Curing the Oil Addiction:
“Petropolitics” and the Threat to Global Security
Sponsored by Foreign Policy
May 15, 2006
Carnegie Endowment for International Peace

MOISÉS NAIM: Good morning, everyone. Moisés Naim is my name. I’m the editor in chief of Foreign Policy magazine. Thank you very much for being with us today. We have the privilege of having a very interesting idea and two every interesting commentators on that idea.

We have with us Senator Lugar, a very respected member of Congress. He’s the longest-serving senator in Indiana’s history and was recently named one of the country’s 10 best senators by Time magazine. Congratulations, Senator. He has also had a long-standing concern about the politics of energy and economics of energy, and the consequences on energy policy on national security and other dimensions. So he has been thinking a long time about this and has also been the author of several interesting initiatives in Congress to deal with this issue. Thank you for being here.

Tom Friedman is a very well known columnist for the New York Times, the author of many books – all of them tend to be best sellers or all of them are best sellers – a Pulitzer Prize winner, winner of the National Magazine Award, and recently he wrote the “The World is Flat” – 57 weeks on the New York Times Best Seller List. And he recently released a paperback version.

TOM FRIEDMAN: Hardback.

MR. NAIM: Hardback – expanded, updated and improved, that we should all read again.

MR. FRIEDMAN: What did you say the title was? (Laughter.)

MR. NAIM: “The World is Flat.” But even more important than that, he is the author of a cover story in Foreign Policy magazine, titled “The First Law of Petropolitics.” And around that we’re going to have a conversation today. So let’s start with the basics. And so, Tom, what is the first law of petropolitics?

MR. FRIEDMAN: Well, first of all, Moisés, thank you for convening this. It’s great to be here with Senator Lugar, someone I so respect and admire, and has really been a thought leader in the Senate on this issue.

This article came out of a lunch with Moisés. I don’t know, about two months ago we were having lunch and I had this idea, and I took out a napkin and I drew a graph on the back of a napkin. And the graph had two axes. One axis was the price of oil dating from 1979 to the present, and the other axis was what I called the pace of freedom. And basically what I drew was roughly a diamond shape, and I basically argued that as the price of oil went down from 1979 to the mid-1990s, when it cratered at about $16 a barrel, we saw a market increase in what I would call the pace of freedom in what I would call petrolist states.

And petrolist states to me have two key characteristics. They’re either states with weak institutions or authoritarian governments that are overwhelmingly dependent for their GDP on oil. And these are countries like Iran, Venezuela, Russia, Equatorial Guinea, Chad, Azerbaijan, Saudi Arabia, Kuwait – you can go basically down the list. Now, basically what I argued, as I said, is as the price of oil went down, the pace of freedom went up. With all due respect, for instance, to Ronald Reagan having brought down the Soviet Union, it’s often forgotten that the day the Soviet Union collapsed, so did the price of oil. It was $17 that day.

So, what you basically see in these countries is when oil is $20 a barrel, Iran is calling for a “dialogue of civilizations” under President Khatami. Magazines and journals are opening Iran. Iran is opening itself up to trade and interaction with the world. Reformers are getting elected. When oil is $70 a barrel, the president of Iran is calling for the destruction of Israel. When oil is $20 a barrel, the President of Venezuela is a little pussycat. When oil is $70 a barrel, he’s telling George Bush and Tony Blair – just about everybody else – to go to hell. When oil was $20-$30, George Bush looked in Vladimir Putin’s soul and saw a good man. When oil is $70 a barrel, you look in Vladimir Putin’s soul and you’ll see Gazprom, you’ll see a bunch of other newspapers and independent institutions that the Russian president has swallowed.

So it seemed just intuitively right to me that there was an inverse relationship between the price of oil and the pace of freedom. And so with Moisés help and his team, what we did was actually create a graph with the price of oil on one axis and we used the Freedom House graphs of their freedom index and just overlaid it. And what you basically see is this relationship where as the price of oil goes down the pace of freedom goes up in countries like Nigeria, Iran and Russia, and as the price of oil goes up the pace of freedom goes down, and the lines actually cross in all of these graphs.

Now, just to sum up, we have a – we know in our history the motto of the American Revolution was no taxation without representation. And the motto of petrolist states is no representation without taxation. If I don’t have to tax you – because all I have to do is drill an oil well, never drill my people – then I don’t have to represent you. And there is a real logic to this. Obviously these petrolist states, what happens is when they get this huge windfall, what happens is these regimes use it to buy off opponents, to insulate themselves from foreign pressures, to never have to construct a society where they have to maximize their openness to the world in order to extract the most energy entrepreneurship, creativity and intelligence from their people. They use this money so they can continue to rule by tapping an oil well and never tapping their people.

And hence, I argue the first law of petropolitics: As the pace of freedom declines, the price of oil goes up; as the price of oil goes down, the pace of freedom increases. Thank you.

MR. NAIM: What about the exceptions? I’m sure that in everybody’s mind is countries that are oil countries where this is not happening. Norway –

MR. FRIEDMAN: Yeah.

MR. NAIM: – is the typical exception that comes to mind.

MR. FRIEDMAN: Well, of course, what I would say, Moisés, is Norway is not a petrolist state. It’s not a country with weak institution or an authoritarian government. After all, the United States, we have a lot of oil here. If you discover oil after your country is already grounded in strong institutions, and certainly in our case anchored in a democratic government as Norway is, then it’s not going – that influx, that sudden influx of capital is not going to have that effect.

And I believe, you know, if you look at what’s going on in these petrolist states today, we’re seeing, I think, a very dangerous trend, particularly in the Middle East, because what’s going on in the Middle East are two basic trends. One is the biggest population explosion happening anywhere on the planet, from Morocco to the border of India. That’s going on in one track. And at the same time you’re getting this huge, massive influx of oil wealth, this great windfall. And basically what these regimes are doing is they’re taking this oil windfall and feeding it to these population explosion. They’re feeding it to them in the form of state-owned jobs – government jobs, state-own industries, protected industries and buying off opponents. You’re seeing a massive misallocation of wealth, I would argue.

Now, what will happen over time I’m convinced, because of the price of oil going up and what we’re doing in this country, and what people like the good folks in Indiana are going around ethanol, is that the price of oil will eventually go down and the population explosion will increase. And at some point, as that spread reaches a tipping point, you’re going to see the biggest social explosion anywhere on the planet from Morocco to the border of India.

MR. NAIM: And you, Senator Lugar, have called – you have called these new dynamics the new realism. You have taken and introduced all sorts of very interesting, innovative, legislative initiatives. But they’re all based on a view about the world that you have called the new realism. What is the new realism?

