can’t see the forest

Peak Oil: Does This [Have To] Mean War?

In the current edition of The New Republic there is an interesting, well-written, and circumspect article by Joshua Kurlantzick called “Crude Awakening: The Coming Resource War.”

The article discusses, in a somewhat paranoid and trigger-ready tone, the rise of the Chinese economy as a balance to US consumption, and the polarizing effect this is having among the world’s largest oil-producing states. The author points out that, according to the Wall Street Journal, 90% of the world’s untapped conventional oil reserves are now directly controlled by governments or state-operated oil firms. Many of those governments—Venezuela, say, or Iran—are hostile to the stated and unstated geopolitical agendas of the US government, and rapid growth and rising demand in China are providing an attractive export opportunity for these powers. Iran and Russia hold the lion’s share of Earth’s natural gas. With Ahmadinejad traipsing around Shanghai and with Putin having written even in his days in the intelligence services of the political and economic power wrapped up in a barrel of sweet crude, we are facing a time in which a coming relative scarcity of petroleum can be used as an effective weapon against the larger aims of the US and its allies.

Kurlantzick writes:

In the last two years, the axis has begun to solidify.

The autocrats are building more lasting relationships, and,

while many first developed ties to China, they are now

crafting bilateral ties to one another as well. For example,

Venezuela has begun cultivating a close diplomatic and

commercial relationship with Iran, which has pledged to

invest $9 billion in Venezuela in return. The autocrats are

also collaborating to control natural resources. According

to the Financial Times, Chávez enlisted Iranian advisers to

help him figure out how to ship more oil to China. Learning

from his Venezuelan mentor, Morales of Bolivia took one

of his first state trips to Beijing, where he invited China to

access his state’s resources. Meanwhile, Moscow recently

inked a new deal to provide China with billions of dollars in

gas, even as it refused to negotiate gas deals with many

Western nations. And Tehran’s mullahs have persuaded

Beijing to develop a $100 billion oilfield in Iran. Already,

Iran supplies some 14 percent of China’s oil.

Now, with a vast new market in China, the petroleum

producers can consider reducing deliveries to the West, a

far greater weapon today than during the 1970s oil embargo,

when oil producers did not have an alternative consumer.

Chávez has threatened to cut off all oil shipments

to the United States and recently cut off supplies to some

Citgo gas stations here. (Venezuela owns Citgo.) As energy

scholars Gal Luft and Anne Korin note, Saudi officials also

have begun speaking openly about cutting off oil to the

United States—presumably if America’s image in the Muslim

world declines so much that Riyadh cannot afford an

alliance with Washington.

My basic problem with this article, which contains lots of good information and a fairly well-rounded analysis of the geopolitical situation in which we find ourselves today with regards to the supply of oil, is that the conflict is being drawn up expressly in terms of us against them, democracy against the autocrats, neoliberalism against the backwards paganism of goverment-regulated markets. The struggle for primacy in the energy market is certainly a polarizing affair, but not because we are a democratic society and “they” are not.  The simple truth is that a totally free energy market would simply place the price of energy completely beyond the means of many of the world’s less developed nations. The current figures say that the US uses about 25-30% of the world’s fossil fuel energy. China is set to match that before too many more decades roll by, and with an OPEC production peak expected sometime within the same timeframe, it’s not hard to figure out that the thirstier powers are going to leave the smaller ones scrambling for what’s left.  So while we watch this slow-mo diplomatic chess game unfolding between the US and China, there are going to be a lot of smaller nations fiercely hoping to catch whatever drops might spill out of the buckets. Their economies are small, but growing and in need of increased energy supplies, too. 

One factor working in favor of the young guns is that, in smaller and less-developed nations, transitioning to a more green economy based on energy derived from agriculture will be an exponentially easier affair than in powerhouses like Russia, China, or the US. There’s not as much infrastructure to overhaul, if any, and these developing energy systems can be developed with an eye on the future from the ground up, or near it.   

Back in the glory days in which the US was the world’s leading exporter of oil, it could exert a fair amount of influence in the world by determining who could buy what oil for how much. The simple reality is that now we are entering into a stage in which the US must be willing to play along by the same rules it once enforced. The US is now vulnerable to the energy market, as is China, and there’s going to have to be some compromise. To politicize the economics of natural resources by pointing fingers at the “autocrats”—most of whose citizenries are at least content with the states of affairs under these various regimes—is to imply that, simply by virtue of its system of values and government, the US has some inherent right to exercise control over a disproportionate quantity of the world’s energy. It ain’t necessarily so. US free-market economics are responsible for a high standard of living here, mostly because we do not hold ourselves to the same more rigid definition of “free market” that we impose on subservient powers; we have an enormously subsidized agriculture industry, and so on. In the third world the long-term effects can be devastating, as we’ve already seen in the agricultural and energy sectors. The rules of free market economics are fine and great as long as production is always increasing. A bank lends out capital it doesn’t have because future expansion is its collateral. But when the lifeblood of the economy begins—however slowly—to run thin, the rules don’t work the same as they used to.

In 2003, the geologist Colin Campbell proposed a quite workable solution to the problem of limited energy. It has received virtually no attention from political leaders in the US and elsewhere. It’s called the Rimini (or Uppsala) Protocol, and it goes like this: oil-producing countries would cap their production rates at or below the rate at which their supplies are being depleted. Oil-importing nations would cap their imports at present levels. The effect is that a supply stability in first world nations would be guaranteed and this would buy extra time in which these nations could actually get off their butts and do what their leaders are trumpeting: develop alternative energy sources. The other major effect is that, in capping their own imports, the world’s more robust powers would offer the third world a real opportunity to be able to afford the oil it needs, because continually increasing demand under supply strains would not keep driving prices beyond their means. Campbell has said that the real-world effects of this policy in the US, for instance, would be like watching 100 cars per day whiz down the road this year, and then 99 next year, and 98 the following year, and so on. To the end consumer, the effects would be nearly negligible in the short-term.

