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FeaturedCarolyn Kissane, academic director and clinical professor at the Center for Global Affairs at New York University, leads the conversation on the geopolitics of oil. FASKIANOS: Thank you. Welcome to the final session of the Winter/Spring 2023 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach here at CFR. Today’s discussion is on the record. And the video and transcript will be available on our website, CFR.org/Academic, if you would like to share these materials with your colleagues or classmates. As always, CFR takes no institutional positions on matters of policy. We are delighted to have Carolyn Kissane with us to discuss the geopolitics of oil. Dr. Kissane is the academic director of both the graduate program in global affairs and the graduate program in global security conflict and cybercrime at NYU’s Center for Global Affairs, where she is also a clinical professor. She also serves as director of the energy, climate justice, and sustainability lab in the School of Professional Studies at NYU. She was named in 2013 by Breaking Energy as one of the top ten New York women in energy, and top ten energy communicator. She’s a member of the Council on Foreign Relations and the National Committee on U.S.-China Relations, and serves on several boards. So, Carolyn, thanks very much for doing this. We really appreciate it. I thought we could begin by talking about how has the geopolitics of oil changed, especially vis-à-vis Russia’s war in Ukraine and OPEC’s recent announcement to cut oil production? KISSANE: Well, first of all, I’d just like to say, thank you so very much for having me. I’m really delighted. I am a big fan of CFR’s Academic Webinars. So, to have the opportunity to participate in this—in this way is very meaningful to me. So, thank you. So, wow. There is so much happening in this space, the geopolitics of oil. This has been a tremendous fourteen months. Russia’s reinvasion of Ukraine very much upended the geopolitics of oil because Russia is a significant producer, one of the top three in the world. And it’s—you know, it’s caused a kind of a reshaping, a kind of a remapping of the—of oil geopolitics. And we’ve seen some, you know, shifts in how countries think about oil security, in light of larger questions about broader energy security questions. And also, on top of that, is the ongoing energy transition, coupled with, you know, climate change, and the need to decarbonize. So, there’s just—it’s been quite a—you know, a year and a half, that has really sort of put energy security, and oil security, very much at the forefront of people’s minds. FASKIANOS: Fantastic. I thought maybe you had some really interesting data to show us. And if you could walk us through those—the trends you are seeing and really bring it to life, that would be fantastic. KISSANE: Sure. So, before I do—I have a couple of slides. And before I share my slides, I think it’s really important that, sort of, we understand how interconnected, sort of, the global energy system is, and how interconnected we are, when it comes to the flows of oil. You know, some countries are very well resourced-endowed, so they have oil. And other countries do not, so they need to import oil. There’s really no country in the world that doesn’t need oil for larger national security issues. And I think one of things that many people sort of are not necessarily aware of or think about, is the amount of oil that gets produced every day. So, every day, the world consumes over 100 million barrels a day. And every day, that 100 million barrels has to be—has to be moved. It has to be—you know, as part of getting it into the system, getting it to its respective destinations. And what we’re not seeing—which, maybe some people may have thought that we would see at this point—is we’re not seeing a reduction in demand, but we’re seeing an expansion in demand. And much of that global demand is coming out of Asia. And we’re also, of course, seeing the—with the reopening of China, lots of really interesting questions as to what oil demand will be in China for the 2023-2024 years, whether or not they will—they will, sort of, put extra pressure on global demand. And you know, Irina, just also, you know, it’s—I’m going to share this in my slides. But you know, last week’s decision from OPEC+ to reduce production, of course, had an impact on the price of oil. So when the decision was announced on Sunday, by Monday morning, we saw an uptick in the price. It’s stabilized, but we are sort of looking at $80-plus-a-barrel oil. And again, lots of uncertainty as to what that’s going to mean across economies that are in recessions, experiencing sort of the beginnings of a recession, and sort of what does it mean for the global economy, where we may see sort of more energy inflation. So, one of the things that I really like to do when I teach the geopolitics of oil is sort of show some visuals. Because I think, again, sort of, really reinforcing the interconnected nature of our global energy system, but also sort of seeing where in the world is oil produced, and where in the world are the—are the importers. And also, just a couple of sort of fun pieces on what we have seen, just this—you know, in the last week, of course, some of this—you’ll be familiar with, those in the audience—but this decision on the part of OPEC to reduce production by 1.2 million barrels a day—again, happening at a time, not when we have an excess supply, but when we’re seeing a tight supply across the oil market. So, it came as a bit of a surprise to—you know—to even the most, you know, longstanding analysts and OPEC observers. And again, part of this is directed probably toward self-interests on the part of Saudi Arabia and the oil producers that are really going to make the cuts. But of course, it also has an impact here for those of you that are sitting in the United States. What does it mean then for prices that Americans pay at the gas pump? So, the Biden administration sort of came out after this decision was made in sort of being disappointed, surprised that OPEC would make this decision. Now, it’s also important to sort of recognize that this is not just a singular OPEC decision. This is part of, now, a larger OPEC+. And OPEC+ does also include Russia, as well as other countries like Kazakhstan and Mexico. So, the OPEC that we have historically known is now different, because you have other countries that are not official members but nonetheless are part of what we now refer to as OPEC+. And these are the countries that are part of OPEC, and really the country that’s considered to be sort of in the driver’s seat of OPEC is that of Saudi Arabia, because Saudi Arabia is the largest producer within the OPEC organization, producing anywhere from 10 to 11 million barrels a day. Venezuela has the largest reserves, but it is far from being at capacity, in terms of what it can—what it can produce. So, just to kind of put that into perspective, these are OPEC countries and their respective reserves. And then non-OPEC—the United States being a non-OPEC country, but again, this sort of—this chart to the right shows, you know, again, the world is consuming a little over 100 million barrels a day, expected to increase over 2023 and into 2024, question marks as to when we may see peak oil demand. But again, to sort of link this to energy security—energy security, especially when it’s in the context of oil security—is making sure that we have adequate supply at affordable prices. So, when we see a reduction in supply at a time of tight markets, that suggests that we’re also going to see higher prices that’s going to directly hit vulnerable economies. And so, again, just to sort of point out sort of where in the world sort of are the top three oil producers: the United States, Saudi Arabia, and Russia. Russia remains in the top three. Canada as well, our, you know, neighbor to the north. And China is also a producer of oil. The United States figure here also includes gas liquefied, so liquid petroleum, which the United States is endowed with a lot of both oil and natural gas. And then the top oil consuming countries, you have U.S., China, and India. Now, the United States is not the largest importer. That position is now held by China. But as far as consumption goes, we consume over 20 million barrels a day. Again, big question mark about China, in terms of whether or not we will see higher demand coming out of China over the next year, two years, with China’s reopening and what is being, you know, discussed as revenge tourism. And more Chinese who have accumulated a lot of savings, 2.1 trillion, how are they going to use that savings and whether or not, after three years of being under lockdown restrictions, whether or not we’ll see impacts to demand. And I think Russia is—there’s lots of questions about Russia. And this is now—we’re fourteen months into, you know, Russia’s reinvasion of Ukraine—and I emphasize reinvasion, because oftentimes, we forget that, you know, Russia invaded Ukraine in 2014. But Russia is still moving its oil. And up until, you know, a few months ago, its overall production and exports were as high—at some points, even higher—than pre-invasion. Now, you have new countries that are takers of Russian oil, and they’re buying it at discounted prices. We see Turkey, Singapore, China has been a big buyer, as well as India, that they have been buying discounted Russian oil. Lots of interesting questions that we could discuss about the oil price cap and seaborne embargo to Europe. But I think the takeaway from this slide is that Russia continues to produce oil, continues to sell it, selling at a discounted price, but there are still many countries in the world that are eager to take Russian oil. And again, I’m not going to go into this, but I just love this slide, to just emphasize the—you know, the world’s pipelines. These are the pipelines that help sort of the transit of oil. Something also that’s really unique and interesting to look at is just tanker traffic, so, the tankers that carry oil around the world. But again, you know, there are a lot of pipelines, so twenty-three—two thousand, three hundred, and eighty-one operational oil and gas pipelines. Again, these are—it’s moving a lot of the oil that is consumed every day. And then finally, is this—is—you know, one of the things that we oftentimes—we think about the hundred million barrels a day that the world is consuming, over 75 percent of the world’s oil is controlled, managed by state-owned oil companies. So, Saudi Aramco being one, PDVSA of Venezuela being another. But it’s really important to sort of recognize the position that state-owned companies have. The rest is controlled or managed by international oil companies—ExxonMobil, Chevron, ENI, Total, and a host of other—host of other companies. But again, I think the—you know, to understand that NOCs, as they’re referred to, are very, very important for understanding their role in the larger context of the geopolitics of oil. And again, what we saw last week coming out of OPEC, this decision, this is also being driven by state budget concerns. This is—again, it’s about the production of oil, but it’s also about, you know, governments and their budgets. And oftentimes, you know, there is a desire to add more, rather than—you know, more revenues rather than less. So, those are the slides that I have. And I hope that they sort of provide some sort of context, and a little bit of, you know, that we can discuss in the questions that I really look forward to answering from the audience. FASKIANOS: Thank