SEN. LUGAR: Well, picking up on Tom Friedman’s thesis, and I think that there’s reason going for that, let me just talk about a visit I took to Ukraine in September. I saw President Yushchenko and then the Prime Minster Ms. Tymoshenko, and after we talked about many things, each privately took me aside and indicated about the first of January Ukraine was going to be faced with a shock in terms of natural gas price increase. I remember Ms. Tymoshenko taking me to the map and suggesting pipelines that went to Uzbekistan and Kazakhstan and various other places. And in due course, the United States and others might be able to work with Ukraine, but this was September and they were taking about January. They were prophetic and three days before January the first, as I recall, Russia announced that the price of natural gas would go up from $55 for certain units to $220, a four times increase, not gradually but now. And essentially Ms. Tymoshenko and President Yushchenko, as I recall, did not believe Russia would go so far as to really shut off the tap, but they miscalculated. Russia did go that far and shut off the tap.

Now, what is my point? The new realism is just this. Russia didn’t send any tanks across the borderline, nor troops, nor aircraft – no softening up of the situation. In the new realism, a new Russia and a new Ukraine could have a war in which Ukraine lost rapidly, in which the attrition was visible with regard to old people who die from lack of heat, and industry that was already only fledgling and getting going again simply stops.

That I don’t think has sunk in altogether in our country or around the world but it’s beginning to. The Russians defend this, Mr. Lavrov, when he came over said, well, even if we did shut off the tap, we tried to force more gas through other lines that were coming through Ukraine because the old Soviet Union had all of these lines – didn’t discriminate boundaries at that time. But if you were the president of Poland, as he testified when he came over here, it was a sinking feeling watching the gauges go down in terms of pressure coming into Poland. The Germans protested – 40 percent dependence on Russian natural gas; the Hungarians, 80 percent dependence on Russia natural gas – this was really aggression against Europe, and a very bad time for Vladimir Putin, when he’s taking chairmanship of the G-8, to be demonstrating this kind of view. But in any event, within 48 hours, a new deal was hooked up for Ukraine – $95, not $55, some gas mixed in from Turkmenistan, a strange holding company in Switzerland managing it for at least six months of time, and things were sort of left in that heap. Just to make the point, Belarus was given a discount to $47.

I want to underline two factors about this. The old realism was the market works. Let the market work. Supply and demand will lead the changes in the kind of cars people buy, the general ways they handle energy, but essentially the market will not work in this instance because maybe as much as 77 percent of all oil and natural gas, and the reserves of same, are really controlled by governments. These are not private oil companies – not Exxon Mobil or Chevron or somebody letting the price of supply and demand go up or down. Those folks are out of it. The pricing here was done, if not by President Putin, by at least somebody a very short distance to the presidency there, and increasingly that is the threat of others who do not have that kind of authority. Hugo Chávez of Venezuela or the Iranians indicate, first of all, they might stop shipment, but clearly they could change the pricing of it at will. So this is not a market function, and that is hard for many Americans to understand, but nevertheless that’s the way the world works presently.

And secondly, given the fact that you can turn the spigot on and off, you can grossly affect the international relations, not only vis-à-vis bilateral situations but whole continents. For example, when President Putin visits with the EU and suggests that if EU is not very receptive to Russian deals with regard to oil or natural gas, the pipelines might go in the other direction, to China, to Japan, someplace else. If EU folks don’t like it, tough. And here the Europeans are all talking – in Great Britain I saw in the paper today stringent measures to conserve energy, mandatory measures with regard industry just to get through the winter in Great Britain. And Ukraine, extraordinary energy conservation measure taken, once again pretty late. They’re moving about the same pace we were but they turned out were more vulnerable and using energy overall, according to some charts, at an inefficiency of two or three times as inefficient as we use energy in this country. So they have a long way to go and they were a part of the old Soviet system in which energy was vastly wasted. Energy use in Russia, as a matter a fact, is not too short of what it is in Ukraine in terms of inefficiency.

But I make these points because the new realism was that despite the fact that folks like ourselves today might be discussing alternative sources of energy, whether it be ethanol or gasohol or all the possibilities of cellulose or biodiesel or hybrid cars or eventually often along blue hydrogen, and all sorts of thoughts about research and development. It surely must be coming along at some point. That was the old realism that somehow these are interesting things for intellectuals to bandy about.

But real people use oil. That’s the way, in fact, the world works. And you produce more of it and you find more of it and it’s available at a certain price. And none of us thought the price might be that high, but at the same time, get real, people would say; this is the way the world works. Now, I think there’s still a lot of that out there. I saw for instance in a Wall Street Journal editorial this last Friday, it suggested that people like myself, who drive Prius cars, that we’re perfectly free to do that, sort of as virtue component or whatever it was called. But nevertheless, once again, get real. Safety requires heavy cars. If you want to save lives, the editorial said, use heavy cars, not Priuses or people worrying about – and so the arguments hardly over.

And has a matter of fact, one can make a case that the commonsense of Americans is ambivalent about all of this. This leads them to strange situations in the politics of our country – widely commented on, not just by Tom but by many editorial writers, that Republicans race to give $100 to every American who is inconvenienced and Democrats go into price gauging and so forth. Even the gougers – there’s only one-fourth left of the market, if my thesis is right – they’re not just setting the price at the pump. And in any event, the gauging thing is bogus, everybody knew it, but both parties in an instant thing don’t really talk about the fundamentals – what’s going to need to happen – but we’re still very superficially hoping to score points at the margins.

And the real work in the energy committees and so forth still gets bogged down over age-old theological arguments as to whether climate change is for real or whether in fact, once again, a figment of somebody’s intellectual imagination, which, you know, sets in motion a whole other set of things. We’re not talking about climate change – more on the power side of the energy thing than the transportation. But both co-mingled in all sorts of ways because of coal might, in fact, be used to power transportation vehicles. The R&D on that still is out, but others are trying on for size natural gas as substitutes. We’re all now, thank goodness, thinking in more practical terms. The new realism is to try to find out what resources we have.

And I would just add, finally, it’s dawning on people in this country that we are strategically vulnerable. And I don’t want to set up today, once again, a theological debate as to what is more important, the war on terrorism or the energy war, but there are a good many who would feel that the possibilities for devastation of countries, including our own, may come much more from our myopia in terms of energy policy than our ability to track down the last of the al Qaeda cells. And therefore, if really we look at it in those terms, why, we ought to take it very seriously indeed.

MR. NAIM: Let me ask you – both of you share either explicitly or implicitly the notion that this is a major turning point, that major structure change has taken place. On the other hand, oil is a commodity and commodities go up and down. So another argument will be, you know, this is just another peak and oil will eventually come down, or not, and the world will be adjusting, and, in fact, all of these alarms will pass again. And argue for the reasons why you think this is a turning point. This is a structural change that is going to be here forever and it’s going to transform global politics, global economics, consumption, trade, security and everything else.