It’s a very reasonable solution. Doubtless it needs fine-tuning and diplomatic regalia behind it, but there is one simple reason that this policy is not being admitted to mainstream discussion: because economic growth hinges on energy growth, and our brazenly capitalist-expansionist system cannot cope with the idea of altering this energy-to-growth relationship for the good of ourselves or of others. As long as there are profits to be made by doing things the old way, there’s no convincing reason to adopt a more realistic model. The machinery was set in motion long ago, and no one—least of all economic planners in the US or China—is willing to put on the brakes.

My point is that, if there are going to be “resource wars,” it will not be because of political tensions or the obstruction of Washington’s thirsty quest for “democracy.” That’s all superficial, almost sickeningly so, to me. The aggressive foreign policies of the US and its allies (which, I might add, The New Republic has backed almost without fail from the 1970s onward) are responsible for a lot of enmity in less-developed nations. But the pro-Beijing alignment we’re seeing among these countries is as much a natural reaction to economic realities than to political perturbances. If there are resource wars, it will be because those at the helm of economic machinery in the first world have serious issues with delayed gratification, like children left alone with the cookie jar on the other side of the door that leads to the cookie factory. Campbell’s Rimini Protocol offers a chance on bought time for us to work out as many of the issues as possible with what have so far proven to be extremely inefficient means of alternative energy—but since that’s about all we have to work with, work we must, and adjust we must.  In my opinion, the United States made its intentions plain when it invaded Iraq in 2003, although there were serious hints being dropped along the way even as far back as the Second World War. Is it really a conspiracy theory to suggest that the Vice-President of the United States, once the CEO of the world’s largest oil refining company, insisted on ignoring intelligence evidence which did not back up his dubious reasoning for invading Iraq post-9/11 for reasons other than political ideology? If it is, then I’m a conspiracy theorist, oil the way.


5 Responses

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  1. peoplesgeography said, on 10/5/06 at 3:32 am

    Oil we are saying, is give the Uppsala Protocol a chance. :D Another thoughtful piece. On a completely unrelated note, does anyone else think there is a special blogging sense of time? Missing a day or two readin’ and or postin’ seems like an eternity … Also, just as a curious aside, your intriguing avatar. To me its reminiscient of those Soviet style posters from the 20s … where have you drawn this vignette from?

  2. tellitlikeitis said, on 10/5/06 at 10:45 am

    I know what you mean. When I’m gone for a few days I come back totally out of sorts and clicking much more quickly and haphazardly than befits a gentleman of my circumstance.

    To be honest: I have no idea what that avatar is. A friend of mine visiting from N. Carolina downloaded it from his camera onto my computer back in the summer along with a lot of other anomalies, and I was thinking pretty much the exact same thing: it’s just too Soviet not to use. So I’m actually kind of interested in finding out what it is–he might have taken it somewhere in downtown Portland. I’ll have to email him.

    Thanks for your compliments, as always.

  3. Skip Conover said, on 10/9/06 at 4:28 pm

    I really have to urge upon you a graduate course in micro-economics (with a quant economics PhD from Chicago, Carnegie-Mellon, Rochester, or MIT–the so-called “Chicago School” of Economics–not that touchy feeling Harvard stuff). As you describe the Rimini Protocol, it amounts to a global cartel. Cartels don’t work, because the members cheat. This is fairly well established in the literature. The “bad guys” can’t control how much oil we use, because they need the revenues from the oil for their own nefarious gains and Swiss bank accounts. Therefore, they will always sell to the highest bidder, on the “black market” if there were something like a Rimini Protocol. You can see my piece on “Imperial Power” for more on the point. As for fewer cars on the street, that won’t happen, because there will be a “black market” in every back ally, thereby allowing the number of cars to increase. My wife keeps worrying about whether I’ve saved $0.10 per gallon on gas. I tell her I don’t care if my car’s gas costs $10.00 per gallon. Of course, most Americans do care, but there will be enough who don’t to make a viable “black market.” The reason is that I need my car, regardless of the cost, and I am far enough along on my career to pay whatever the “black market” rate is. This is, fundamentally, why the Rimini Protocol can’t work. I could be tiresome some more on this, but I won’t. Still, it’s a very good piece of writing, as usual! And, “no,” Peak Oil does not mean war; only fear mongering politicians, who don’t have ideas for diplomacy mean that.

  4. tellitlikeitis said, on 10/10/06 at 11:13 am

    Point well taken, Skip. And I would very much like to look into higher education in economics.

    But I think there’s some evidence that cartels can work…for instance, it’s well known that the heads of the then-“major” oil companies met in Scotland in the 1920s to establish a doctrine of relative non-competition. They decided to synchronize prices, essentially, to drive out potential competitors. The competitors that managed to gain an edge were admitted into the scheme later. That is very much a cartel.

    And in the 1970’s OPEC got into a little carteling of their own; and while it wasn’t long-lasting, it did force the United States into a compromised position.

    I don’t think any amount of education would force me into accepting that it’s alright for the 5% of the world population which the US populace represents to consume almost 30% of the world’s energy. But I could be wrong, and more education is in order.

    Thank you.

  5. Skip Conover said, on 10/10/06 at 2:13 pm

    I just wrote an answer for 30 minutes, which got eaten by the system. The gist of it is:

    It’s OK to have the ideal of everyone consuming the same amount of energy, but compassion must be tempered with wisdom. It’s not head v. heart. It’s head and heart.

    Best regards, Skip

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