Substantial and unmistakable signs of profound change in the global strategic framework have become concrete in the past year. The stress in the structure has already developed into fissures. The transformation, in reality, has been underway since the end of the Cold War, and will continue and compound for at least another decade.
The balance of power is changing. Apart from the wave of globalization, which was really a precursor event, what is now emerging is the first truly fundamental change since the end of the Cold War, and, in global terms, it is a change which may redefine entire civilizational blocs. It is the most profound geopolitical change since the end of World War II, and part of possibly the most profound change in human history since the Industrial Revolution.
Within this context, energy is the driving physical factor. It has been the critical physical component of economic, military, and social strength since the Bronze Age. The Industrial Revolution, however, beginning in the 18th Century spurred an increasingly intense use of, and dependency on, more and more varieties and quantities of energy, culminating with the present situation in which no society can remain se-cure, or competitive, without access to cheap, high-volume energy. Given the present needs for energy, and the indicators of changing megatrends, which I will discuss shortly, the questions of how society will use and need energy, and, conversely, how energy forms and trade will affect societies are the vital components of economic wealth and security going forward.
One of the key symptomatic indicators of the change in the global strategic balance is that in 2008-09 the US-led bloc lost control to Russia of much the global energy marketplace. This will become increasingly apparent in the coming year. Russia’s emerging energy dominance and the growing autonomy of new great energy users (such as the People’s Republic of China and India) has been compounded by the reality that Western societies and governments have, ironically, been acting as the greatest adversaries to continued Western dominance of energy development and markets. Western societies have penalized energy development and access on the basis of ecological and social belief systems. Russia, the PRC, and India have not.
Rising wealth — and concurrently rising oil prices — contributed increasingly during the Cold War and post-Cold War eras to the development of diversified solutions to energy needs. That trend has been curbed because of the current economic condition and will probably remain subdued for as long as an-other decade. This means that the dominance of petroleum and natural gas, which could have been expected to last for another, say, three decades, has now been further extended. Funding for a range of alternative energy sources, both to meet energy demand and to meet environmental ideals, will diminish. Many new technologies, then, will be delayed or will be introduced only under narrower market conditions.
The decline in economic conditions globally has meant a short-term decline in oil and gas revenues for many supplier states. The situation, however, works in the longer-term interests of fossil fuel supplier states, including coal suppliers, rather than newer technology providers. As a result, the moves by the Russian Federation to capitalize on recent geo-strategic setbacks by the US and NATO in Central Asia, the Caucasus, and the Black Sea areas promise to give Moscow a far greater voice in global energy and political-strategic issues in the coming decade than would have been the case had the global economy not faltered.
The US will thus be limited in its strategic, economic, and energy options and global influence to the corresponding degree that the Russian Federation has prospered. The newly-acquired domination of the energy situation in EurAsia by Russia marked a major reversal for the US strategically, and not just in terms of domination of the energy situation. It ensured that the US’ gains in Central Asia and the Caucasus since the end of the Cold War had been reversed, and that the US alliance position with Turkey had been, to all intents, lost, ending a Western position, inimical to Moscow, which had prevailed since the Crimean War of 1853-56.
The volte face in this critical aspect of the Russo-US power balance also jeopardizes and will essentially reverse US gains in Ukraine, and effectively end the meaningful expansion of the North Atlantic Treaty Organization (NATO). This, in turn, will signal the end, sooner rather than later, of the US-led NATO and Coalition war against the Taliban in Afghanistan, something which had also been jeopardized by the fact that the war had also destabilized Pakistan, which is the essential logistical route and ally for the Western combat forces in Afghanistan.
One of the significant factors in the new strategic framework will be the limitations on global-scale capital formation. A tendency has already begun which sees not only a contraction of available funds, but a geo-graphic redistribution of capital movement. To a limited degree, some capital will continue to flow to what are considered safe, traditional financial centers, although all of these — including London and New York — have been so tarnished or damaged by mismanagement that they, too, are increasingly seen as questionable risks. In many instances, capital will remain “closer to home”.
The retention of available funds within individual nations or home regions is already being coupled with increasing conservatism in investment and lending practices. This will affect the progress of capital-intensive energy projects, and compound reliance on traditional technologies and sources. This, in turn, will increase competition for traditional fuels, such as petroleum and coal, as well as for natural gas. Pric-es for these commodities will, as a result, rise in advance of overall economic recovery, and this will see competition become vigorous in some key areas, such as the Persian Gulf, parts of North and East Africa, and particularly in the Gulf of Guinea states of Western Africa.
In the short-term, however, relatively low oil prices will severely destabilize or depress some areas, such as Venezuela. A decline of some 75 percent in petroleum prices between July 2008 and March 2009 is clearly a short-term cyclical issue, but some countries are increasingly ill-equipped to deal with the shortfall. Venezuela, for example, now derives 94 percent of its export earnings from oil (compared with 68 percent before Pres. Hugo Chávez Frias took office in 1998), and 50 percent of its budget, and yet Pres. Chávez has committed to increased social spending and support for his alliance partners abroad.