MR. LUGAR: Let me just interject quickly there that, granted your point, and it’s often made, that the price of oil might come down, therefore people lose enthusiasm and go through the whole thing again. I’ve suggested maybe that we ought to set a price of oil at a minimum of $35 or $40. We sort of settle this issue so that people investing in these things don’t go through the trauma. I asked people at Purdue University specifically to do the math. And we’re going to have a big conference out there that Martin Jischke has called for August 29th, in which we’re partnering with – and they expect a thousand people or more to come out, and not just to discuss this issue but the whole gamut of these issues.

But it’s an important point. I think, you know, Tom – and he may want to talk about this some more – has advocated a tax that would in fact say that oil is going to cost – or gasoline is going to cost $4 or $5 or whatever they finally come at, so there is no miscalculation there. If you’re a motorist, you cannot anticipate $2 gasoline again, or $1.50 or whatever you want to calculate. You understand that the new realism is that this is the way the world works. And I think there is an intellectual justification for, sort of, setting these norms. Now, setting them is one thing; theoretically passing them in Congress we all understand is another.

So whenever you start talking about this, they say, come off of it; that’s a non-starter. That’s the quote that just is supposed to settle all of it. Well, maybe so a while back, maybe less so as time goes on, and that’s the purpose for arguments and discussions like we’re having today.

MR. NAIM: What has changed?

MR. FRIEDMAN: I say several things, Moisés. One is I that – I want to pick up something the Senator said because you often hear this from the oil industry/auto industry, that we need big cars so we’ll be safe. I love that argument. This is from an industry that has fought every safety innovation since the rearview mirror, okay? (Laughter.) All right. This is people who lobbied against seatbelts, lobbied against airbags. It’s so touching that they now want us to be safe in gas-guzzling cars. I’m really touched.

What is new? What is new is that this is not your parents’ energy crisis for, I would argue, four or five reasons. Number one, the world is flat and 3 billion new consumers just walked onto the playing field, all with their own version of the American dream: a house, a car, a toaster, a microwave and a refrigerator. If we don’t find an alternative to fossil fuels to provide energy for these 3 billion new consumers who are moving from what Jared Diamond calls low-impact energy lifestyles to high-impact energy lifestyles, we’re going to burn up, choke up, heat up and smoke up this planet so much faster than ever before. So, because of those new consumers coming onto the playing field, we are moving from a secular $20-$40 barrel range to $40-$70 barrel range. There’s just no question. That’s what’s underlying it.

Second, we’re in a war on terrorism. We’re in a war on terrorism with people fueled and funded by our energy purchases. We are funding both sides in the war on terrorism. We’re funding the Army, Navy, Air Force and Marine Corps with our tax dollars; we’re funding Hamas, Islamic Jihad, al Qaeda, and all their brother and sister organizations and the charities that fund them with our energy purchases. Now, how smart is that? We’re funding both sides in the war on terrorism.

Number three, because of this secular change in energy prices, I believe that clean technology, green technology, is going to be the growth industry of the 21st century. Mom, Dad, tell your kids; anything green is going to have a great job associated with it. Green design, green services, green consulting, green manufacturing – green technology is going to be the growth industry of the 21st century. Now, wouldn’t we want to lead the growth industry of the 21st century?

Well, how do you lead the growth industry of the 21st century? It sure isn’t by telling General Motors year in and year out, no, no, no, no, no we wouldn’t want to improve your mileage standards. Don’t do anything hard. No, no, we wouldn’t – okay, 30 years of telling Detroit that has resulted in where we are today, where Harley-Davidson, ladies and gentlemen, Harley-Davidson, the motor scooter company, is today worth more than General Motors. Okay, the market cap of Harley-Davidson today in fact is substantially greater than that of General Motors. That’s what you get from telling Detroit year in and year out – if you enjoy having to import every hybrid car and engine into this country from Japan, you’re really going to enjoy having to import every other clean technology in the next generation from China. Because China goes to go green. China is going to green, not because they’ve listened to Senator Lugar or me or read Rachel Carson. China is going to go green because China can’t breathe. They’re growing at 10 percent. They’re giving back 2 percent every year now in lost workdays, environmental degradation, polluted rivers and environment.

And when China goes green, it’s going to go green by designing green technologies that are low cost – they have to be low-cost because otherwise they won’t scale in China – and they’re going to take these low-cost green technologies – and I’m really praying that China is the country that’s going to make solar power, silicone-based solar power really, really as cheap as your Nike tennis shoes. They’re going to go green on their low-cost scalable platform. And when they’re done, they’re going to come our way and they’re going to clean our clock in the great industry of the 21st century while we continue to tell General Motors, no, no, no, don’t do anything hard.

Now, the last, I think, meta reason that this is not your parents’ energy crisis is that we thought with the fall of the Berlin Wall that we were unleashing, in 1989, an unstoppable tide of free markets and free people. That’s really what we thought after the fall of the Berlin Wall, that we were unleashing an unstoppable tide of free markets and free people. And for a decade it really looked that way. Of course, that corresponded with a decade of incredibly low oil prices. What we are now seeing, as we’ve moved from the $20 to $40 oil range to the $40 to $70 barrel oil range, is the emergence of a counter tide to the fall of the Berlin Wall. It’s a tide of petro-authoritarianism that is now fueling a whole collection of states called Venezuela, Iran, Russia, you know, Chad – the whole collection of them – that are today forming a petro-authoritarian tide that has become the counter tide to the wave free markets and free people that we thought was going to sweep the world with the fall of the Berlin Wall.

We have moved basically from a bipolar world in the Cold War to a unipolar world in the post-Cold War into a multipolar world into the post-post-Cold War, which is the world of petrolist states. And these new poles – these new poles are not getting powerful, they are not getting rich by making microchips; they’re still making potato chips actually, but they’re getting rich because they have struck it rich on oil and therefore a new multipolar world is emerging with a whole new group of poles fueled, funded and financed by $70 a barrel oil. And for those reasons, I would argue, this is not your parents’ energy crisis.

MR. NAIM: So both of you has described a state of the world that is highly undesirable and that in order to change it, to reform it, leadership and policy reforms have to take place in the United States. And you, Senator, have been the leader of several initiatives. You know, you passed – you authored, championed and eventually passed what is now the main legislation for research on renewable fuels. You have now sponsoring – you have sponsored legislation on the idea of creating a director of energy securities that advises the president, the establishment of international partnerships designed to stabilize oil markets like the one you mentioned, and all sorts of things.