you, Carolyn. That was great. So now, we’re going to go to all of you for your questions and comments. (Gives queuing instructions.) All right, so I’m going to go to the first raised hand in the thing. Amadine Hom, go to you first, and please accept the—unmute yourself. (Pause.) You are still muted. (Pause.) OK, I don’t know—are you there? Oh, I think—OK. Let’s go to Morton Holbrook. Q: Yes, good afternoon. Dr. Kissane, what a shocking presentation—(laughs)—a hundred million barrels a day and it’s going up, notwithstanding the Paris Climate Agreement of 2015. Is that agreement simply a dead letter, or is it having any effect on oil—on fossil fuel production, particularly oil production? Or what’s the best scenario, in terms of reducing dependence on fossil fuels, considering the oil market? Thank you. KISSANE: Well—hi, Morton, thank you so much for that excellent question. Yeah, that’s kind of why I emphasize that number, is because a lot of people sort of just aren’t aware of how much oil we continue to consume, and again, what the demand expectations are moving forward. And these demand expectations are, you know, coming out of forecasts from the International Energy Agency. So, I think there’s a big question as to when we see peak demand. And, you know, if you look at BP scenarios, they expect peak demand to happen, you know, before 2030, where, as, you know, others kind of contest that they—that they think that peak demand won’t happen until after 2030. I mean, again, a lot depends on, you know, what we are now experiencing in the energy transition, and how, sort of quickly are we—can we transition away from oil. I think what’s really critical, when we’re looking at oil, is oftentimes we think only about the transportation sector. So we’re thinking about cars, we’re thinking about planes, you know, we’re thinking about trucks, and tankers, and all these things. But it’s petrochemicals, you know? There’s just a lot of oil that also goes into fertilizer. So, it really is across our economy, and across economies, across the global system. One of the things that I always tell my students is even during COVID, where you had many countries, right, much of the world was experiencing some level of lockdown, we did have a reduction in oil demand, but it wasn’t—it wasn’t like 20 million barrels. It was under ten. So, the fact that now it’s 2023, the world has reopened, it’s really hard to sort of see, or to know with certainty, is when we’re going to see that—see that reduction in demand. Now, I think with the Paris Agreement, what’s also important is—to note is, you know, if you’re—if you’re in the oil and gas space—and I was just at a conference earlier this morning where this was a point of conversation—was, you know, what are the companies doing to reduce the emissions from production? So, how are they integrating carbon capture, sequestration, you know, how are they managing the emissions that come from the production of fossil energy—in this case that we’re talking about, oil. And I think one of the things that—I think if you sort of follow oil markets, or a country like Saudi Arabia, they are marketing low-emission oil. Now, we could—you know, we could sort of challenge, well, what does that—you know, what does that really mean? But you are having, you know, countries that are now sort of competing to state that they have lower emitting carbon in the production—in the production of oil. And that’s a whole other interesting sort of thing to look at, in the context of the geopolitics of oil, is to kind of understand the variation across emissions, across different countries, in the production of oil. So, we are—you know, again, we are going to be going into COP-28 this fall. Again, we are not seeing—you know, and we haven’t seen a, you know, reduction in fossil energy demand. Again, lots of people are sort of, you know, hoping that we’ll start to see it sooner rather than later. But for the time being—and again, you know, to Irina’s first question, that, you know, the last fourteen months, and with, you know, with Russia’s invasion of Ukraine, it has both shown us that, you know, Europe is sort of seeking to hasten the energy transition, by building out more renewable energy, and creating more opportunities to buy electric vehicles. But there’s still big swaths of the world that, you know, are still, and have yet to move towards, you know, really reducing—and that are actually going to see higher demand moving forward, as their economies grow. FASKIANOS: Thank you. I’m going to take the next question from Jovana Vujanic, who is a graduate student at Lewis University: How big of an—of an impact will the decision of the Saudi energy minister to cut oil production have on the relationship between the United States and Saudi Arabia? KISSANE: Love the question, thank you so much. Yeah, no, it’s a great one. So, my take is that, of course, this decision came as a bit of a surprise, and it wasn’t something that the United States, you know, wanted. But I would say that the U.S.-Saudi relationship has been very tense for the last ten years. And as part of that—there are lots of different reasons for that, but this is yet—kind of another thing that Saudi has done. And again, I think it’s also—Saudi has taken a non-alignment policy with relation to its position on Russia and Ukraine. So, it continues to—you know, it continues to have a relationship with Russia. It also has the relationship with Ukraine. As we saw, you know, China just brokered a very significant deal between Saudi Arabia and Iran. You know, again, Saudi Arabia and Iran are two—are two important producers for China. So, China is a large importer of oil. So, if you go back to World War—the end of World War II, that’s when the United States established the oil-for-security relationship with Saudi Arabia. And as we have grown, sort of, more—I wouldn’t say independent, but our—as our own oil production has increased, especially through the shale revolution, our dependence on the Middle East and Saudi Arabia, more specifically, has shifted. So, I think we’re seeing a very different Saudi Arabia today, which I think is going to be a challenge for the United States. I think it’s going to be very interesting to see what the summer holds. Last summer, the Biden administration did tap into the U.S. strategic petroleum reserves, the largest—the largest take in the history of the reserves, which started in 1975, you know, taking 180 million barrels out, you know, not because there was massive supply disruptions. But because, you know, as the administration said, it was—you know, it was—it was—it was a war—it was a war-specific decision, because the—you know, Russia’s invasion of Ukraine was causing energy prices to skyrocket. And to cushion the American consumer, and to better cushion the, sort of, the global economy, the United States withdrew from the SPR. So I think the summer is going to be very interesting. But I think we’re going to see, definitely, much more attention in the years to come, between the United States and Saudi Arabia. It’s not the relationship of the past. This is a kind of a very new relationship. That’s a great question. FASKIANOS: Thank you. Thank you, let’s go Curran Flynn, who has a raised hand. Q: Hello? FASKIANOS: We can hear you, but we’re getting feedback. So you might have two devices open. Q: Can you hear me now? FASKIANOS: Yes. Q: That’s better. OK. FASKIANOS: That’s better. Thank you. Thank you so much. Q: So, I’m here at King Fahd University in Saudi Arabia, right next to Aramco, here with my class from international relations. And one of my students has a question, Nasser al-Nasir (ph). Here he is. Q: So, thank you, Mrs. Carolyn. My question is: How could Russia’s use of alternative transportation methods, such as the East Siberian Pipeline to China, impact the U.S. market, the domestic market, and the role of the SPR, given potential insurance workarounds from Russia’s side such as ensuring Russian tankers through their RDIF fund? And thank you to Mrs. Irina. KISSANE: Thank you. And, Dr. Flynn, thank you so much for having your students join this webinar. So, I’m a little—so, the question is about the East Siberian Pipeline? Just could you—would you mind repeating it? I just want to make sure I have it—I’m clear on the question. Q: So, how could Russia’s use of alternative transportation methods, such as the East Siberian Pipeline to China, impact the U.S. energy markets, I mean domestically, and the SPR, given potential insurance workarounds from Russia’s side such as ensuring Russian tankers to the RDIF fund? KISSANE: Yeah, and that’s a great question. You know, I think that, you know, begs a lot of things that we could be looking at, right, in terms of, you know, Russia’s kind of ability or capacity to sort of work around, or find workarounds, to the sanctions that were imposed. And I think we’ve seen sort of new markets—so, this kind of reshaping of the energy map with oil, we see that as—kind of in technicolor, right, whereas, you know, a lot of Russian oil would go west, is now going east, you know, China, India, being takers, and of course, you know, other countries as well. You know, what will be its impact on the—on the U.S. market? I think that’s—you know, again, I do think the sanctions were sort of carefully put into place, so that there wouldn’t be massive disruptions, so we—again, you know, Russia produces over 10 million barrels a day, and about 7 million of those barrels are exported. So, you know, if we lost all of that, that would be a—you know, that would cause some very significant economic disruption globally. We already saw, you know, impacts to sort of grains, grain exports, and food security in many different parts of the world. So, you know, Russia is finding different ways. You have shadow tankers that Russia is using to move—to move its oil—as you pointed out, the East Siberian pipeline. You know, I think there’s only so much the United States can do, or—and European countries that are part of the sanctions regime, can do to curtail Russian exports of oil. But I think that—you know, I think Russia, again, has a—has a desire, and also, you know, revenue needs—they’re funding a very expensive war—that they’re finding ways to get their—to get their oil out. I think an interesting question is, you know, what does this mean in the years ahead, the lack of investment, for example, that’s going into Russian energy infrastructure, a lack of, sort of, any kind of Western investment that is—that is going in, and what that is going to mean. But again, you know, I think, to your question, I think we will see some—you know, we are seeing some impacts, right? There’s a big question as to what—you know, what the next six months to a year will look like, with regards to the reduction from OPEC, and if we were to see a deeper curtailment on Russian oil. And you know, would the United States then tap more into the SPR? We’re now at—you know, we’re down to seven hundred thousand barrels, which, of course, is not insignificant. But we also sort of have to be, you know, judicious about how we use the SPR. But thank you for the question. FASKIANOS: Thank you. I’m going to take the next question from Michael—let’s see— Trevett, a Ph.D. candidate at the University of Southern Mississippi: China and other countries claim there are petroleum reserves under the South China Sea. What are your estimates of the potential amount there, and has China begun to extract any of this oil? KISSANE: Michael, thank you so much. That’s a great question. So, China already is an oil producing country, so you do have oil production