The short-term loss of funds, coupled with extreme economic mismanagement by the Chávez Administration, may curtail much of the radical activities by Venezuela in South America, and may destabilize Venezuela still further, despite some commitments of support from Russia and Iran to Pres. Chávez. His only alternative to instability will be through increasing repression of the Venezuelan population.
But in other areas of significant oil and gas production, however, it is likely that some key governments — such as the Government of Nigeria — will remain stable and face increasing competition from buyers for Nigeria’s energy products. Significantly, Nigeria and the Gulf of Guinea are likely to be the primary areas of interest for Australia’s anticipated acquisition of oil as Australia turns from being predominantly oil-independent to predominantly oil-dependent. Here, however, Australia faces substantially increasing competition from India and the People’s Republic of China (PRC), which are working hard to supplant the European Union (EU) and the US as favored clients and partners in Nigeria and other West and North African states. The US already acquires more than 15 percent of its total energy imports from Nigeria, and this percentage is expected to rise to some 25 percent of energy imports by 2025.
The US and EU can no longer take for granted their favored relationships with Nigeria and other African states.
We will continue to hear much talk of the benefits and impending viability of alternative energy sources. Many of these, however, will fall victim to declining procurement and research and development budgets. It will take wise and determined governmental leadership to persist with the development of new energy sources which move outside the presently-dominant fossil fuel — oil, gas, and coal — systems. Equally, it will be a foolhardy government which persists in devoting too great an effort toward legislation and spending designed to favour technologies which have as their principal aim the reduction of carbon emissions. Under present circumstances, this priority will directly impinge on the economic viability of the society as a whole, and the collapse of economic viability will ultimately backfire on the government itself. In this climate, opposition to nuclear energy will reduce.
If we are looking at the matter of energy security in a transforming and unstable global framework, it is necessary to outline what that “transforming global framework” might entail. Some of what we will face will include the following:
1. Globalization is dead, and heightened nationalism and xenophobia, hallmarked by draconian political correctness (a heightened sense of narrowly-defined populist conformity), is returning to take its place, at least for a period of transition through the collapse or total reframing of global society. This entails a revival of protectionist policies, and new forms of what is essentially racism and other forms of chauvinism (ie: distrust and distaste for anyone who isn’t “us”), as societies and nations rush to protect themselves from their neighbours and, particularly, to protect themselves from the great and predatory powers, including the US;
2. Democracy, as the West has evolved it in recent decades, is also dead, already replaced by the “guided stewardship” of professional politicians and bureaucrats. Elected and bureaucratic officials who, overwhelmingly, have never been self-employed or worked in private enterprise, increasingly not only fail to protect the interests of the society as a whole, but actually fear and distrust the competition of free minds and entrepreneurs, and anything else which they cannot control. As a result, Western societies are polarizing into those members who produce and those who govern;
3. Personal freedom, the phenomenon which actually legitimizes democracy, has been dead or dying, or increasingly rare, for some time. Its rediscovery, and with it the phenomenon of true leadership and naturally-respected hierarchy, will be the thing which rebuilds societies;
4. Human numbers are set to decline significantly, with profound effects on stability, and on social and economic values. Throughout history, population levels have grown gradually but then have fallen dramatically and precipitously. Global population numbers have grown by more than four-billion since 1950, and are nearing their peak.1 They are still climbing, albeit with flattening growth rates, and will begin to decline by about 2035, but possibly much sooner. The decline, through lifespan reduction, poverty-assisted reductions, pandemics, and conflict, will neither be or-derly, entirely predictable as to pattern, nor will it be “civilized”. This will significantly affect asset values, political stability, population movement, and much more;
5. Global wealth is part of the problem. Massive strides in global wealth — along with the temporarily still-rising human numbers and urbanization — are accelerating the speed with which we approach the pivotal or junction point. The massive human flood toward urbanization, provoked by simultaneous human population growth and rising per capita wealth, transforming what society needs and wants, has already begun to accelerate the turning point of human society, pointing to the new confluence of trends which will see entire nation-states become non-viable almost overnight in their present form. A reactionary move toward de-urbanization is already beginning in many parts of the world, such as mainland China;
6. The rush toward dysfunctional and inadequate responses. Governments — politicians and bureaucrats — are, in their desire to retain power, attempting to control the growing global dysfunction by applying old, or ill-considered, remedies. They employ measures such as direct cash stimulation to stave off economic disaster, rather than giving control back to the true marketplace, allowing (and encouraging) the creation of food and industrial production to re-establish balanced societies. “Creative destruction” or collapse is feared. The panaceas which are being dispensed at present in fact compound the devaluation of assets, and particularly currency, given that “trust” is the basis of currency and asset value, and trust is a psychological condition.
7. Old institutions fail; new ones are not affordable. Virtually all post-World War II transnational institutions, such as the United Nations (UN) and the North Atlantic Treaty Organization (NATO), are already effectively defunct. And just as they need replacing, or reshaping, the funds for major international initiatives have evaporated.