But at the same time, I think you would agree that we are still far behind from what’s needed. There is a huge gap between what the country is willing to do, between the political will and even the desire to do what’s needed according to you. And why? What are they inertias? What are the obstacles – the institutional, technological, political – all of them blaming the lobbies, because it’s a – of course they are important, but tell us more about what you two both see as the main obstacle for this country to do what you think is right and necessary, and urgent by the way.

MR. LUGAR: Well, legislatively we’ve offered all sorts of bills, as you’ve suggested, and worked on both sides of the aisle. I would pay tribute to Senator Bayh and Senator Lieberman for a very comprehensive bill. Senator Harkin has been partners – Senator Obama – on other legislation. There are a good number of people all signing on to each others bills. Essentially the bills try to do several quick-term things, one of which is to spur flexible-fuel cars. Automobile companies are now advertising – Ford and General Motors – that they will produce 250,000 of these. I wouldn’t say this is a drop in the bucket, but nevertheless, very, very small, because probably in our discussion they will get into the Brazil case, which is a remarkable one. But Brazilians now have about 75 percent of their cars in the flexible fuel category, which is very important. In my state of Indiana we have 150,000. And they’re chasing now another part of our legislation – 30 E85 tanks. These are the tanks that have 85 percent ethanol, 15 percent petroleum. It’s very difficult to have a revolution with just 30 tanks. We will have 60 by the end of the year.

But this is the nature of the struggle. We’ve all been busy in R&D. Now we’re on the ground and we’re trying to find where are the cars that can use the gas and where would you pick it up? And then the supply of these situations. Low and behold, the MTB issue comes along – MTB and oxygen to put in gasoline, which has now been found difficult – as of May 5th you don’t do that. But this puts then demand upon the corn ethanol people, who suddenly are seeing the price of ethanol in Indiana goes to say $2.75. This is just short of what petroleum gasoline costs. There was supposed to be quite a differential, but supply and demand – again, the ethanol is going to California and to Maine, not necessarily Indiana. Even if it was going to Indiana, there are only 30 places that you could go in Indiana. We have not worked out yet what you do with the distillers’ dry grain – the feed that comes from the corn after the ethanol in the liquid part is taken out – a great new market for proteins and for feed, setting up a feed lots (?) maybe adjacent to ethanol plants. Likewise the manure produces gas so that’s still another process.

All of this is very exciting and very new but there are no pricing mechanisms really in our society to take care of all the things that happen when you’re doing energy and doing it well. So our legislation tries to encompass the cars, the place you get it, how do you supply it – at least in the measure that you want to – and it recognizes, as President Bush has pointed out, that cellulosic ethanol is probably a better idea than simply corn alone. And certainly the feed people who are feeding chickens and cattle and so forth are informing all of us who are from farm states that God meant us to go for food first, for feed second, and energy third. So you have a competition out there. The price of corn is going up as the markets showed on Friday, and it will go up a whole lot more, as a matter of fact, which is good for some people and not good for others.

But let me just say that these are all things that legislators have to contemplate – all sorts of different constituencies. And finally, we will have to think through something that is a very big issue that Tom has touched upon, and that is that our idea of globalism, of moving toward freer and freer unrestricted trade in the world, has probably lifted most boats, but not necessarily of all the citizens of each of the countries that were in these boats, so that suddenly you have these oil dictators and they say, we’re going to set this thing right. It may have been in the best interests of the United States of America and other wealthy countries to say we’re creating wealth all over the world, and certainly the Americans have done pretty well with this system, but let’s say that the lower 75 percent of the incomes in Venezuela haven’t done so well. So I hope Hugo Chávez will rectify this, and might do so, in fact, in a big way.

And if people who are producing oil in my country don’t really like the terms, why, lump it, but we’re going to change all the contracts. We’re going to make life not difficult but expensive for all you people who are producing. Net result: less oil being produced in Venezuela now, less oil in Russia for that matter – inefficient plants and so forth. Again and again, the dictators redistributing the wealth create even more of an energy problem at the margins and create higher gasoline prices here because there is less supply and almost no differential.

So how do we do all of that? – foreign policy. Our legislation dealing with the State Department says, listen, this ought to be numero uno in terms of things that you’re looking at, threats to America, and we would like to have big conversations with the Chinese, big conversations with the Indians, with everybody. How can you get more efficient? How can we help you get more efficient so we don’t use all of the supplies that are out there and jack up the price? That’s a new way of looking at it and the State Department hasn’t exactly jumped over hoops to get to that point, quite apart from the administration, but I think eventually they will. You know, some of us have visited with the president himself and said, this really is the way that you make a legacy. This is the issue in which finally we get the world’s straight on a big course. Now, that’s very big legislative thinking, as you get into the checks and balances even of our federal system, but sort of starting with ethanol at the pump and moving to the foreign policy realm, all of this is in a composite, a part of our structure.

MR. NAIM: The idea of giving a rebate or giving $100 to all Americans affected by higher prices surprisingly gained some interest in some fraction in Congress before it was killed.

SEN. LUGAR: Not very much. (Laughter.) It died pretty fast.

MR. NAIM: Yet very, very intelligent, very significant members of Congress sponsored it and presented it. I want to use that to contrast it to other ideas that seem more logical and yet are almost impossible to even talk about.

MR. FRIEDMAN: Well, let me pick up on that, Moisés, and with what Senator Lugar said. You know, I thought the Democrat proposal for a 60-day vacation of the gasoline tax, the Republican – Frist’s proposal of a $100 giveaway, they were like a crack dealer coming to your local addict and saying, look, I’m ready to give you a $100 payout this month in order to keep you on your crack habit at the current price. That’s basically what we were doing. And it was just flat-out nuts, and it really is distressing to me that we said all these years that, well, we’re never going to solve this problem. Democrats and Republicans are never going to solve this problem until there is a crisis. Now there is a crisis and you have these unserious proposals out there. Fortunately you have some serious proposals out there as well, and I’m really hoping now that they will get traction, like the bill that the senator and others are co-sponsoring now. What’s the name of the bill that –

MR. : Fuel and Vehicle Choice for American Security Act.

MR. FRIEDMAN: Fuel and Vehicle Choice for American Security Act. Write your senator or congressman about that one.

Basically, Moisés, I think on the whole political side of the issue – I’m a big believer that to name something is to own it. To name something – if you want to own an issue, you’ve got to name it first, and the fact is, green conservation, clean technology has been named for so many years by its opponents, and it was named liberal, tree-hugging, girly man, sissy, unpatriotic, vaguely French. (Laughter.) And my own personal goal in my column is to use my little white space to redefine green, because I think you have to begin by redefining it, renaming it. To rename it geopolitical, geostrategic, capitalistic, patriotic – green is the new red, white and blue. That is really my motto – green is the new red, white and blue – because I believe if you actually rename the issue accurately, not fraudulently – if you actually rename it, then people start to think about it differently.