in China. In the South China Sea, I can’t—I can’t say exactly. I know that there have been geological tests that have shown the reserves. Again, you do have—you know, you do have territorial concerns about sort of where—is this—you know, can China—can China tap those—or seek to explore and tap those reserves, again, if there are—if there is contention over the territory in which these reserves are located? So you know, China, again—one of the things that’s very interesting about China is that China is an oil producer, but China has seen, over the last, you know, the last decade, they have seen that they have experienced peak demand. So—I mean, sorry. Peak supply. So, they are not producing as much as they used to. And so you’re seeing a year-on-year reduction in the producing capacity. You know, if you go back maybe five or six years ago, there was lots of questions about if China could kind of replicate what happened in the United States around the shale oil revolution. I think one of the big challenges for China is that, of the—you know, where the shale reserves are located, it’s not near water, lots of questions as to—and some of it—basically, some of the tests have shown that it’s—it definitely is proving harder that, you know, they cannot sort of model the same level of development that we have seen in the United States. So, yeah, no, I think in the South China Sea, again, I think we—it’s potentially possible that we might see it. I wouldn’t—I wouldn’t—I wouldn’t say it’s soon. FASKIANOS: Thank you. I’m taking the next question from Rob Warren at the Anglo-American University of Prague. This question also got an upvote: How do you foresee Venezuela’s role in the global oil market changing moving forward? And can it be reintegrated into the global economy? KISSANE: Oh, these are all fantastic questions. Thank you all so much. Yeah, Venezuela is—again, you know, Venezuela has—they have the largest reserves in the world. As part of this webinar, right, you—CFR had a—kind of a primer on Venezuelan, and kind of—you know, you look at sort of where Venezuela is. And one of the biggest challenges confronting Venezuela is both its politics, but it’s also—it basically—you know, you don’t have—you don’t have international oil service providers in the country. I think the only—the only one now that the U.S.—the U.S. has sort of given a sanctions exemption to, is that of Chevron. But I think—yeah, I mean, if you were to see, you know, kind of shifts in the political regime, and you were to see more openness, then I think you could imagine, you know, Venezuela having an opportunity, or a pathway forward, to be more integrated into the global energy system, and the global oil system. You know, I think one of the big problems that Venezuela faces is that most of its infrastructure is really old at this point. And it would need a significant amount of reinvestment to get it up to a place that it could sort of meet its potential. So, you know, Venezuela is one of these countries that’s not producing as much as it could, right? It has the potential to be producing 2 million-plus more barrels per day. But you know, we’ve seen that they really have just—they went into freefall. So, I think that’s a big issue. And another big issue, which—God, it goes back to an earlier question—is that of emissions. So, the oil that comes out of Venezuela is a very, very heavy oil. So, it’s—it has very large carbon emissions associated with the production of that oil. So, that, I think, is—again, as we—you know, think about the emissions from oil production in countries that are sort of seeking to kind of market themselves as low-emission producers, you know, Venezuela definitely will have a very hard time recouping its—where its oil sector was. Again, it has the capacity, it has the reserves. But getting that—getting that oil out of the ground right now, you have a lot of significant above-ground risks. FASKIANOS: Thank you. I’m going to go next to Clemente Abrokwaa. Raised hand, so please unmute yourself. Q: Can you hear me, please? FASKIANOS: Yes, we can. Q: Thank you. Thank you so much for your—for your talk. I was also very shocked about the amount of barrels that we consume every day. (Laughs.) I didn’t know that. But anyway, I’m from Penn State University. And my question is: You just mentioned about the above-ground, you know, effects. And—so the movement towards, like, electric vehicles and so on, how do you think it is going to affect the African continent? KISSANE: Thank you. Q: I am—I’m thinking, you know, the economies, and then infrastructure. It will be very difficult for them to—(laughs)—move with the rest of the world in terms of electric vehicles, and so on. I just wanted your take on that. KISSANE: Thank you, Clemente. It’s an excellent question. Yeah, I mean, you have countries across the African continent that not only have oil reserves, but are already producing, right? Nigeria is a—is an oil-producing country, also has more capacity, but again, you have some above-ground risks. You also have the need for investment of new infrastructure. I think one of the things that has been very interesting—and I think it’s getting—it’s getting more attention, as it deserves, is how Western governments are—some of—I think a challenge across Africa is that a lot of Western governments have sort of said, listen, we’re not going to invest in fossil fuels—or also, financial institutions, Western financial institutions—we’re not going to invest in fossil fuels, or new projects that are fossil-based. And that—you know, that’s problematic when you look across the African continent, where you still don’t have, you know, 100 percent energy access. You know, the idea of the transition to electric vehicles, which is taking a very, very long time, even here across the—across developed economies—so the need for the infusion of more capital to go into, you know, across the continent of Africa for oil and gas, that’s for their economies and for their own economic growth, I think, is really, really pivotal. And I think this is something that, you know, is being discussed across multilateral financial institutions. And also, you know, is it hypocrisy, right, for Western banks that have, you know, kind of funded the oil and gas industry, or helped to fund the oil and gas industry in the United States and many different parts of the world, and that are now sort of not allowing those funds to flow to Africa. And they have the—again, they have the—they have the resources. So you know, is it—you know, the equity of some of these decisions that are being made, I think, is one that’s—is one that’s really important. And again, I—you know, I said earlier in this talk, is that, you know, all—most of the demand for oil is not coming from North America and from Europe. All of the demand that we’re seeing and new demand that we’re going to see, is coming from Asia, and is going to come from Africa. So again, you know, how are we going to make sure that that demand is met, again, going back to that idea of energy security, so there is—there is accessibility, so there is reliable sources of energy at affordable prices, you know, without sort of thinking about kind of a whole-of-energy approach. So, I think it’s very—it’s a very complex issue. And I think, you know, Western banks who have sort of taken very sharp positions on what they will and will not fund, when it comes to new oil and gas projects, are getting sort of challenged as to, you know, what does that mean, then, for, you know, countries across Africa that are still very much in need of more energy, not less. And again, recognizing that, you know, EVs that, again, are still—are—you know, we’re seeing adoption here in the United States and across Europe, but it’s a big, big, big adoption in China. But it’s very uneven. So how do we ensure greater energy security for the continent of Africa, I think, is a really critical question. FASKIANOS: Thank you. I’ll take the next question from Kyle Bales, who is a senior at Lewis University in Romeoville, Illinois: How is the war between Russia and Ukraine having an effect on the progress of the European Green Deal? Maybe you can tell us what the European—define the European Green Deal for us, Carolyn, give us the context for that. KISSANE: Yes, so, again, this is another fantastic question. Yeah, the European Green Deal, it’s—this is—this is great. Yeah, I mean, a lot of people would say that the European Green Deal now is—that the—Russia’s invasion of Ukraine has sort of said, hey, this is why the Green Deal is so important. This is why we really need to more quickly transition to renewable energy, because look what—look what happened when we were dependent on Russia for over 30 percent of our natural gas. And look, when Russia, you know, illegally invades Ukraine and suddenly weaponizes gas, we are left very energy-insecure. It affects—it affects consumers. It affects industry across the continent. So, I think we’re seeing, not just through the Green Deal, but we’re also seeing through, sort of European green industrial policy—so in some ways, akin to what, you know, we put into effect in—this past summer, is the Inflation Reduction Act. And we’re seeing almost, kind of, this industrial competition around clean energy technologies. And so, Europe is investing—you know, I think it’s about $250 billion, the United States, it’s about 370 billion—towards the—kind of the energy transition, and helping to support domestic industries and companies to—you know, to be able to, you know, develop the technologies, and to have the, you know, the opportunity to contribute to the energy transition. So, I think one thing, though—whenever I talk about Europe, it’s really important, is to sort of recognize that, you know, when you look across Europe, you have very different policies and kind of approaches, to sort of thinking about energy, and how quickly some countries want to transition and can transition, whereas others, you know, are probably going to experience a slower transition. So, just really interesting example, as you talked about the Green Deal, is the EU taxonomy, the green taxonomy, that went into effect in the—January of 2022. And there, you had, like, really a lot of contention between France and Germany, because France wanted to make sure that nuclear was part of the green taxonomy. Germany was opposed, right, but Germany wanted to make sure natural gas was part of the green taxonomy. So ultimately, in the end, both natural gas and nuclear—and again, this was—this predated Russia’s invasion of Ukraine. But in the EU green taxonomy, you have—you know, you have both nuclear and natural gas, in addition to other renewable energies that can make up this taxonomy, that includes specific measures towards adaptation and mitigation for climate change. So you know, I think you’re seeing this kind of—some people call it a race, a competition. You know, ideally, it’s—you know, we’re kind of working together to—because we’re all sort of going in the same direction—to, you know, support the transition, and to reduce—to reduce carbon emissions, and to bring in more, sort of, cleaner energy technologies into our system. FASKIANOS: Thank you. I’m going to take the next question from Dr. Laeed Zaghlami. Q: Yes, good afternoon. This is Laeed—good afternoon, Irina. Good afternoon, Carolyn. I’m very pleased to be part of your program. Just to—want to be back to Africa and particularly to Nigeria, how practical the two projects that Nigeria is advocating for pipelines, one from—through Algeria, and the other one to Morocco through western African countries? How practical