history of NATO is so likely to divide the alliance in the absence of concerted action.

Article Five of the NATO Charter identifies an attack on one member as an attack on all. Originally envisioned to respond to an armed invasion, this commitment was the bedrock of our Cold War alliance and a powerful symbol of unity that deterred Warsaw Pact aggression for nearly fifty years. It was also designed to prevent coercion of a NATO member by a non-member state. We should recognize that there is little ultimate difference between a member being forced to submit to foreign coercion because of an energy cutoff and a member facing a military blockade or other military demonstration on its borders.

In preparing for such a commitment, NATO leaders should develop a strategy that includes the re-supply of a victim of an aggressive energy suspension. How would the Alliance shift energy supplies and services to a member under such an attack? What steps can NATO take now to ensure that we have the infrastructure in place to respond to such an attack? What steps are needed to diversify our energy sources and supply routes to deter the use of energy as a weapon? Alternatives to existing pipeline routes must be identified and financial and political support for the development of alternative energy sources is crucial. A coordinated and well-publicized Alliance response would be a deterrent that would reduce the chances of miscalculation or military conflict. It would also provide a powerful incentive for Member states to remain in the Alliance and for prospective members to accelerate reforms necessary to qualify for membership.

The energy threat is more difficult to prepare for than a ground war in Central Europe. Troops, equipment, and supplies can move along highways and over difficult terrain. Energy supplies do not enjoy the same freedom of movement. Developing a logistical response to an energy cutoff will prove a complex challenge.

My friend, Mark Grossman, the former U.S. Under Secretary of State for Policy, has proposed reviving the REFORGER exercises of the Cold War. These exercises were carried out to prepare for the massive troop and equipment re-supply mission that would be required to thwart a Soviet attack. A new REFORGER should focus on how the Alliance would supply a beleaguered member with the energy resources needed to withstand geo-strategic blackmail. This will not be easy or comfortable for the Alliance. Members will be required to tighten their belts and make hard choices. But, if we fail to prepare, we will intensify our predicament.

Beyond constructing strong alliance commitments related to energy, NATO must engage Russia and other energy rich nations. I advocate establishing regular high-level consultations between Russia and NATO on energy security. The economic and political situation in Russia is intensely influenced by the price of energy. Moscow is banking on big returns from its energy sector indefinitely into the future. But the fickleness of energy markets affects not only consumers, but producers.

I believe that Russia has a long-term interest in achieving a more prosperous stability that comes with greater investment in its energy sector and the development of a reputation as a trusted supplier. But its recent actions to temporarily reduce gas supplies to the West, confiscate some foreign energy investments, and create further barriers to new investment are undermining confidence in Moscow’s reliability. This trend is likely to have unintended repercussions for Russia. Even now, Russians are feeling the effects of inadequate investment in their energy sector. Russia boasts the world’s largest reserves of natural gas, but this winter it could face gas shortages of its own. Russia has not contended with investment problems in its natural gas industry, and its artificially low domestic gas prices have undermined the development of efficiency measures that are commonplace in the West. Russia now requires gas imports from Central Asia, which it sells at a premium to Europe. Yet if growing domestic demand in Russia outstrips stagnating production and Central Asian imports, as some commentators predict, the Kremlin will face the difficult choice between letting some of its people go cold or not meeting its commitments to Europe.

We do not wish these difficulties on anyone. But we should speak clearly with Russia about our concerns and our determination to protect our economies and our peoples. We should outline the differences between a future in which Russia tries to leverage for political advantage the energy vulnerabilities of its neighbors and a future in which Russia solidifies consumer-producer trust with the West and respects energy investments that help expand and maintain Russia’s production capacity. Energy is a two-way relationship and will remain so even as Europe and the United States diversify their energy resource base. Both NATO and Russia need a sustained discussion on the rule of law, the status of foreign investment, bi-national and multinational agreements, and steps to implement the principles agreed to at the G-8 Summit in July.

Expanding NATO’s Partners

One critical element in strengthening the alliance’s energy security is developing new relationships and admitting new members who will contribute to NATO’s efforts in this area. I applaud Alliance efforts to develop special relationships with states around the world. At the Riga Summit, NATO should authorize the creation of partnerships with like-minded countries such as Japan, Australia, South Korea, Finland, and Sweden.

An effective energy strategy should also include new strategic relationships with energy exporters. I urge Alliance leaders to look to the Caucasus and Central Asia for new partnerships. These states are critically located and important sources of oil and natural gas. Substantial improvement is needed in the region in areas such as democracy, the rule of law, and civil society. A closer relationship with NATO will promote these values and contribute to our mutual security. I recommend that NATO focus especially on its relationships with Azerbajian and Kazakhstan. While both countries have considerable work to do, eventual NATO membership must be on the table.

I believe that some aspirant states are prepared to assume membership responsibilities. Croatia, Albania, and Macedonia should be invited to join NATO as soon as they meet Alliance requirements. Each has expressed a strong desire to join the Alliance, and each is capable of making important contributions. While I am disappointed that invitations will not be extended here at Riga, we must increase the tempo of cooperation between the Alliance and those states.

NATO should also invite Georgia to join the Alliance. Tbilisi is a young democratic government, resisting pressure from breakaway republics backed by Moscow and Russian troops on Georgian soil. Georgia has been a superb role model for the region, and it is host to critical segments of the Baku-Tbilisi-Ceyhan oil pipeline and the Southern Caucuses natural gas pipeline. Two months ago, the NATO Secretary General announced that the Alliance had launched an Intensified Dialogue with Georgia. While this is an important step, NATO must grant a Membership Action Plan as soon as possible.

After recovering from recent political instability, Ukraine has indicated that it wants to move more slowly toward NATO membership. I am pleased that Kiev has acknowledged the important work needed to accurately convey to its population what NATO membership would mean. While I hope this process might move more quickly, I urge the Alliance, when all applicable criteria are satisfied, to support efforts for Ukraine to join NATO.

The Alliance must also continue to encourage Belgrade to meet its international obligations, which include full cooperation with the International Criminal Tribunal for the former Yugoslavia. With additional progress on war criminals and other important reforms, Serbia would be a valuable member of the Alliance.

Conclusion

By their nature, alliances require constant study and revision if they are to be resilient and relevant. They must examine the needs of their members and determine how the alliance can safeguard the freedom, prosperity, and security of each member. NATO has survived and prospered because it has been able to do this repeatedly. We have met the threat of Soviet aggression, expanded the zone of peace and security across Europe, guarded against the risks posed by terrorism and weapons of mass destruction, and improved our ability to project power over long distances. We are meeting threats in Afghanistan, the African continent, and other locations outside Europe. But if we fail to reorient the Alliance to address energy security, we will be ignoring the dynamic that is most likely to spur conflict and threaten the well-being of alliance members.

I understand that adopting energy security as a mission is a major advancement from NATO’s origins. But it represents an historic opportunity to change the circumstances of geopolitics to the benefit of all members. At this summit, we should engage in a broad, strategic debate on how we can ensure progress in Afghanistan, strengthen NATO through new members, and face the energy security threats of the 21st century together. Although Riga may not produce definitive answers to these questions, it must be the summit that starts the crucial discussion that will lead to consensus.

The stakes are such that if we wait even a few years, we are likely to find that our alliance is in jeopardy. We will look back at this point in time and see it as a critical juncture that required bold vision and leadership. I look forward to working together with each of you to provide this leadership.

Thank you.