Now, the evidence of this is a poll we had in the New York Times about five or six weeks ago. We asked people, are you in favor of a gasoline tax – just straight up, are you in favor of a gasoline tax? I think it was – don’t hold me to these numbers but you can easily get them online – I believe it was 87 percent against, 12 percent in favor, okay? Then we redefined the question. We said, are you in favor of a gasoline tax if it will make us energy independent of some of the worst regimes in the world? I believe it was 52 or 53 percent in favor, 30-something against. Are you in favor of a gasoline tax if it will combat climate change? I believe it was 59 percent in favor, 30-something against.

Now, think about this for a second. What those polls told you is that two-thirds of Americans – roughly two-thirds of Americans are ready to support a tax that not a single party or member of the Senate so far has actually put on the table. That’s amazing. Imagine if the president used his bully pulpit to actually make the case for that. Imagine if the president went out and said, I’m getting rid of my limousine and I’m going to drive an armor-plated, plug-in hybrid car, what impact that would have. It wouldn’t even cost anything. And that is what is so frustrating to me.

If you listened to Vice President Cheney talk about this issue, he has a favorite mantra, which was repeated by Josh Bolton the other day on “Meet the Press.” There is no short-term solution; you have to understand. It’s what Senator Lugar alluded to earlier. You know, little boy, you have to understand; there is no short-term solution. We’re going to be dependent on fossil fuel as far as the eye can see. Well, I’ve got news for you. There is no long-term solution either unless you are ready to ask the American people to do something hard. There is no short-term solution and there is no long-term solution. What we’ve basically been doing for 30 years is allowing these people to tell us there is no long-term solution, but way down – hydrogen, now, there is going to be a glorious hydrogen economy down the road. Well, in the meantime, the whole strategic environment has changed.

Now, I think we’re at a very interesting tipping point that Senator Lugar alluded to with these foreign governments now raising the taxes. So a very personal thing – I was telling the senator and Moisés earlier – I got a call from my broker this morning. I own one stock. I mean, myself, I own one stock. It’s a gold stock. And he called this morning to tell me my gold stock is going to just get hammered this morning because it’s in a particular country that I’m not going to name, and the government just announced a massive new increase in the taxes on the gold mining in that country. God bless them, they’re entitled; it’s their gold. But here is what I think is going to start to happen. If I’m Exxon or Shell or whatever and I’ve got a choice of where to invest my marginal dollar, my next-dollar profit, do I reinvest it in an Indonesian or Mongolian goldmine or a Venezuelan oil well, and where I have no idea that if Hugo Chávez wakes up on the wrong side of the bed the next morning, he is going to have a new tax or a new nationalization, or do I say, you know what, somebody get Senator Lugar on the phone. Senator, you were telling me the other day about some really fascinating ethanol projects in your state. I think we’d like to invest them in a place where there is the rule of law and sanctity of contracts.

So we could be at the start of something really interesting where these big energy companies understand that their real economic livelihood now is going to be in investing in energy in non-petrolist states.

MR. NAIM: Today in the newspapers the CEO of Shell explains that they will have to leave and deal with countries – the countries change contracts and commitments and obligations, that they have to go where the oil is. And so what we know from history is that oil companies and energy companies, their investments are driven by geology, not by ideology, and the reason why they may have to go back to these countries where the rule of law is very shaky is because the margins are so high and because that is where the geology is.

MR. FRIEDMAN: But it will be interesting to see, Moisés, if the margins aren’t so high anymore. If you are in Bolivia, where are your margins now?

SEN. LUGAR: Well, I think, likewise, the facts are that – about Shell or anybody else – most of these private oil companies simply understand that there are limited possibilities everywhere. They’re going to be all very expensive. If my thesis that 77 percent of all of it is really controlled by governments, not by Shell or what have you, then that figure might be higher before long. They might just confiscate the rest of it, so the private people are out there hunting and pecking.

Let me just pick up on a thought that Tom has indicated – (audio break, tape change). Even then, a good number of people, even with energy independence, they don’t understand why that’s important, or even less dependency. I haven’t seen the Ukraine situation, or what have you, so they’re not frightened enough about it. But let’s say we came to an idea that we were going to have a gasoline tax. The thing that I think needs to be factored here – and Tom and others have talked about this, that the money might go for health or Social Security or education, what have you. Putting a finer point on it, the problem with the current $3 gas, or $3.25 is lower-income people in this country. It’s hitting disproportionately those families. It’s hitting disproportionately people who have to commute distances and people are already writing, for instance, about this town, Washington, D.C. There’s a labor shortage. All sorts of jobs that are going to be needed for dynamism to continue require a lot more people. But these are people who drive in concentric circles further and further and further to get here to service all of our needs here at the heart of this. This is all going to fall apart without that sort of thing.

So, in my own mind’s eye, without advocating anything – I’m not going to be the first one to take the plunge – (laughter) – today in the course of this informed discussion –

MR. FRIEDMAN: I will be.

SEN. LUGAR: – but if I were to do so, I would already want some economists to be thinking through, is our best bet, for example, to say why don’t we try to save the Social Security system even while we’re trying to save the country from energy predators? Everybody understands, because we have one study after another, that within 15 or 16 years we run out of money and finally we just go broke altogether. Presumably federal appropriations will keep pumping in so that nobody will fail to get their checks. But for people that at least are middle aged now, they can see that time coming. People who are young, most of them don’t see any hope in the system. The fact is in some changes in terms of either the reserves or the amounts people have to pay as wage earners, this is disproportionately on the lower side too. At certain levels, people don’t pay the regular Social Security, FICA, they pay the Medicare and so forth. It just occurs to me that while we’re thinking through one problem, we might be very thoughtful about another. And maybe politically this is the way that you finally have a constituency of people who say we are generally concerned because we are low-income people and we have to pay gasoline taxes, but if in fact we think we’re going to get our Social Security payments and the system is going to continue, that doesn’t alleviate our pain but it makes a different argument.

MR. FRIEDMAN: You know, just to pick up on what the senator said, you could really have a three-for and it really could be about solving your personal security and your energy security and your national security, and to tell the American people, we’re running out of money and we’re running out of gas, and we have a solution, you know, which is a gasoline tax that will – on the one hand it will contribute and really foster alternatives. Secondly, I think, as Senator Lugar noted, you could then come to people and say we’ll actually lower your payroll taxes at the same time to offset, particularly for low-income people, and then still use the profit in order to fund a real reform of Social Security. And I just think it’s an idea that really would be very compelling to a lot of people.

