Analysts assess possible Obama administration actions

Voting machines had barely cooled down earlier this week before energy analysts began to evaluate the apparent election victory of Ill. Sen. Barack Obama.

In the Houston office of Raymond James & Associates Inc. (RJA), analysts reported Nov. 6: “One overarching point is that history would suggest that energy prices often move higher under Democratic administrations due to supply-constraining policies. All in all, we do not see the Democrats’ victory as a game-changing event for either conventional or alternative energy.”

After announcing transition team members and appointing Rep. Rahm Emanuel (D-Ill.) as his White House Chief of Staff, President-elect Obama is to consider a proposal by the Washington-based Center for American Progress (CAP) for creation of a National Energy Council within the White House. Transition team co-chair John Podesta is serving as CAP president.

Analysts at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va., reported that Obama’s goal is to have a coordinating council to make sure federal agencies are working together for a clean energy economy. Currently, energy policy decisions are scattered through a half-dozen federal agencies and coordinated through three: the Council on Environmental Quality, the National Economic Council, and the National Security Council.

RJA analysts said, “Our fundamentally bullish long-term thesis on the energy complex is based on the long-term structural imbalance between ever-increasing energy demand and constrained energy supply. This imbalance is not something that governments can eliminate,” adding, “Even the centerpiece of Obama’s energy platform—binding carbon emissions caps—is not something that will likely impact the fundamentals of the oil and gas industry, or the coal industry, anytime soon.”

Despite “macroeconomic developments” over the past 3 months that have reduced assessments of global oil demand growth for 2009, RJA analysts said, “We have a negative stance on natural gas given the prospect of a meaningful US gas oversupply in 2009—[T]he fundamentals for conventional energy are not unique to the US, and in the grand scheme of things, it does not matter very much who is in the Oval Office or on Capitol Hill. For alternative energy, stronger leadership from Washington that Obama has pledged would certainly facilitate greater domestic growth in renewables, adding to the policies that are increasingly visible at the state level.”

Other propositions

But expensive alternative fuel programs may be hard to enact during troubled financial times. Clean Energy Fuels Corp., leading provider of natural gas (CNG and LNG) for transportation in North America, noted that California voters on Nov. 4 rejected Proposition 10, the California Renewable Energy and Clean Alternative Fuels Initiative. That was a $5 billion, first-in-the-nation public investment to provide funds for a wide variety of clean energy projects across the state, including consumer incentives for clean alternative vehicle fuels and construction of renewable energy generation facilities, such as solar and wind power plants.

“Passage of Prop 10 would have provided an important funding mechanism to rapidly turn these goals into a reality throughout the state,” said Andrew J. Littlefair, Clean Energy Fuels president and chief executive officer.

US-Europe relations

One of the earliest and most comprehensive analyses of the election came from Chatham House, home of the Royal Institute of International Affairs, a leading institute for debate and analysis of international issues. According to director Robin Niblett, Obama’s first job “will be to keep Americans safe and not to please the international gallery,” adding, “This does not mean that Europeans should resign themselves to be disappointed. To start with, the Obama campaign has pulled together a talented and deep bench on foreign policy. They are ready to act and, with a strong Democratic majority in the Senate, can expect to be confirmed into their posts quickly.”

But as an Obama administration juggles its complex domestic and international agenda, Niblett said, “[It] should expect its European allies to step forward with their own suggestions of how to implement realistic transatlantic policies towards each of our common challenges. The success of Obama’s foreign policy initiatives in his first term will depend significantly on what European capitals can deliver and not just on his administration’s own creativity.”

Further, the deepening economic crisis of recent months “will make it even harder for Obama to focus on new US international initiatives, never mind changing US policies on Afghanistan, Iran, the Middle East peace process, climate change mitigation, and the rest of the wish-list that many in Europe are hoping for,” Niblett said.

US-Africa relations

Alex Vines, research director and head of the group’s African program, said, “Reining in stratospherically high expectations both from within Africa and from within his own administration will be a principal preoccupation for the first years of Obama’s Africa policy.” He said, “The large number of Obama’s campaign advisors with Africa expertise under the Clinton Administration such as Susan Rice and Witney Schneidman, are impatient to make their mark. The danger is that, as with the first British Labor administration of 1997, impatience and overconfidence both underestimates the political complexities of African states, and chafes with socially conservative African leaders, leading to misunderstandings, blunders, and set-backs.”

Vines said, “There are many good policy proposals, including a secretary of state for overseas development assistance to rationalize America’s generous but ponderous aid programs. However, public relations is key, and as China and other emerging powers gain greater influence across the continent, Obama’s Africa team will have to take ever more care that good intentions are not blunted by poor diplomacy.”

US-Asia relations

Meanwhile, Gareth Price, head of the group’s Asia program, warned: “While the fresh start is widely welcomed in the region, [Obama’s] protectionist impulses have caused concern, notably in India where his talk of ending tax breaks for US companies that move jobs offshore has gone down badly. However, “most assume” that, when in office, Obama’s hands will be tied and that his rhetoric will not become practice, Price said.

“A likely shift away from a security-dominated agenda formulated in response to the threat of radical Islam is to be welcomed,” Price said, “but in Afghanistan and Pakistan, enabling that shift, in a worsening security climate, will be challenging. There seems little likelihood that he will call a halt to air strikes within Pakistani territory, continuing to alienate Pakistanis.” He added, “His threat to tie military aid to performance in the fight against the Taliban and Al-Qaeda could cause rifts between the US and Pakistani military, but his shift towards economic development assistance may help shore up the weak democratic government in Pakistan.”