are these pipelines to supply gas to Europe and parts of some African countries? FASKIANOS: And Dr. Zaghlami, you are at Algiers University, correct? Q: Indeed, Irina, yes. I am professor at University of Algiers, faculty of information and communication. FASKIANOS: Thank you. KISSANE: Dr. Laeed, can I—can I keep you on for just one second? Can I ask you, what is the—what is the status right now? Is it—it’s planned, under construction? Where is—what is the status of those two pipelines? My understanding is that it’s—they’re proposed, but— Q: Yes, well, actually in—practically, the pipeline between Algeria and Abuja, which means through Niger and so forth, is already in progress, whereas the other project, through thirteen western African countries, they are supposed to be implemented by 2047. But is it—is there any political game or something of strategic—(inaudible)—how practical, how logical, how efficiently will be for Nigeria to have two similar project(s)? KISSANE: Yeah, no, it’s—again, thank you for the question. You know, pipelines, again, that’s why I wanted to show the—(laughs)—kind of the map of pipelines, is because, you know, a lot of pipelines transverse, you know, multiple countries, right? And this is—this requires not just, you know, a lot of cooperation, but it requires technically. It also can be very complex to build—to build pipelines. And when you’re talking about something like, as you—as you point out, these are, you know, crossing many countries. You know, I think one of the—again, one of the issues is whether or not—since, you know, what already is under construction, I think you can, you know, with confidence, that one will be completed. Anything that’s not yet under construction—and again, the timeline, 2047, is way out there—a lot of—a lot of uncertainty as to what the status of those projects will be moving forward, for various reasons, in terms of making sure that the investments are there. Someone I know that studies pipelines, he says, you know, until the steel is in the ground, you don’t have the pipeline, and so until you know that you’ve got that, you know, you’ve got all the OKs, and you feel that kind of security of being able to build it, and being able to provide the resources to supply it and to move it. I think Algeria has been a really interesting case that hasn’t gotten enough attention, in terms of Algerian gas, that has—that has helped support Europe. Over the last years, we’ve seen an increase in Algerian gas going into Europe. Again, a lot of attention on U.S. LNG and the increase of liquefied natural gas exports into Europe, but also Algeria has been, you know, very important for helping to support European energy security, and make up for some of the losses of the—of the Russian gas. And I think we’ll see more attention on Algeria, and Algeria’s role as a—you know, as an important source of energy, especially, you know, gas, going into—going into Europe, moving forward. FASKIANOS: So, I’ll take the next written question from Vincent Brooks, who is at Harvard and Diamondback Energy board of directors: How do you view the purchasing of discounted Russian oil by India, in particular relative to the purchasing by China? How are they using the oil purchased? And are you seeing more internal usage or external profit-making sales in places like Africa? And what are the implications of all of this? KISSANE: Right, great. Great question. So, all of the above—(laughs)—in some ways, right? There is definitely sort of profits that are being made. You know, I was—I was talking about this last week with someone, and you know, if you sort of put your shoe—put yourself in the shoes of India, right, so, India is a—is a rapidly growing economy, 1.4 billion. You know, if you had—if you have very high energy inflation and high oil prices, that’s going to have ripples effects across the Indian economy. And so, you know, when you have a kind of opportunity to buy, you know, pretty steep discounted oil, which, you know, they had been able to buy from Russia, you know, for purposes of national security, they’ve been buying the oil. And one of the things that’s very interesting about India is that, actually, India has been building out its refining capacity. So, a lot of that oil is both for domestic, and some of it is being sort of re-exported. But I think what we’ve seen is that they’re using that oil to also sort of enhance their capacity and capabilities as a rapidly emerging, refining power in Asia. And we see that in some ways in China, too. So, China, even though oil demand was down in 2022, much of the oil that they were buying from Russia went into its strategic supplies, which, you know, they now have access to. And again, I think, you know, a big question is what we’re going to see moving forward around oil demand in China. Wood Mackenzie just published a really interesting piece, kind of very bullish, on the expectations for oil demand in China, so whether or not they’re going to continue to buy, you know, Russian oil—and again, sort of taking advantage of these lower prices, you know. And I think—I think one of the things that—it’s kind of an inconvenient truth, whereas a lot of this oil trading used to happen in Europe, so European trading houses were kind of the main—the main points of Russian oil trade. A lot of that has been moved out, so, you know, Russia has found ways to kind of bypass some of the sanctions, and have set up—in some cases, they’ve set up trading houses. And some of those trading houses have been sort of set up in places that, you know, that they can sort of, again, bypass the compliance to the sanctions. And you have some—you have some Russian oil traders that are making a lot of money—(laughs)—selling discounted oil, and then reselling it. A really interesting case, a couple of months ago, was out of Malaysia. Malaysia announced—or, in the, you know—that they were—that 1.5 million barrels were produced and sold, but only—Malaysia doesn’t produce that much. So, those were Russian barrels that were sort of being sold under, sort of, the Malaysian—under the Malaysian barrel. So, again, I think China and India have, you know, have taken advantage. Some of this has, again—as I said, has been re-exported. And some of it, you know, has been re-exported through petroleum products, because China and India, you know, both are building and have refining capacity. FASKIANOS: Thank you. I’m going to take the next question from Bhakti Mirchandani at Columbia University: What global trajectory do you see for nuclear? The Russia-Ukraine crisis has taken some of the refining capacity offline, and nuclear has the potential to change the geopolitics of energy. And so what steps can be taken to foster nuclear energy? KISSANE: Bhakti, thank you. And I was just at Columbia earlier today for the Center for Global Energy Policy’s conference. Yeah, nuclear is very interesting, right? So when we’re thinking about, you know, decarbonizing our energy systems, you know, nuclear plays a very important role, because it’s zero-emitting. So in certain parts of the world—China being one, Saudi Arabia—you know, you have a lot of new nuclear build. You know, in other parts of the world, you have a lot of contention about nuclear. We saw that even in Germany, which have, you know, three remaining nuclear power plants. And even in the midst of massive energy crisis over the last year, there was still sort of pushback about, no, those nuclear power plants need to be shut down, whereas you would think, OK, in light of energy insecurity, let’s keep them open. So, you know, France is an interesting country. France had planned to reduce its nuclear capacity by 50 percent. But this past year, they pivoted and they’ve said, no, we’re actually going to build out more nuclear, and we’re sort of—we’re totally scrapping that idea of reducing nuclear energy. And nuclear is very important for France’s electricity system. Sweden has also announced that they are going to build new nuclear, and they’re going to increase by, I think, almost 50 percent. Again, part of this is their—to meet their targets of net zero. We also see Japan. Japan, you know, the Fukushima disaster really turned Japanese—the Japanese public off of nuclear. Very, very deep opposition to restarting the nuclear power plants. But this past year, even though there’s still safety concerns on the part of the public, the public is also very concerned about energy insecurity and higher prices. So, nuclear being a domestic source of energy. So, I think when you look at, you know, net-zero pathways, I have not seen a net-zero pathway that does not include nuclear. So, here in the United States, the net-zero America project out of Princeton, very important place for nuclear. We just have a really hard time—(laughs)—building nuclear at cost, so it’s very expensive. Usually, it’s significant cost overruns. And of course, there is the—I think they have a really significant PR problem. People—there’s still a lot of concern about the safety of nuclear. So, I think to your point, it’s very, very important for decarbonizing energy systems, but you’re going to see, I think, very disjointed approaches. Some countries are going—are embracing nuclear, and other countries are sort of doubling down on their opposition, and are not going to allow nuclear to be part of the energy system. FASKIANOS: We have so many questions, and we are just not going to get to them all. So, I’m going to take the next question from Christian Bonfili, who’s at Torcuato di Tella University in Argentina. So, do you think, Carolyn, that the landscape resulting from the Ukraine invasion by Russia, vis-à-vis securitization of gas and energy between Europe and Russia, could accelerate energy transition toward greener energy? KISSANE: Great question. I think in Europe, it is. And I think, you know, many analysts would agree that—the IEA, for example—you know, you had the, you know—how does Europe continue—you know, to enhance and achieve energy security without the dependence on Russia gas? And a lot of that is through renewable energy. You also have a lot of new attention on hydrogen, and the role that hydrogen will play. I think—I think Europe is being cautious, and so they are not saying that they are going to completely move away from gas, so as earlier questions, are they getting gas from Algeria, or are they getting gas from Norway? Are they getting more gas from the United States in the form of liquefied natural gas? And then also an uncomfortable truth is they continue to get liquefied natural gas from Russia. So, we’ve seen an increase in LNG from Russia going into Europe. That said, I think all in, you are seeing that, you know, countries across Europe are saying, OK, you know, how can we enhance our energy security? How do we build more sort of domestic energy sources? Solar, wind, we’re seeing, you know, more rapid deployment. You’ve got a lot of questions about supply chains and things like that, but I think—overall, I think the answer would be that it’s quickening the energy transition. FASKIANOS: So, I will take the moderator prerogative to just ask the final question for you to close on. And just to give us your top three—what are the major challenges for the geopolitics of oil, as you look out over the next five- to ten-year horizon, that you would leave us with, to be looking for? KISSANE: OK. You know, so I think what we saw, right, tensions between Saudi Arabia and the United States. We also have a, you know, a hot war, cold war, depending on, you know, the term you want to use, between the United States and China, and lots of sort of questions