November 27, 2005
Peak Oil and the Redelineation of Global Power
Please comment, and make suggestions. I am working on this as part of a research proposal.
This research will analyze the ramifications of the growing energy crisis, and the possible restructuring of the present geopolitical and economic order. It will have a particular focus on the "peak oi" theory, which, states that current oil reserves have ‘peaked,’ and the world is now consuming whatever is left of a dwindling, non-renewable fossil fuel. That current levels of global consumption cannot be sustained over the next few decades at a rate appreciable to international commerce and population growth is a fait accompli.
This project will incorporate a multi-strand analyses under a Game Theory methodology, culminating with a crisis prognosis model. This research is timely and imperative as surging oil prices can precipitate global conflicts and anarchy on a scale dwarfing the current turmoil in the Middle East. It has historical parallels. Japan launched a lightning attack on Pearl Harbor on Dec 7 1941, after its oil lifeline to the Dutch East Indies was abruptly cut off.
The current oil situation is unprecedented in modern history. They are:
1) Supply Availability: Fossil fuel is not permanent panacea for our energy needs and it cannot be replenished. Various experts claim oil had “peaked”” after the year 2000, and this contention is consistent with the current trajectory of oil prices. Royal Dutch Shell alone was forced to cut its reserve estimates five times in 2004 . Major oil firms are desperately trying to boost flagging oil and gas production capacities and their quandary is exemplified by an over-reliance on moribund fields worldwide, a prominent one being the Ghawar wells in Saudi Arabia.
Oil is now being extracted from deeper sources through more expensive processes i.e. water injection. The price of oil will remain high.
Peak Oil is also called "Hubbert's Peak," named after Shell geologist Dr Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. He also predicted global production would peak in 1995, which would have transpired had the oil shocks of the 70s not delayed the peak for about 10-15 years.
2)Supply Stretch: Oil supply is so stretched that a concerted sabotage of two major pipelines in Russia or Saudi Arabia can precipitate pandemonium in the global economy. Hurricane Katrina, which, recently struck the oil producing Gulf Coast off the United States ratcheted oil to a record $70 per barrel. Major oil producing regions - Middle East, Central Asia, Russia and Venezuela - are bedeviled by terrorism and political volatility. Where stability exists, oil reserves are on a steep decline i.e. North America and the North Sea.
3) Environmental Factor: More hurricanes will ensue over the next few years in the Gulf Coast where most of the United States’ oil rigs and refineries are located. The “Atlantic multi-decadal mode” - where the “Atlantic Ocean and atmospheric conditions conspire” every “20 to 40 years” to “produce just the right conditions to cause increased storm and hurricane activity”- all point to a fragile energy climate ahead. This is a factor omitted by popular literature on the looming energy crisis.
4) Global Financial Crisis: The euro-zone countries hold over $200 billion in US securities while Asia holds $1 trillion or more. This is enough to sink the US economy, though foreign parties are well aware of the dangers of redeeming these securities too soon. US domestic and foreign deficits have reached historic proportions. In a classic Catch-22 situation, US monopoly on oil is being countered by a foreign hoard of US securities. A global hedge fund and banking crisis is looming as well. Banks had “created capital during the cheap oil period by lending more than they had on deposit, being confident that Tomorrow’s Expansion, fueled by cheap oil-based energy, was adequate collateral for Today’s Debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges.” (Campbell)
5) Soaring Prices: Goldman Sachs, among other reputed financial establishments, have already alerted markets of a possible "superspike" of US$105 per barrel. More recent projections place it even higher. In June 2005, despite repeated market assurances, OPEC raised its band system to US$40-US$50 (Reuters, June 24 2005). This band system may be revised further in lieu of a smooth global supply, which are not on the horizon.
The research is informed by the following theoretical assumptions:
The high price of oil is battering national economies, though the full extent of this will be actualized in the coming months or years. Current oil supplies have been inked and hedged in advance, at lower costs, though the rising band systems (or baskets) are placing a strain on any negotiated deals. To avoid a global industrial meltdown, or an outright collapse, oil supplies may have to be renegotiated in favor of major industrial powers like India and China to keep a crucial part of the global commerce running. There might be a further shift of basic, crucial manufacturing to these countries.
Here is a regional breakdown of scenarios underpinned by this research’s theoretical assumptions:
China: If its vast industrial expanse is threatened by an acute energy shortage, it might seize the purportedly oil-rich Spratly Islands, a chain of reefs also claimed by Malaysia, Vietnam, Brunei, Taiwan and the Philippines - all of whom are vested with greater legitimacy under the UN’s Law of Seas Convention. China’s recent moves to acquire Unocal, and even Exxon, hints at its desperation for oil. Further military escalations in the South China Sea are a distinct possibility to avert internal chaos. Taiwan may reunite with the mainland for economic reasons.