MR. NAIM: Let me ask you for your questions, comments to the panel. Sir? I think we have microphones for you.

SEN. LUGAR: Wait a second. (Inaudible) – is coming.

Q: Hi. Gal Luft from the Set America Free Coalition. Tom, you said that green is the color of the red, white and blue, and green is also the color of the flag being increasingly waved around the world in anti-American demonstrations. And there is maybe one part of the world that we don’t see this kind of increase in anti-American activities, and that is our own backyard – Latin America, Central America. This is perhaps the part of the world that we’re not hated yet. And that brings me to Senator Lugar’s piece in the Miami Herald about removing the ethanol tariffs from imported sugar ethanol, which is a very, very bold and important step, but I think we need to go even further. We have about a hundred countries today that are very poor sugar-producing countries.

Sugar ethanol is the only immediate solution to our energy problem – sugar ethanol, not corn ethanol. Corn ethanol will be very limited. Cellulosic ethanol is not ready, and we all know that it’s not ready. People talk about it a lot but there is not one commercial-scale plant that produces ethanol from cellulosic material. Sugar is here, and we have an opportunity to begin to invest in the sugar-producing countries – enrich them, develop them, make them interconnected with our economy so we can benefit from their product and they can benefit from our investment. And this is a near-term solution. The amount of arable land that you see in Brazil and Honduras and the Dominican Republic and all these places is enormous.

MR. NAIM: Thank you. So, the question is ethanol, Senator.

SEN. LUGAR: Yes.

MR. NAIM: Why don’t you, before answering the question, set more or less the stage. Why don’t you tell us, what are we talking about? What exactly –

SEN. LUGAR: Review your Miami Herald point.

(Cross talk.)

MR. NAIM: And what’s the difference between sugar ethanol and corn ethanol? All of these things – give us a primer on the basics.

SEN. LUGAR: Very little difference in terms of the use in terms of transportation. The sugar base is less costly, so it’s more economical, and it’s been developed by the Brazilians. Now, the Brazilians are using 52 percent of their sugar crop for ethanol. Now, that’s a big figure. And because of the flex-fuel cars, the Brazilian motorist has a choice. If for some reason the price of oil spikes, they can go toward the ethanol route, and if sugar spikes, why, it can go back to petroleum. It could go either way, so that really is a market-based solution.

Brazilians don’t have a whole lot to export right now, but theoretically, the point I was making in the Miami Herald with the ambassador from Brazil was that we should drop the tariff, which would be a bar to importing. The president of the United States has suggested this.

MR. FRIEDMAN: Can you explain to people what the tariff is and how it works?

SEN. LUGAR: Fifty-four cents.

MR. FRIEDMAN: We have a tariff on every gallon of imported sugar ethanol –

SEN. LUGAR: That’s right.

MR. FRIEDMAN: – of 54 cents.

SEN. LUGAR: You’ve got a hurdle over 54 cents before you get there, and there are other prohibitions because of our farm policy with regard to sugar people – beet sugar and sugar cane. Now, on that issue, we had a hearing of the Ag Committee – Saxby Chambliss, our chairman, had to leave. I was left chair of the committee, and we got into it with the sugar people, and I said essentially, as opposed to all of the subsidies, all – which increased the price of sugar to Americans now by double what you normally should be paying, why not produce ethanol with all of this sugar? Why not get real? Well, this has been an attractive comment. You don’t read a lot of sugar journals but everybody now is buzzing about how American sugar, of which we have an abundance.

But it gets to your point very rapidly. We’ve almost fouled up the CAFTA deal, the Central American Free Trade Agreement, because of sugar carve-outs or demands of this sort. Our relations with Mexico are tortured because we’ve got to take sugar from Mexico in the NAFTA treaty next year, and nobody in our sugar business wants that.

So with the Brazilians, the point that we were trying to make is Brazil is a big country. As a matter of fact, we are not loved by all the Latins for the moment, as you would note. Many in fact are taking a dim view of us. But Brazil might take a very happier view if in fact we finally come together in a strategic partnership based on something as small as simply importation of sugar ethanol and the end of bar (?) so that we could deal with Brazil together. And we may, as you suggest, find it’s easier to produce ethanol in Brazil, and maybe they can produce it in a less costly fashion as opposed to taking a protectionist viewpoint. On the one hand, here Tom and I are talking about the fact that the life of our country may be at stake, but very rapidly if you get into the Ag Committee hearing, you find that the sugar interest in the United States is in fact whose life may be at stake. So we’re providing a lifeline for both, and I think maybe we’re making headway.

MR. NAIM: Yes?

Q: Hi. Thank you. My name is Jennifer Green. I work for an organization called Peace X Peace, which primarily works with the grassroot women and –

SEN. LUGAR: Is your name really Jennifer Green? (Laughs.)

Q: It really is Jennifer Green, exactly. Thank you for all the attention. (Laughs.) And actually I do thank you for actually putting it into the concept of green, of the green movement. Listening to the two of you, I keep thinking of a longer history perspective. Are we really talking about sort of resources towards development? You talked about the world is flat, and I just recently came back from Bangalore myself where you’re just always amazed at how crowded the streets are, how many people are there. I work with getting women onto the Internet – increasing the number of women in technology. That’s another 50-plus percent of the world’s population that’s not yet engaged, and that’s going to be getting engaged.

Is oil not maybe something that’s a repetition that we see, again, as a resource for developing – the fact that you brought in the trio – the national security, Social Security, energy security – that happens again and again and 500-plus – well, longer. We had issues over gold, then we had issues over coal. In the future we’re going to have issues over water, which we already have now, just not to the point of where we have oil discussions. I’d be interested in your thoughts on how –

MR. FRIEDMAN: Just refine your question just a little bit.

Q: Yeah, how would you look at this in sort of a longer historical and longer future issue when we’re really talking about managing international relations and foreign policy and domestic policy on resources that lead to development of our – ongoing development of our country.

MR. NAIM: Which have another dimension, let me add, because we have talked a lot about what should the United States do in the United States? There is a whole new area of the conversation which is what should the United States do towards oil-producing countries? And that allows me also to insert the question about Iran, which is a dissenter of – let me allow you to briefly answer the specific question. Then I would like to ask you both about Iran.

MR. FRIEDMAN: I think in terms of your question, we’re going back to a much more traditional age, really, in foreign policy, the age of geology, not ideology? It’s a pre-Cold War period where it wasn’t that there was no competition for resources during the Cold War but it was much more muted and frozen, and I think because of these – so many new consumers coming onto the – so many new players, so many potential collaborators and competitors – and as you say, they aren’t only just people from India, Russia, Brazil, China, but also women in these countries who have been frozen out now coming in.