as to what that’s going to look like. I think there’s—you know, I think there’s concern that, you know, we’re not reducing demands, but we’re seeing tightening supply. And so that’s going to have, you know, very significant impacts for economies, especially economies that are already very fragile, economically fragile, politically fragile. So that concerns me a lot, in terms of, you know, what happens when, you know, economies don’t have adequate access to energy to make sure that their industries, that their—that consumers, you know, are able—that the lights can stay on, and you can get—you know, if you’re dependent on cars, you’re depending on trucks, like, all these kinds of things are really, really critical. So, I think we have to be very cautious moving forward, that we don’t take more out of the system before we have adequately set up the system to be resilient, and to be able to sort of meet the energy security demands that are not—are not—they’re not decreasing. I think they are increasing and becoming even more complex. So, I think there’s a lot of concerns and a lot of uncertainty. And you know, this definitely is going to be an area to watch in the years ahead. FASKIANOS: Carolyn Kissane—Kissane, excuse me—thank you very much for shaping and sharing this discussion, for sharing your terrific insights with us, and to all of you for your questions and comments. I’m really sorry that we could not get to them all. But we only have an hour. (Laughs.) KISSANE: Thank you. FASKIANOS: You can follow Carolyn on Twitter at @carolynkissane, and we will be announcing the fall Academic Webinar lineup in the CFR Academic Bulletin. If you’ve not already subscribed, you can email us to subscribe. Send us an email, [email protected]. Again, I encourage you to share with your students our CFR paid internships announcement. We also have fellowships for professors. You and they can go to CFR.org/careers, follow us at @CFR_Academic, and visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for research and analysis on global issues. Thank you all again. Good luck with your finals. Carolyn Kissane, thank you so much. KISSANE: Thank you. It was a pleasure. Great. FASKIANOS: And we look forward to your continued participation in this series. KISSANE: Thank you very much. Appreciate everyone’s questions. Bye. (END)
Webinar with Carolyn Kissane and Irina A. Faskianos April 12, 2023
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Events
FeaturedThis symposium was created to address the broad spectrum of issues affecting Wall Street and international economics. It was established through the generous support of Council board member Stephen C. Freidheim and is copresented by the Maurice R. Greenberg Center for Geoeconomic Studies and RealEcon: Reimagining American Economic Leadership. FROMAN: Well, good afternoon, everybody, and welcome. My name is Mike Froman. I’m president of the Council on Foreign Relations. And it’s great to be able to welcome Janet Yellen, the U.S. secretary of treasury, to be here for the Stephen C. Friedheim Symposium on Global Economics. Secretary Yellen is the 78th Treasury secretary. She’s also served as the chairman of the Federal Reserve and as the chair of the White House Council on Economic Advisers. So it’s a great honor to have you here. We’re also honored to have Steve Friedheim here, who the symposium is supported by. Steve is a longtime member of the Council, a member of the Council board, and chair of our investment committee. And so we are very grateful to Steve, not only for support of his symposium but we’re keeping our endowment growing year on year and supporting the activities of the Council. This is on the record. What we’re going to do is have the secretary give some remarks initially, then she and I will have a conversation for about thirty minutes or so, and then we’ll open it up to questions from people here in the audience, as well as people online. We have about 120 people here and about 250 or so who are participating virtually as well. And with that, let me welcome the secretary of the treasury. (Applause.) YELLEN: Thank you. And before our discussion, I’d like to speak to the Biden-Harris administration’s international economic policy, which will continue to move forward next week at the IMF and World Bank annual meetings. Our international economic policy has many objectives, including addressing critical challenges facing the entire globe, but I’d like to especially focus today on how it complements our domestic economic agenda to benefit American businesses and families. At home, our administration has driven an historic economic recovery. U.S. GDP growth is strong. Our unemployment rate is near historic lows. And inflation has declined significantly. We’re now doing everything we can to lower costs for American families and pursuing a strategy I’ve called modern supply-side economics, which aims to expand our economy’s capacity to produce while reducing inequality. We’ve seen record small business growth and an historic boom in factory construction led by facilities producing semiconductors and electric vehicle batteries. Productivity growth has been strong. More prime-age Americans are participating in our labor force than at any point over the past two decades and we’re reaching people in places that historically had not benefited from enough investment supporting well-paying jobs for Americans without college degrees. America’s strong economic performance is helping power the global economy which remains resilient, though progress across economies has been uneven. And it’s not just our actions at home that are supporting the global economy but from the start of this administration President Biden and Vice President Harris have also charted a new course for America’s international economic policy. We’re focused on stabilizing and strengthening relationships and working multilaterally including because we believe that America’s economic well-being depends on a global economy that’s growing and secure. American businesses and families have a tremendous amount to gain from our connections to the global economy and from U.S. global economic leadership. We need to promote policies, investments, and institutions that support global growth, protect financial stability, and avoid economic instability. This includes tackling challenges like climate change, pandemics, and conflict and fragility that threaten to hold back global growth, and it will be high on the agenda at next week’s meetings. Calls for walling America off with high tariffs on friends and competitors alike or by treating even our closest allies as transactional partners are deeply misguided. Sweeping untargeted tariffs would raise prices for American families and make our businesses less competitive, and we cannot even hope to advance our economic and security interests such as opposing Russia’s illegal invasion of Ukraine if we go it alone. But the issues we face today, from broken supply chains to climate change and global pandemic preparedness to China’s industrial overcapacity, also mean we cannot simply draw from an old playbook. Let me explain how our approach is delivering the benefits of global growth to Americans, tackling global challenges, and countering threats to our competitiveness and national security. Let me start with how our work helps Americans realize the benefits of global growth including through trade and investment. Trade expands the market for our exports from services to goods like transportation equipment and electronics. It helps our producers efficiently source key inputs and enables American consumers to access more goods at lower prices. The U.S. Chamber of Commerce estimates that more than 41 million American jobs depend on trade. American businesses also grow from investing abroad and recent research finds that over 10 percent of U.S. employment could be directly or indirectly attributable to foreign direct investment in the United States. Trade and investment also offer crucial pathways to greater economic security. During the COVID-19 pandemic we saw American consumers and businesses pay the price of broken or over concentrated supply chains. When the chip shortage forced temporary plant closures, companies lost revenue, workers lost wages, and families faced higher prices. Our work to reinvigorate American manufacturing, including through the CHIPS and Science Act, is necessary, but it’s not sufficient to realize the promise of trade and investment, and to confront supply chain challenges. This requires strategic global engagement. So we led efforts to put in place a global minimum tax that will prevent a race to the bottom. It will also level the playing field for American businesses, providing us with more resources to invest at home. We’re strengthening our supply chains through an approach I’ve called friendshoring, which aims to bolster ties with a wide range of trusted allies and partners. We and partners launched the Minerals Security Partnership to accelerate the development of critical minerals supply chains. We negotiated a critical minerals agreement with Japan and a supply chain agreement with Indo-Pacific Economic Framework for Prosperity partner countries. We’re supporting the Partnership for Resilient and Inclusive Supply Chain Enhancement, and working with the Inter-American Development Bank to find opportunities to enhance competitiveness and support key supply chains in Americas Partnership for Economic Prosperity, or APEF, countries. We’re leveraging the CHIPS and Science Act to pursue partnerships to diversify the global semiconductor ecosystem. And last May, we took another step forward by launching the Nairobi-Washington Vision to accelerate investments toward clean and resilient economies and supply chains. I’ve seen the fruits of our engagement in my travels as treasury secretary, from American company—an American company processing lithium in Chile to a U.S.