India: Now in a uniquely historical role to dictate terms to the West. Not only does it handle vital software infrastructure for MNCs, its call centers are crucial to international commerce. No other nation can produce call centers in such colossal numbers within a very short time. A shutdown of both - even for a day - will lead to financial mayhem. The linguistic edge India enjoys in terms of geopolitical power is largely ignored in international relations texts. Its industry is more service-oriented vis a vis China, and therefore less vulnerable to oil shocks.
Japan: Has been experimenting with alternative power sources for decades, some of which are already operational. Its military capabilities are limited.
Europe: Another region with a long tradition of experimentation with alternative energy. In a better position than most to weather an oil crisis.
South Korea: In a similar situation to Japan, but without a long track record of developing alternative power sources. Historically, it has resisted Chinese hegemony and might align itself to the US, even with a belligerent North Korea factored out.
Russia: Through its enormous reserves of oil and gas, Russia may aggrandize its geopolitical leverage in Europe. In the short-term, before a multifarious energy infrastructure is in place, the EU may have to make concessions to Russia.
Venezuela, Central Asia, Southeast Asia, North Africa and the Middle East: Has oil but no military capability to counter external threats.
Africa and South America: International Realism will leave little breathing space for these regions by virtue of their internal weaknesses.
1) Was the War on Terror and the subsequent invasion of Iraq a coincidence when Dr Hubbert’s 1956 predictions are taken into account? Are US military incursions into oil-rich regions an attempt to check its mounting debts, protect its domestic industries and prevent the emergence of rival power bases? The US army has already triangulated the planet’s oil belly from Incirlik (Turkey) to Manas (Kyrgyzstan) to Masirah (Oman). .
2) If oil supply is prioritized to major powers, what will be the quid pro quo, if any, to lesser economic entities? Impoverishment and inflationary pressures inevitably lead to anarchy. Will these nations relinquish sovereignty to future regional super-states, carved between major powers? The evolving EU super-state provides a template.
3) Geographical propinquity versus historical antipathy. Where do regions like Southeast Asia stand? Even with the Spratlys factored out, it is still a loose caucus of antipathetic nations. Indonesia, with its geographical location and expanse can play it various ways, by aligning itself to either the US, China or India while dominating neighboring nations like Malaysia, Singapore, East Timor and Papua New Guinea. Australia and New Zealand might hitch on to the US bandwagon, but what about Indochina, a region traditionally hostile to Chinese hegemony? The security repercussions are enormous.
4) Is Peak Oil being used as a bogey for global power plays, at the expense of viable alternative energy? What happens if alternative energy sources are employed in the near future? Japan and the West have embryonic multi-source energy infrastructures in place. Once these projects gain momentum, could the Middle East implode after losing hundreds of billions from projected oil revenues, and the tens of billions now being invested into its oil fields? Would the profitable markets of China and India be threatened if the current anarchy in Iraq spills over to neighboring nations? Under such a scenario, wouldn’t power and industry shift back to the West and Japan? Will India emerge stronger to China by virtue of its industrial orientation?
The 1997 East Asian Financial Crisis reveals how the manipulation of resources (in this case currency) can lead to a quick takeover of Asian firms. A similar feat could be accomplished through a dual approach of subtle alternative energy development and crude “energy geopolitics.”
5) Will strained oil supplies spawn a new supra-national body - under the aegis of the UN - to renegotiate oil treaties and supplies? Logically, this would be the best time to ramrod current IMF and World Bank policies and streamline economies through regional super-states. Erosion of individual rights is a natural outcome.
6) Would future environmental impacts on energy-producing regions further exacerbate a realignment of global power?
There is no better methodology to frame this research than Game Theory, originally a branch of applied mathematics that has gone beyond numbers crunching to define “chess-like strategies in politics and business” and which “can be applied to arms races, price wars and actual warfare” . Robert J. Aumann and Thomas C. Schelling won this year’s Nobel Prize for Economics for their contribution to this field.
Game Theory produces the best prognosis by simultaneously analyzing the interplay of various power-related factors.
Method 1: Investigation of archival and academic materials. Past patterns of hegemony and warfare are consistent with Game Theory. Historical resource wars, and the resources fought over (Buzan) will be juxtaposed to the emerging energy tinderbox. Another part of this research will incorporate the complexities posed by new communications technologies and the counter-propagandas (Taylor) that will be employed in the prosecution of energy-induced power plays.
Method 2: Analyses of emerging data on oil supply, political volatility, terrorism and the global financial market. These will be juxtaposed to plot a pattern of national/regional posturing. Piracy and naval maneuvers at vital sea lanes like the Straits of Malacca will be researched as well.