Price foresees little change in US relations with China. “The aims will remain the same: to identify common interests and work together; to acknowledge dependency, especially in the economic sphere; and to manage areas of clear conflict,” he said, adding, “Obama should be able to take advantage of rapidly improving relations between Taiwan and China to soften the relationship, but concerns over trade, will remain a threat.”

In the past Obama has voted against increasing the number of work visas offered in Asia, but lately he has suggested increasing the number of professional migrants. “The fact that this is a key issue, despite the economic difficulties the US faces, demonstrates the continued attractiveness of the US,” said Price. Because he spent his formative years in Indonesia, Obama brings greater cultural awareness of the diverse region than any previous president.

Economic recovery

“The downward lurch of the US economy during the final month of the campaign undoubtedly helped [Obama] win the election. Can he now return the favor by arresting the economic decline?” asked DeAnne Julius, Chatham House chairman.

“The fundamentals are against him,” Julius said. “A strong contractionary spiral has taken hold as households curtail spending and banks curtail lending, while house prices continue to drop, and unemployment mounts. A US recession is ‘baked in the cake’ regardless of the stimulus package the new Congress decides to enact.”

Nevertheless, said Julius, “Psychology will be as important as policy in sparking the eventual recovery. The pre-election vacuum of leadership clearly contributed to the dire state of consumer confidence and the precipitous drop in the stock market during October. This [Obama] has a good chance of fixing—starting even before the inauguration. The sight of a young, new president articulately engaging with other world leaders next week in Washington could be the spark that rekindles the optimism for which Americans are widely known and admired.”

US-Middle East relations

Claire Spencer, head of the Chatham House Middle East program, said: “Expectations for a change in US direction towards the Middle East are high, especially amongst the Arab populations of the region. The recent US attack within Syria is seen as a last ditch attempt by the Bush presidency to pressure the Syrians into controlling their border with Iraq and curbing their alliances with both Iran and Hezbollah. However, this is seen to be going against a wider trend, supported in Europe and Israel, to engage with Syria through negotiations and diplomatic enticements. It is anticipated that the new US presidency will fall into line with this.”

Spencer said: “The main headaches for the US administration will remain the three ‘I’s’: Iran, Iraq, and the lingering Israel-Palestine conflict. In none of these areas will the new presidency have much room for maneuver over the first few months. Withdrawal of US forces from Iraq will depend on the shape that the still unresolved ‘State of Forces Agreement’ takes. There is no guarantee that the outgoing Bush administration will agree to terms with the Iraqi government in time for the projected Dec. 31 deadline, when the [United Nations] mandate for the US presence in Iraq runs out. This could prompt a crisis of legitimacy in January 2009, yet in managing this, the new administration will be guided more by ‘facts on the ground’ than precipitate timetables for withdrawal.”

Iran’s presidential elections in mid-summer 2009 will not see a change in official positions over the nuclear issue, “even if President Mahmoud Ahmadinejad fails to secure a second term,” Spencer said, adding, “The dilemma then to be faced is how US officials might engage with Iran in ways that don’t concede too much ground from the now weakened UN Security Council sanctions regime.”

Although it may pain Obama’s supporters to hear, the state-run Iranian newspaper claimed Obama is no better than Bush. Although prospects for an armed US-Iran conflict “will be close to zero” under Obama’s administration, Iranian officials expect him to engage a “more circuitous route but his aim is the same as his predecessor…[Obama] considers talks not as a means to a solution but as a means to exert more pressure…[with] a stronger position to negotiate with Russia, China, and Europe to impose tighter sanctions,” Spencer said.

In the Middle East, Spencer said: “The greatest expectation is that the new US presidency will change its tone—away from the language of the ‘global war on terror’ to a more detailed understanding of the local and regional dimensions of change since 2003. Already, Washington, DC, is buzzing with new ‘strategic plans’ to combat terrorism and engage anew with the Islamic world. Whether US policy will reflect the wider reality that other actors are now taking the lead remains to be seen. The [Persian] Gulf states, China, India, Russia, and Turkey (inter alia) have moved the balance in the financial, diplomatic, and energy sectors away from the central role once played by the US as the region’s main security guarantor. Where this affords local actors and states such as Iran more leeway to resist US pressure, local hopes placed in a ‘post-Bush’ era for the Middle East may well be disappointed.”

US House, Senate

The Democrats’ advantage in the US Senate rose to 57-40 on Nov. 6 after Sen. Gordon Smith (R-Ore.) conceded to Democrat Jeff Merkley. On Nov. 7, three Senate races remain “too close to call” (Alaska, Georgia, and Minnesota), where Republican incumbents would lose their seats to Democratic newcomers; upsets in all three states would give Democrats a 60-vote filibuster-proof majority.

Meanwhile, FBR analysts reported that House Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) announced he will challenge John Dingell (D-Mich.), for chairmanship of the House Energy and Commerce Committee (ECC). Dingell is the longest-serving member and de facto Dean of the House (see p. 20).

According to CongressDaily, “Success for Waxman will likely depend on support from the large California delegation and liberals who feel Dingell’s support of the automobile industry and concern about automobile emissions limits would prevent strong environmental legislation.” FBR analysts said Environment and Energy News quoted an unnamed “refining industry lobbyist” as saying, “Given the scope of jurisdiction of the [ECC], all hell will break loose legislatively if Waxman [becomes chairman].”

Waxman reportedly favors letting the Environmental Protection Agency deal with climate change legislation while Dingell would prefer for Congress to retain that responsibility.