-funded job-training facility in South Africa, among many other examples. Through our global engagements we’re strengthening economies around the world, and we’re growing American businesses and creating American jobs, supporting American consumers, and increasing our country’s economic security. America’s economic future, however, also depends on tackling challenges that cross borders to affect people and economies around the world, including the American people and the U.S. economy. I’ll start with pandemics. No matter what we do at home, without addressing critical gaps in the global health infrastructure to strengthen global preparedness, preparation, and response, a future pandemic could negatively impact many economies with significant spillovers to ours. So in the aftermath of the COVID-19 pandemic, I worked with fellow finance and health ministers to take actions like launching the Pandemic Fund. It was set up and scaled in record time, and it’s now allocating desperately needed resources in response to its second call for proposals to support countries across the globe, in turn making Americans safer and more secure. Climate change is another powerful example. The destruction we’ve seen this hurricane season in the United States is the latest reminder of the need for bold action. At home our actions include fueling the transition to clean energy through the Inflation Reduction Act, developing principles for net-zero financing and investment to affirm the importance of credible net-zero commitments, and addressing the risks climate change poses to U.S. financial stability. But emissions everywhere around the globe contribute to climate change, and we’re impacted by increasingly severe and frequent climate-related events wherever they occur. Damage to infrastructure abroad affects the availability and prices of energy and agricultural goods, like coffee and cacao. We suffer from smoke from wildfires in Canada and from precarious shared water resources with Mexico. And the potential risks climate change poses to global financial stability are increasingly widely recognized as well. This means that helping countries around the world mitigate and adapt, and financial institutions globally pursue transition finance, is crucial, including to protect American businesses and families. So we’ve made a massive push as part of our multilateral development bank evolution agenda to better equip the MDBs to help countries address climate change, including through increasing climate financing. We’ve worked with partners to launch just energy transition partnerships to help countries accelerate their transitions and strengthen their economies. We’ve pursued bilateral efforts, like a partnership we launched with Brazil’s Fazenda in July. And we’re working multilaterally, such as through the G-20 Sustainable Finance Working Group. And we’ve been focused on harnessing the private sector, including through the Partnership for Global Infrastructure and Investment and the Global Agriculture and Food Security Program. Alongside pandemics and climate change, conflict and fragility abroad, also pose risks to countries around the world and to America’s economy and national security. So we’re engaging on these challenges as well, including through the MDB evolution agenda. Nor do risks to financial stability respect national borders, making the work of the Financial Stability Board and other global collaboration critical to ensuring a safe, stable, effective financial system, and protecting the global and U.S. economy. Put simply, in engaging to support countries around the world in tackling today’s greatest challenges we also lowered the likelihood of negative spillovers to the U.S. economy, like weakened markets for our exports and increased instability. The scale and nature of these challenges mean there is no alternative but to engage. Let me end by emphasizing a third way in which our global engagement supports Americans, bolstering our competitiveness and national security, including through our approach to China. Trade and investment with China can bring significant gains to American firms and workers and must be maintained. But we must also have a healthy economic relationship based on a level playing field. China’s barriers to market access and unfair trade practices currently cause challenges for American firms and workers, and for other businesses looking to operate in China. China’s policies are also leading to industrial overcapacity in critical industries, threatening the viability of American and other firms, and increasing the risk of overconcentrated supply chains that undermine global economic resilience. No matter how much we invest to strengthen our manufacturing at home, we cannot support American businesses and families without also engaging to address these challenges. The United States announced strategic and targeted steps in key sectors as a result of the Section 301 review to respond to unfair trade practices by the PRC. The European Union and emerging market countries have also taken, or are exploring, actions. I’ve raised concerns about overcapacity frequently and directly with my Chinese counterparts, including on multiple trips to China, and with America’s allies and partners who share these concerns and are also responding. This growing international consensus is a powerful indication to China that it must shift its practices. Russia’s war on Ukraine has also revealed the necessity of strategic global engagement. Russia’s invasion caused immediate economic shocks like record gas prices in June of 2022. At home, releasing barrels from the Strategic Petroleum Reserve and record domestic oil and gas production helped address our short-term needs. But this would not have been enough to keep global energy markets well-supplied nor to oppose the threat Putin’s actions pose to the rules-based international order that underlies the strength of the global economy and the international financial system. So we formed a strong coalition and put in place a novel price cap, helping keep prices lower for American and global consumers than many economists forecast following the invasion. We’ve continued to strengthen sanctions to constrict Russia’s ability to wage war. We’re working toward unlocking the value of Russian sovereign assets to support Ukraine. This sustained global action allows us to accomplish what we could not alone, delivering immediate results and sending the clear message that dictators like Putin do not operate with impunity. Failing to engage or not engaging strategically would have disastrous effects, enabling Putin to destabilize Europe and undermine our collective security and the global economy. In the coming months, we will continue to be focused on these and other priorities, including using all the tools at our disposal in response to the ongoing conflict in the Middle East. We’ve imposed sanctions on terrorist actors, including Hamas, the Houthis, and Hezbollah. And we’re also working to increase stability in the region by ensuring that legitimate aid flows reach Gaza and pressing for measures to support the West Bank economy. Over the past four years, the world has been through a lot—from a once-in-a-century pandemic, to the largest land war in Europe since World War II, to increasingly frequent and severe climate disasters. This is only underlined that we’re all in it together. America’s well-being depends on the world’s, and America’s economic leadership is key to global prosperity and security. American isolationism and retrenchment will leave all of us worse off. I’m convinced that there is simply no other path forward than the one we will continue pursuing next week and in the months ahead: strategic international economic policy that delivers for American families and businesses, and others around the world. Let me stop there, and I now look forward to our discussion. (Applause.) FROMAN: Well, thank you very much for those remarks, and it’s great—it’s great to have you here. Let’s start—let’s start with the macroeconomy. It appears that we are still in for a soft landing, despite the predictions of some. Inflation is coming down. And yet, the concerns about the cost of living are still very much top of mind for most Americans. Some have described the Biden-Harris administration’s approach to economics as shifting from being—it was traditionally perhaps consumer-oriented, to more production-oriented. Maybe that’s consistent with your supply new—modern supply-side economics. We had Lina Khan here recently. She certainly talked about focusing less on consumer welfare, more on competitive market structures and the production side of things. How do you address the questions of high cost of living? And where do—you warned of broad-based tariffs and the effect that they could have on consumers. How do you think about the administration’s tariff and trade policy in that context? Vice President Harris has criticized the proposal by former President Trump as being a sales tax on the American people, but the administration did not eliminate any of the tariffs that they inherited from the Trump administration, including on nonstrategic goods from China. Why not? YELLEN: Well, do you want to start with the high cost of living and go—(laughter)— FROMAN: Sure. You can take any of that. YELLEN: So let me just say, American families for a very long time have faced burdens that have raised the cost of living and made aspects of it increasingly unaffordable for middle class American families. The surge in inflation we saw during the pandemic highlighted that, but this really is something that dates well before that. And I’m thinking of an inadequate housing supply, high housing costs. And, of course, we had higher interest rates and a big increase in housing prices during the pandemic that made a bad situation worse. Childcare, increasingly unaffordable, a system that isn’t workable, high health care costs, energy prices. And so we recognize that these are—even with inflation now down almost to the Fed’s objective—these are still burdens that face American families. And so this is a key focus of the Biden administration. And we’re working in a whole variety of ways. I think we’ve had some successes capping insulin prices, bringing down and stabilizing health insurance costs, getting an agreement to allow Medicare to negotiate drug prices, which saves money for the government and for households. We have proposals. Want to work with Congress on housing. And have had a lot of success on energy that will pay off over time. But you asked about tariffs. And so let’s talk about how tariffs fit into that. So the idea of broad-based tariffs that I criticized in my remarks, this is not something that the Biden-Harris administration is supportive of at all. And I think the evidence, from many research studies over decades, is very clear that the burden of tariffs, it does operate like a sales tax—broad-based high tariffs will raise the cost of the goods that we import and produce competing goods domestically in the United States. This includes intermediate goods that are critical to domestic firms producing in the United States that will make them less competitive, that will raise the cost of toys and other consumer goods that we really don’t produce in meaningful quantities in the United States, and raise the cost of living particularly for low-income households. And it will diminish our competitiveness and raise inflation. And so I think these are a very bad idea. They would meaningfully raise the cost of living. Now, you mentioned the Biden administration’s tariffs. And it is true that President Trump put in place significant tariffs against a pretty wide range of imports from China. And the Biden administration didn’t get rid of them. And I think the main reason for that is that we look to China to address the practices that were emphasized in the 301 action, which went to issues of unfair competition. And China really did not address any of those issues. And until China made a meaningful attempt to respond to the 301 unfair trade practices, President Biden felt we should not—we should not reward China by lowering the tariffs. So we have put in place some additional tariffs, but it’s on a narrow range of goods where we’ve decided that we want the United States consciously—sectors like semiconductors, renewables, clean energy, electric vehicles—where we really think it’s important for the United States to have some production capacity, partly for supply chain resilience that we don’t want to be completely dependent on China and partly because these are dynamic sectors where over time production leads to technological changes that reduce costs. We’ve certainly seen that with renewables, with solar power, with wind. We’ll see technological changes. These industries will promote that over time and we want to have a presence in it. That doesn’t mean that—I mentioned friend shoring. It doesn’t mean that we’re trying to dominate these industries globally or not to work with partners. We have strong partnerships with many countries around the world and are looking to work with them to enhance supply chain resilience. And in line with this idea of modern supply side economics, the way I see that is over the medium term to promote growth medium and longer term one