Method 3: Tracking developments in new weapons and surveillance technologies that can be used to pressure nations and restive communities within nations. A hypothetical super-state cannot be effectuated without an economic, military and panoptic superstructure in place. Methods 2 and 3 will partly rely on emerging developments and scenarios.
Method 4: Interviews with energy experts, industry pioneers, financial analysts, and military tacticians to elicit expert opinion, independent of official organizational pronouncements.
Through the Game Theory approach, Methods 1, 2 and 3 and 4 will provide most of the answers to research questions 1 to 5.
Method 5: Tracking environmental data relevant to the oil industry. Data will be sourced from organizations like Atlantic Oceanographic and Meteorological Laboratory (AOML), National Hurricane Center (NHC). This will be supplemented by online interactions with relevant experts. This method will attempt to answer research question 6.
RESEARCH CONTRIBUTION AND RELEVANCE:
Current literature on “peak oil” paint a gloomy picture of “life after oil” while this study focuses on oil as a likely instrument of global power redelineation. This research predicates that there may not be a serious, long-term energy crisis; rather a global power shift through the machinations of supply control and alternative fuel development. Since the prospect for conflict is clear and present, this thesis will also serve as a crisis prognosis model, predicting potential flashpoints and the probable international pacts that will be forged.
While this research is being drafted, its hypotheses will be relayed to national institutions dealing with energy geopolitics and domestic industrial security. Information relayed both ways would form a symbion. Methods to counter oil shocks will be explored.
2) Many More Hurricanes to Come. LiveScience.com, Aug 31 2005
3) David Champeau - The Dollar: Time for Change (Asia Times, June 4, 2005)
Richard Freeman - Anti-Capitalist Clique Leads the Attack on Social Security (Executive Intelligence Review, Jan 28, 2005).
4) Mathew Maavak - Mission Creep: A Force for Global Stability (Panoptic World, June 6, 2004)
Mathew Maavak - Quagmire of Blood Oil, Sweat and Deceit (Panoptic World, June 20, 2004)
Mathew Maavak - Bursting Bubbles and the Economics of Domination (Panoptic World, May 20, 2004)
Mathew Maavak - Depredations, Madman Theory and Blood for Oil (Panoptic World, July 10, 2003)
5) Game theory economists share Nobel prize (AP, Oct. 10, 2005)
1) Energy and Security: Toward a New Foreign Policy Strategy - Edited by Jan H. Kalicki and David L. Goldwyn, (Johns Hopkins University Press ( 2005)
2) Matthew David Savinar - The Oil Age is Over (2004)
3) Michael T Klare - Blood and Oil: The Dangers and Consequences of America's Growing Petroleum Dependency (Metropolitan Books, 2004)
4) Matthew R. Simmons - Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Wiley, 2005)
5) Kenneth S. Deffeyes - Hubbert's Peak : The Impending World Oil Shortage (Princeton University Press, 2003)
6) Andrew MacKillop (Ed) - The Final Energy Crisis (Pluto Press, 2005)
7) C. J. Campbell - The Coming Oil Crisis (Multi-Science Publishing Co. Ltd. (2004)
The gist of these works can be read here: Peak Oil: Life after the oil crash
Note: Most literature on Peak Oil are very recent and no model has emerged to tie various strands of an oil shock together.
1) Sterling Seagrave - Soong Dynasty (Sidgwick and Jackson, 1985)
2) William Manchester - The Arms of Krupp (Back Bay edition, 2003)
3) Norman Davies - Europe (Pimlico, 1997)
4) Sterling Seagrave - Yamato Dynasty (Bantam, 1999)
5) Noel Barber - Sinister Twilight (Collins, 1968)
6) William Manchester - Goodbye Darkness
7) P.M. Taylor - Munitions of the Mind : A History of Propaganda, Third Edition (Manchester University Press; 3rd edition, 2003)
1) Roger B. Myerson - Game Theory: Analysis of Conflict (Harvard University Press, 1997)
2) Herbert Gintis - Game Theory Evolving (Princeton University Press, 2000)
1) Barry J. Hanson - Energy Power Shift: Benefiting from Today's New Technologies (Lakota Press, 2004)
2) Godfrey Boyle - Energy Systems and Sustainability (Oxford University Press, 2003)
3) Sally Morgan - Alternative Energy Sources (Heinemann, 2002)
International Relations Literature:
1) Barry Buzan - Regions and Powers: The Structure of International Security (Cambridge University Press, 2003)
2) Philip Bobbitt - The Shield of Achilles (Anchor, 2003)
3) Barry Buzan - Does China Matter?: A Reassessment (Routledge, 2004)
4) John Baylis and Steve Smith (Eds) - The Globalization of World Politics (Oxford University Press; 2nd edition (2001)
5) Barry Buzan and Richard Little - International Systems in World History: Remaking the Study of International Relations. (Oxford University Press (2000)