I think the price of commodities in general is only going, in the long term, in one direction. And so I do think we need to find a sustainable way to think about – and as strategic way to think about that.

MR. NAIM: You are in favor – you have argued in favor of direct talks, direct negotiations with Iran. At the same time, another oil-producing country, Russia, just got criticized by Vice President Cheney a couple of weeks ago, or last week even, at the same time that he praised Kazakhstan. Put all of that into context for us.

(Laughter.)

SEN. LUGAR: And when did you stop beating your wife? (Laughter.) There’s a very delicate path here. Let me just say, about Iran to begin with, we often talk about leaving all options on the table, and usually this leads to some press person saying, does that mean at the end military force? Well, you can’t rule it off the table. You know, I’m one who would say sort of on the table ought to be probably some direct negotiation. You shouldn’t rule that one out either, as sometimes we seem to do peremptorily. And I don’t have a construct in mind, precisely, as to how that might occur, but it just has occurred to me, looking at the relations with the Soviet Union and the Russians over the years – and I take sort of our Nunn-Lugar business as a context for my own involvement. There were ups and downs of our relationship with the Russians – some real downs – but we kept talking because there was something there with regard to annihilation of large parts of our population and bad mistakes and so forth that sort of surmounted that.

Now, with the Iranians, there are probably some Iranians that eventually we will talk to, but leaving that aside, the Iranian situation really is just meant for this kind of conversation because our foreign policy with regard to Iran or the Europeans or all the rest is going nowhere with a country that is squirreling away it’s resources, withdrawing bank accounts for a rainy day, and saying, listen, if you touch us, we’re going to cut off the oil, we’re going to make sure it’s a $100 a barrel or $110 or $120. We have enough, given the margins between supply and demand in the world to make sure there’s a recession all over Europe, Asia and the United States all at the same time, and you’ve sort of – now, that’s real power that comes from that sort of pricing mechanism that they have available.

Now, leaving aside whether they would do all of this and for how long and what we would tolerate, the fact is that Iran has ties with India and China, very large ties. It tortures the Indians to have to vote with us in the IAEA, as they have done twice, but you wouldn’t want to push them to the wall a third or fourth time. They’re not on the Security Council and they’re probably breathing a sigh of relief at the moment, although they used to want to be there. The Chinese are in the Security Council, and the Chinese would say real – just simply said, we’ve got an energy relationship with Iran. Now, you folks may be hot and bothered about a fledgling nuclear program and centrifuges and so forth for the next five or 10 years, but real people, once again, look for oil. And that’s where we are, as a matter of fact.

The vice president, his trip – some people have said, well, he was right on. And I’ve criticized the Russians certainly pretty heavily. This morning when you were talking about turning off the tap, really an aggressive motion toward Ukraine that could have been absolutely devastating, this is a pretty tough blow, although most Russians don’t deny it. In a sense they’re sort of happy the world sees this. Some have thought that Putin was obtuse to be so obvious. He doesn’t feel that way. And he’s got pretty high approval among Russians who like the way he handles things, as a matter of fact.

So, in any event, the vice president has discovered this and he’s condemned it and so forth. Then you ask, well, what about the hypocrisy of going to Kazakhstan, arguably a government that is just as authoritarian as Russia, maybe even more so. Anybody who has visited with the legislators in Kazakhstan, as I have – you’ll not find very many of them and it’s a pretty hardy breed even to be involved at all. But why was it more pleasant? Because Kazakhstan may send a pipeline through Azerbaijan, and the Azeris are very important to us because that’s where it comes and it comes through Georgia and then out through Baku-Ceyhan pipeline now, like the gas line that will come in a couple of years, that misses Iran, misses Russia, misses everybody.

MR. NAIM: But you would not call that part of the new realism. That’s not new realism.

SEN. LUGAR: This is the old realism. It gets back to the fact that it is a foreign policy security decision, which is vital to, we believe, the Kazakhs, the Azeris and us, and Europeans and all the rest. And we would say we’re playing hardball right along with the best.

MR. NAIM: You have been very eloquent in what you would say and do to President Ahmadinejad.

MR. FRIEDMAN: Well, my attitude toward President Ahmadinejad is that – is basically, you go, girl, because the crazier you get, the happier I am, because the crazier you get, the sooner we’re getting to $100 a barrel, and the sooner we get to $100 a barrel, the sooner we get to 20. And when we get to 20, I’m going to say goodbye to you and we’re never, ever going to have to listen to you again. I think he’s one of the most really twisted and bad leaders on the planet. He goes around denying the Holocaust and other things. I wish we could have the gasoline tax that I’ve certainly argued in favor of tomorrow because then we would capture the extra rent between the current price and $100, but if we can’t have that, I’m ready to pay the short-term price of Iran getting yet more windfall because they’re clearly not in any way prepared to spend it in efficient ways. And I think the sooner Iran takes us to $100 a barrel, the sooner we’re going to 20. So, Ahmadinejad, the crazier you want to be, the happier I am.

Q: Thank you. Pauline Baker from the Fund for Peace. I’d like to ask both of you about two implications I think comes from this. One is nuclear power. Why isn’t nuclear power the alternative here, because it’s a developed technology? These other technologies are going to take a while, and what are your views on that?

Secondly, it seems to me the analysis tends to justify those who argue that we went into Iraq for oil and that resource wars are on the agenda under the old realism analysis. Do you think that’s a possibility and do you worry that the United States is going to get backed into a corner of these kinds of more enlightened policies are not accepted? Is that going to be the future for us, to fight over oil?

SEN. LUGAR: What was the first part of that point?

Q: The first part is nuclear power.

SEN. LUGAR: Yeah, nuclear power, it seems to me that a good and many people, this hasn’t turned green altogether, but they’re seeing possibilities where they didn’t see them before. Clearly people are arguing – we have a debate going in the Senate about the India-United States nuclear deal. But one of the premises as to why that would be a good deal is that it assists India to have a higher percentage of their energy coming from nuclear power. And many people, and I’m inclined to be one of them, feel this is probably a plus factor in terms of the argument. Some argue – and we had testimony that not much nuclear power would occur, and therefore India’s overall energy needs are so expansive that – but still, there is something there. That’s true in our country. People are beginning to examine – but once again, how do you deal with the spent fuel? Will we ever get the Yucca Flats argument on or off, or how do we deal with it? But it seems to me lively because it is not petrochemicals and it does have, perhaps with the new safeguards and the new technologies of 20 years, a difference. So it seems to me we may be making headway.