needs to be focused on the supply side of the economy, and traditional supply side economics that I would contrast my modern supply side economics with as an approach is always focused on kind of trickledown economics. Let’s give tax breaks to corporations and to the richest individuals and try to stimulate their private investment with the hope it will trickle down through the economy. And I would contrast that with modern supply side economics, which really focuses on a much wider range of investments, infrastructure which—public infrastructure which was all but ignored in the United States for way too long. To have a competitive economy we have to promote our infrastructure. Boosting labor supply and creating conditions that enable people to work, this would include something like childcare to boost labor force participation. Training—workforce training is really critical to be able to fill the jobs that are going to be created by these investments in research and development. And the focus has been on this wider range of investments and trying to make them in ways that will bring opportunity to parts of the country that really have been suffering and really places that lost jobs, I’d say, between 1980 and the 2010s, partly because of China’s entry into the WTO and our massive imports from China but also broader forces including technological change. We want to make sure that the investments that are being promoted go in an equitable way to parts of the country that haven’t had the opportunities they should have, and what we’re seeing in terms of the early returns on the hundreds of billions of dollars in investment that’s been promoted by the CHIPS and Science Act, the Inflation Reduction Act in clean energy, the investments are going disproportionately to counties with lower than average education, lower than average wages and incomes, and places that really need the good jobs and opportunity. FROMAN: Embedded in the Biden administration’s approach, particularly the supply chains and China, is the recognition that while efficiency has been sort of the watchword of economics and international economics for a long time now issues like redundancy and diversification, national security, these are also important values. But everything we do to reduce our dependence on China, on strategic or nonstrategic goods, does raise the cost in some way or another and I guess my question is you cross the street and go over to the Oval Office and have these conversations. How do you weigh the tradeoffs between efficiency and redundancy and national security? How much should we be willing to pay more in order to have peace of mind that we’re not overly dependent on China? YELLEN: So I think that’s a—that’s a great question. FROMAN: I finally had a good question in, huh? (Laughter.) YELLEN: No, all your questions have been good. (Laughs.) But I think that’s a really critical question. And I’d say I agree with you that there are tradeoffs. I mean, if you just take, for example, the Inflation Reduction Act, certainly it is the most important piece of climate legislation ever enacted in the United States, and arguably anywhere in the world. And reduction of greenhouse gas emissions is a key objective. But it’s not the only objective. And another objective is, as I said, to promote domestic industry supply chain resilience to reduce our dependence on China. I mean, right now China is producing, at extremely low cost, probably enough solar panels to supply China, the United States, the entire globe, and for a long time to come. This is an industry where there is huge overcapacity. And if we simply only cared about efficiency—at least in the short run because this kind of dependence is dangerous, and later we could face higher prices and other problems and be vulnerable to cutoffs—we would buy a lot more from China and reduce costs and make faster progress on emissions reductions. So it is a balancing act. But the other goals are important too and can have substantial payoffs over time. So I can’t— FROMAN: That’s a trick one, though, because you’re absolutely right. Take chips, for example. We want to have a domestic chip industry so we’re not overly dependent on one supplier. But climate change, there’s also an issue of urgency. And us putting higher costs on will make it less likely the people will adopt green technology, or buy a cheap electric vehicle from China, or deploy a cheap solar panel array from China. There, there’s an urgency issue, not just an efficiency issue. Are we willing to trade off climate change for that? YELLEN: Well, we have a rich program of tax credits that go to—start with households that invest in energy efficiency equipment, in putting solar panels on their roof, for investing in a heat pump for their home. Tax credits to buy an electric vehicle. A significant array of tax incentives for firms. So perhaps we could lower the cost of some of the inputs somewhat, but we are counteracting that through subsidies to promote adoption. So, you know, it focuses on both things. I can’t give you a mathematical formula to tell you exactly how goals are being managed and tradeoffs are being called. But I think the administration is very aware of the tradeoffs, and has multiple goals in mind here, including supply chain resilience. FROMAN: And when it comes to industrial policy, which used to be sort of, you know, a pejorative or a bad word, now it’s become very much part of—central to our economic approach, the administration’s been pretty targeted. Chips, electric vehicles, other clean energy technologies. How do you make sure that it’s not a slippery slope for whatever the squeakiest wheel is in Washington? That whatever other industry wants to come forward and say, we’re strategic, we need a $600 billion program too? This administration has been targeted, but how do you make sure that it doesn’t open a Pandora’s box to future administrations that may be less disciplined? YELLEN: Well, I think you’re pointing to what is a danger. It’s always a danger, even outside of industrial policy. But, look, the chips and semiconductor act was passed with a bipartisan majority. This is something that many in Congress on both sides of the aisle have recognized has become a U.S. vulnerability. You know, we have always been the dominant country in semiconductors, in terms of designing semiconductors and the intellectual input involved in doing that, software to design them. But gradually, and I think mainly allowed subsidies from other countries to erode our manufacturing ability. But there, there is a long-term cost. It’s not only supply chain resilience; it’s that technological change and advance comes in the process of manufacturing. And if you give up manufacturing entirely, you can lose the technological lead in what is a critical both economic sector and area that’s critical to national security. So there is a supply chain resilience, but I think it’s also important to our technological leadership and innovation in this sector. FROMAN: Let’s shift the focus to China, if we can, for a moment. YELLEN: Sure. FROMAN: You have been deeply and personally engaged in managing the U.S. relationship with China. What do you see—well, first of all, how do you assess what’s going on there economically and this new stimulus plan that President Xi recently announced? And what do you see as the potential and the limits of cooperation with China when it comes to economics? YELLEN: Well, I’d say we’ve tried to strengthen our relationship to create a dialogue in which we can honestly and frankly discuss our differences and grievances with one another, but also at the same time to find areas where we need to cooperate and can cooperate. And I think we’re on a better footing with China because of the work the Treasury and other parts of the administration have done to promote greater dialogue in these areas. I mean, you—and I would say there are areas where we clearly are cooperating. In my remarks, I mentioned financial stability and global financial stability risk. This is an area where we have an overlap of interest. We’ve formed a financial working group, and the group has conducted exercises. What would happen if there is, for example, a problem with a globally systemically important bank operating in both of our countries? How would we work together to try to address and stabilize the situation? This is the kind of thing the United States has done with the United Kingdom, with Europe ever since the financial crisis. It’s important to work with China, as well, in similar things. We are cooperating in a number of areas. But you asked about China’s economy. And I guess the way—the way I’d describe the Chinese economy and the fundamental problem, to me, is that we have an economy where the savings rate is over 40 percent. You really can’t find other economies at this stage of development with a national saving rate that is over 40 percent of GDP. Another way of saying that is that domestic spending is just an unusually small fraction of GDP. In the United States, consumer spending is two-thirds of GDP; in China, it is just a fraction of that. Now, having a high savings rate like that is very valuable at an early stage of development when there are a huge range of investments with high returns. And it—you know, investment in infrastructure produced decades of really rapid growth in China. The returns from that began to peter out, and then real estate began to replace that; huge amount of investment in property. Well, that created a bubble and all the problems that are associated with problems in the real-estate and property sector. So that isn’t an area where those savings can go. So what about those savings, and where are they going to go? And the decision that Xi has made is to try to channel that—those savings into investment in a set of advanced manufacturing sectors, and that includes clean energy, semiconductors, and other advanced manufacturing. And the level of subsidies has been utterly enormous, and every province in China competes to try to do more to invest in these sectors. So the level of subsidization is utterly enormous. There are many profit-losing firms that are kept in existence. And so there is a gigantic amount of overcapacity that is threatening our own attempts to build in these areas. And not just the United States, but Europe has the same concern. Mexico, Brazil, India. There are developing countries that are also seeing global markets just flooded with goods that none of us can compete with on normal commercial terms. And so this is a concern, discussions we’ve had with our partners. There is a great deal of concern about this around the world. The natural strategy—and this is what economists have said for a very long time about China—is they need to boost consumer spending. And not by having one-time rebate checks, but by having a larger share of Chinese income go to households or reducing household saving by building a stronger safety net. These are things on which there are sort of global consensus. But it’s not what China is doing or says that they will do. So it’s the China sort of macro situation, with a decision to target certain sectors and subsidize investment to the point of global overcapacity, that’s really of concern to us. You know, you mentioned the announcements. We haven’t really seen meaningful figures yet. I think we have to wait to see what this is going to amount to. FROMAN: I have a lot more questions, but I want to be able to open it up to the audience here. But I want to ask one last question that I know is on everyone’s mind. You have been the chairman of the Council of Economic Advisers, the chairman of the Federal Reserve, and the secretary of the treasury. Which is the most important economic job? (Laughter.) And which have you enjoyed the most? YELLEN: (Laughs.) They’re all very important. And it’s been a tremendous honor and privilege to have— FROMAN: You are a diplomat. You should be secretary of state as well, how about that? (Laughter.) Let’s open it up to two questions. Yes, this gentleman here in the third row. Wait for a microphone that’s coming your way. Q: Madam Secretary, thank you for joining us today. Vice President Harris last week said that Iran was the primary enemy of the United States. Last week you also announced sanctions on Iran. Yet, in the last three years, as you know, they’ve generated around $150 billion of oil revenues. Was it a mistake to relax the Iran oil sanctions? And what impact do you think the sanctions you’ve announced, which I’m very grateful that you did, are going to have on the Iran oil revenues going forward? YELLEN: So I wouldn’t say that we have relaxed sanctions on Iran. But Iran has found ways to evade the sanctions that we put in place. And certainly, their oil revenues did go up. Over the last several years, we have put in place hundreds and hundreds of sanctions on an ongoing basis against Iran. But it is true that we have recently ramped up our sanctions significantly. I signed an action that allows us to target Iran’s energy sector broadly. And that could be a prelude to a set of steps that would really curtail Iran’s ability to gain revenue from exports. And Iran, I believe, is a significant sponsor of all the terrorist groups—Houthis, Hezbollah, Hamas—and is really a significant problem with respect to the Middle East. FROMAN: Next question. Let’s go somewhere in the back. Yes, the last row. Q: Thanks. Hi, Secretary Yellen. I’m Matt Peterson from Barron’s. I’ve spoken to a lot of people on Wall Street who are concerned that if President Trump wins there may be an immediate bond riot because of concerns—a bond riot, a spike in long-term Treasury yields because of concerns about the deficit and tariffs that you’re talking about. Is that something you’re concerned about, too? (Laughter.) YELLEN: Well— FROMAN: I thought my questions were tough. (Laughter.) YELLEN: Well, look, I believe it’s important for our nation to have a responsible fiscal policy and to be on a sustainable fiscal path, and some of the proposals that have been put forward on the Republican side—and I should say I’m covered by the Hatch Act and want to be careful not to comment on electoral politics. But for example, the proposal to simply extend all of the tax breaks that were in JCTA, the 2017 tax act, many of which will be expiring at the end of next year, CBO has said that that would result in $5 trillion of additional deficits over the next ten years. And I believe unless that’s paid for in some way, that’s something that we just can’t afford. President Biden’s most recent budget proposes $3 trillion of deficit reduction over the next ten years in addition to the trillion that’s already been put in place. And we think that’s what’s necessary to keep American fiscal policy on a stable and sustainable path. So it would—it would be a problem, and eventually markets might look at plans like that and respond. That’s certainly a possibility. FROMAN: Yes, this woman here on the fourth row. Q: Hi. Donna Redel of Fordham Law. I’d like to ask a different kind of question. Could you talk a little bit about central bank digital currency? We know that China has one and they don’t have privacy. We also know that stablecoins in the United States are now becoming quickly one of the largest holders of U.S. Treasurys, and that’s very beneficial for our country in terms of being able to have a global dollar as the reserve currency. Could you talk a little bit about the Treasury and both of those issues, and whether you see them—they can live side by side? Thank you. YELLEN: OK. So, I mean, in terms of a central bank digital currency, that’s something that many countries, including the United States, are exploring. You know, what we want is a fast, safe payments system. There are innovations that are taking place that are not a central bank digital currency but nevertheless very significant payments innovations like the Fed’s introduction of FedNow that will lead to 24/7 real-time settlement, which is an important innovation. And so there’s a lot going on beyond central bank digital currency. But it is something that we’re examining and there is a lot of interest in worldwide. You asked about stablecoins. I am concerned about stablecoins. They could play a positive role in our financial system, although at this point stablecoins are mainly used to engage in trading on crypto platforms. But a stablecoin is very similar to a bank deposit in that it promises that you can have a dollar for the equivalent stablecoin with certainty any time that you want. And in order to make good on such a pledge, it needs to be backed by absolutely safe assets. I don’t think all stablecoins at this point do have that kind of backing. We have proposed regulations and have been working with Congress to try to put in effect a regulatory framework that, among other things, would require that any stablecoin issuer hold absolutely safe liquid assets a hundred percent to back stablecoins. So they could be a significant demander of Treasuries. I think with the proper regulatory environment, you know, I think we’re—there is bipartisan legislation that’s been considered in past Financial Services Committee that I think comes close to what we would want to see. You know, they could play a positive role in our financial system, but without adequate regulation they can suffer from runs akin to a bank run that can create a panic, and we’ve seen that with a number of stablecoins that have failed and sort of broken the buck, so to speak. And, fortunately, the connections between stablecoins and our banking system are—there are some—and some have been problematic, but they’re not very extensive at this point so the problems haven’t really spilled over to the broader banking system but without proper regulation they could one day. FROMAN: Let’s take our next question from our virtual audience. OPERATOR: We’ll take our next question from Mahesh Kotecha. Q: Thank you very much. Madam Secretary, it is a great honor to ask— FROMAN: Can you speak up, Mahesh? YELLEN: I can’t hear you. Q: Can you hear me? Can you hear me OK? YELLEN: It’s too low. Q: Can you hear me all right? YELLEN: No, it’s too—it’s not loud— Q: Sorry. Is it—can you hear me now? Hello? Hello? Can you hear me? Hello. Can you hear me? FROMAN: Yell at us, Mahesh. I’ll move on. Is there another— Q: Hello. Can you hear me? Can you hear me now? FROMAN: Yeah, there you go. There you go. Q: OK. Thank you very much. Madam Secretary, you talked about the World Bank meetings next week. I’ll be attending, and last year in Marrakesh there was a major focus on climate and also a focus on reform of the MDBs that you have talked about and have asked for acceleration on. One of the challenges is attracting capital to carry out climate reforms in mitigation and adaptation and the big problem has been lack of funding from the public sector, which is not enough, and the need for private sector funding. But the private sector funding is very difficult to get because of risk. So I would like to ask you what you will be recommending to the World Bank and the others that are attending the meetings next week about facilitating private investment in climate to mitigate and adapt more effectively for the long run problems that we face in a major way today. FROMAN: Thank you. YELLEN: Well, thanks for that question, and for the last couple of years very high on my agenda has been what we call MDB—multilateral development bank—evolution, starting with the World Bank. We are looking to the World Bank and the other multilateral development banks to focus much more than they have in the past on global public goods and climate change is key among them. I also mentioned pandemics and the consequences of fragility and conflict, and so there needs to be more investment by the MDBs for their part in climate investments. The World Bank and the other MDBs have put in place recommendations from a report done on capital adequacy that suggested ways in which the existing capital base of the World Bank could support a great deal more lending, and we’ve freed up over the next decade something like $200 billion of additional capacity to lend by putting in place some of the reforms that were recommended by the CAF). The IMF has created a resiliency and sustainability trust that can provide fiscal—backing for fiscal policies that are focused on climate, and the IMF and World Bank are now working together with countries to try to coordinate their financing. And we’ve seen a very substantial increase in World Bank and MDB funding for climate finance, I think on the order of around 45 percent over the last couple of years. And there’s more that can be done, and we’re urging be done. We’re also working with the MDBs to try to enhance their mobilization of private capital. And we’re seeing some success in that front as well. The Inter-American Development Bank has innovated something they call—something, like, originate to distribute, that they’re originating loans and then packaging them together, and raising funds by selling these in the private market. The World Bank is engaging in experimentation with ways to create something similar. But a substantial increase in mobilization of private capital. So really, this is an area we’re all over. It is very important. And we’ve already seen a lot happening, and there’s more to come. FROMAN: I’m going to give our last question to Matt Goodman, who’s director of our Reimagining American Economic Leadership Initiative, of which this symposium is a part. Q: Thanks, Mike. Thank you, Madam Secretary. Fantastic speech, which is very helpful to our initiative on Reimagining American Economic Leadership. Most of the discussion about trade policy, including in your speech today, is about tariffs these days. But is there a role for affirmative trade policy, of the kind that the gentleman to your left used to work on, where we sought lower tariffs in other countries and changes—regulatory changes, and we were willing to offer more access to our market, or something, to our trading partners to get them to do the things that would help give us more opportunities? Is there a place for that still in the United States today? YELLEN: Well, I think there should be a place for it. And I would say, although the focus has not been so much on lowering tariffs, certainly deepening our ties, working together on supply chains to deepen investment and engagement—President Biden created a group I referred to called APEP, America’s Partnership for Economic Prosperity, the Indo-Pacific Framework, which I guess is a successor to the TPP effort, where we do have groupings where the objective really is to strengthen trade and investment ties. FROMAN: Just I was so grateful to have not only one of the great economic thinkers of our generation, but also a public servant who has served across all the great institutions. Thank you for joining us. YELLEN: Thank you so much. (Applause.) (END) This is an uncorrected transcript.
Virtual Event with Emily J. Blanchard, Matthew P. Goodman, David R. Malpass, Elizabeth Rosenberg, Janet Yellen, Michael Froman and Rebecca Patterson October 17, 2024 Greenberg Center for Geoeconomic Studies
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