Now, on the Iraq side, I appreciate the fact, you know, all the way back to Desert Storm and people asked Jim Baker, why are we going over there with 500,000 people? And he said, oil. Well, that was certainly a major factor. The facts of life – our committee, as detailed in one hearing, we spend $50 billion a year really just on that part of the military establishment – this is without a war going on – to protect, literally, the oil lines, not only for us but for the rest of the world, for the whole system. In war, why, it escalates into the hundreds of billions and is not just for oil; it is for the stability we would hope now of something that may come along with democracy. I’m not going to argue today about the weapons of mass destruction thing and whether democracy is a secondary argument that you construct when you don’t find the weapons, but still there is real value in having a democratic Iraq and other places. In the same way Tom started this morning with the fact that oil destroys democracy, in Iraq it’s a very mixed bag. Iraq, as you know, is producing much less oil than under Saddam. If in fact we were out there trying to get oil, why, that’s already failed and the security situation will have to be improved materially for something to happen there.

So much more – it’s worthy of a longer discussion, but a mixed bag. I would be for looking at the energy thing on the nuclear side very seriously.

MR. FRIEDMAN: Just very quickly, I’m in favor of nuclear as long as the proper – as long as the experts can show me that the safeguards can be made in terms of spent fuel, and I think that they can, so I’m perfectly in favor of it. I wish we were starting plants tomorrow.

MR. NAIM: Are we going to have more or worse?

MR. FRIEDMAN: Oh, definitively. If we keep at this price of $70 it just becomes too valuable.

That brings me to Iraq, and I would simply say that on the question, was it about oil, my simple answer is it’s so much crazier than that. If it were just about oil, that would be easy, but it’s so much crazier than that. And when I say crazier, I think actually in a noble way. I think that at this point we’re actually there to try to establish a decent democratizing regime, and it’s not about oil. We were doing fine with oil before and after. I don’t think it’s about oil, primarily. But here is the real tragedy, and I argued about this actually before the war when oil was $30 a barrel, or whatever it was. Unless we bring the price down, Iraq is just going to become another petro-state, and all the competition there right now is not people deciding, you know, which committees to start and a commerce committee and a women’s committee and a development committee; it’s who is going to get what slice of the oil rent, and that’s what petrolist states are all about, that politics is all about who controls the oil tap, not about how do we create a society that will maximize our people’s ability to live without oil.

MR. NAIM: Thank you.

Yes?

Q: Nancy Boswell from Transparency International. I’d like to ask you, because you’ve all been very supportive of the anti-corruption agenda in your writings and in your hearings, Senator Lugar, on the multilateral banks and U.S. ratification of the U.N. Convention. As MR. Friedman has written, as the price of petroleum goes up, democracy goes down, and the implications are that the constraints on corruption also go down. We had a visit from our colleagues in Tia (ph), Russia last week, talking about the weakness of the courts, civil society, the press and so forth, the watchdogs that would have an impact, and I’d really appreciate your views on how do we deal with this growing threat to the entire anti-corruption agenda because, as you point out, I think all of you – the countries that are resource rich don’t need to borrow, they don’t go to the banks, so we can’t impose any kind of conditionality. And the countries that need the resources are not willing any longer to join us, really, in the fight against corruption, which creates – really undermines, I think, everything we’ve tried to do with the anti-bribery conventions and so forth.

So I’d just be interested whether you think there are some strategic partnerships we might be able to forge or other ideas for how we turn this around again.

MR. FRIEDMAN: I would just say I think your question partly answers itself because you have been at the forefront, Transparency International, and we could have taken your graphs as well as Freedom House, and just overlaid them on the oil thing and I bet we’d see the exact same effect, whereas the price of oil went up, the transparency went down, and as the price of oil went down, the pace of transparency went up. But really the larger meta-points – I really can’t tell you anything you don’t know – is that oil is really at the center of all our problems right now. So many of our problems really come back to that: climate change, okay, the fact that we’re spending, as the senator alluded to, on just a normal day, $50 billion a year just to protect the sea lanes, which, by the way, we don’t factor into the oil price at all – which I love when Dick Cheney says, you know, let the market work; let the market set the price.

Okay, let’s let the market set the price. Let’s let the oil price also factor in the externalities of climate change, of the cost of protecting all these oil sea lanes. That’s what forces us to be in the Middle East in the face of people in Saudi Arabia or elsewhere that don’t want us in their face. And it just seems to me there are – I don’t want to present this as some magic cure. I’m sure alternative energies and nuclear are going to have their own problems, but nevertheless, I would say we could solve two out of three really bad problems today by moving our economy rapidly off that fossil fuel.

SEN. LUGAR: While I’m thinking about it –

MR. NAIM: Yes.

SEN. LUGAR: – just a footnote here. I was encouraged when I was in Azerbaijan in September. Now, a great deal has been written about the Azeris, their elections, and president and so forth. He was over here recently. But during that time, the president, Mr. Aliyev, was very open when I asked questions about, well, BP, British Petroleum out there on the platform. They’re going to furnish, I hear, all the data as to how much they are sending out of here and how much you’re getting. And what are you going to do in terms of reports to the people of Azerbaijan, quite apart from what he was going to do with the money. Now, he was very candid, both then and when he visited here just two weeks ago or so, in saying we intend to report all of this to the Azeri people and to the world, what we’re getting.

Now, we’re going to follow what he called the Norway model. And I said, well, that’s a pretty good model if you’re trying to choose one, of really setting aside most of the money for the future, understanding that these reserves eventually are going to run out, but at the same time making very large payments in housing, education and so forth that are also transparent. Now, if he does that, this may be the first because Tom is absolutely right; the normal pattern is that when you get – transparency ends.

But this is why in our relationship with Azerbaijan right now – and a point we ought to emphasize, a small country but a critical element right now in the energy business as well as in the transparency mode and in a very difficult context with the Iranians breathing down their backs. Likewise, the Russians have not forgotten them. And so I just point to that country as a place where we ought to be helpful, and the NGOs as well as informal diplomacy.

MR. NAIM: Oil and energy and the challenges associated with them have been with us for a long time. They are continuing with us, but they now have acquired a new dimension that I think this conversation has brought forth. It is a different conversation in many ways. It is also a very old conversation that has new dimensions, but it has new facets that I think today’s exchange between these two wonderful thinkers have illustrated for us.

You can read more about it in the article titled, “The First Law of Petropolitics” in the current issue of Foreign Policy Magazine, and you can also read more by going to the website, foreignpolicy.com, where you can also read some of the articles and pieces of legislation presented by Senator Lugar and others. And now I just want to ask you to join me in thanking these two wonderful speakers on today’s subject.

(Applause.)

SEN. LUGAR: Thank you. Thank you very much.

(END)