8. Rising informal conflict and tides of human movement. The new threats are not so much un-controlled nuclear warfare, but primitive warfare, and the breakdown in international law and order. Global population movements will begin as whole groups attempt to flee economic or environ-mental decline or disaster. That process is already underway. This population movement will be from disaster areas to more stable and wealthier areas, a process which will transform disaster areas into black holes, and wealthier and stable areas into poorer and less stable areas. Thus, countries such as the US, Australia, Western Europe, New Zealand, and so on, will become targets for upsurges in illegal immigration and crime. Countries such as Pakistan, already overwhelmed by illegal immigrants from the 1980s (and the criminal activities they have inspired), will face life-or-death battles to preserve stability.
9. An end to the systematic growth in scientific learning and innovation. Human civilization has been a process in which tools of learning — both physical and intellectual — have been built one atop another. Where learning becomes distorted, particularly due to the political correctness of dogmatic belief systems, or through poverty, the growth in scientific progress declines. With declining productivity comes the declining ability of societies to fend for themselves, and provide food and wealth. This in turn transforms population patterns, and creates “dark ages”, such as we witnessed with the collapse of the Western Roman Empire.
10. The peaking and decline of urbanization. The decline of wealth, even for relatively short periods, spells an end to the massive movement toward the urbanization of human societies around the world. Urbanization, which peaked in 2008, was already showing signs in 2009 of declining in key countries, such as the People’s Republic of China, as disenchanted — and potentially starving — urban dwellers began the trek back to subsistence agricultural communities. What had been lit-tle realized was that urbanization was a by product of wealth and the dream of wealth. It is intellectual and scientific wealth which has always underpinned, facilitated (and compounded) urbanization since the time of the creation of agriculture.
11. Declining urbanization and shrinking populations will affect asset valuation. Shrinking population levels in cities, due to general population decline and to de-urbanization, will see the transformation of property and other asset values, and ultimately will see the rearrangement of perceptions of values and priorities in general. The critical junction point will come where some societies lose the critical mass to produce the essential services of modern life, which are essentially energy-driven and technology-based. The global economic downturn of 2009 also demonstrated the reality that declining perceived value in real estate, particularly in urban areas, affected the vi-ability of entire economies to perform across the broad range of requirements of a modern power.
12. The realignment of “value”, and the threat to currencies. Just as real property values are based on trust and perception (generally driven by supply and demand issues) — and trust and perception are abstract and psychological concepts — so, too, is the value of currency a delicately-balanced affair. If trust in leadership, systems, hierarchies, and national identity collapses, why should currencies retain their value? That value is not intrinsic to the currency itself, but rather to the economy which is built around group identity and social cohesion.
13. Professional talkers will give way to autocracies and dictators. One by product of wealth is the relegation by all individuals of some of their individual powers to others. As wealth increases, individuals assign the more onerous of their tasks to others — cleaning, road repair, and so on — while also assigning to group action those things which are too big, or too complex, for the individual: the construction of houses, or aircraft, or automobiles. And as wealth increases, or conversely decreases to the point where individuals are preoccupied with survival, the function of governance is assigned to, or seized by, those who would take power for their own sake. This has led to the current age of the professional politician — “leaders” who have gained all their status through talking, rather than actually having achieved or built — but the “professional politician” will morph into new forms of Cæsarism or Bonapartism. This is already underway, as “leaders” with no practical experience of the world increasingly fear the uncertainties of markets and the confidence of those who can actually create, manage, and build. Thus, the “new socialism” is a system built by leaders who demand central control of societies and who genuinely fear freedom.
14. The revived scourge of pandemics. The confluence of trends — declining economic performance, leading to lower budgets for research, healthcare, food, water, and energy, coupled with naturally-changing patterns of climate — will see a rise in the likelihood of a range of pandemics which will influence the population levels, but more importantly, the viability, of societies.
15. The decline of global capital formation. The new nationalism and fear of instability in other parts of the world will mean that, for the most part, investors will keep much of their capital close to home. This may improve the chances for local capital availability, but will minimize the cash moving in to the international markets, making large-scale capital formation more difficult. This will make international lending and investment more difficult, and will lead to a decline in capital needed for large-scale projects as well as speculative research and development.
16. The decline of reliable information resources. Economic conditions and changing social pat-terns have already led to the decline in the quality and viability of newspapers. At the same time, although the number of book titles published has increased (and this is expected to peak), the percentage of the global population reading books is declining. No comparable sources of deep and trustworthy information have yet emerged to satisfactorily achieve the same ends as books and periodicals. All new information sources — such as the internet — tend to be less rigorous in their editorial disciplines as a general rule, and tend to cater to shorter attention span audiences. As well, they generally provide information for which the viewer is already searching rather than providing the unsought, and yet important, reports which, in newspapers and magazines, tend to educate the reader unbidden. Thus we see the decline in general education compounded, and narrow specialization in knowledge increased. In a world where a variety of knowledge skills will be necessary for survival, this is a dangerous limitation on human capabilities.
We are left with the requirement, then, to plan for political and economic uncertainty in a climate which is guaranteed to present a growing array of threats and challenges. It is clear from what is already under-way is that some will prosper in chaos, and some will suffer. Lack of clear objectives and misplaced priori-ties represent the biggest threats to all societies. Waste, indecision, panic, and obfuscation are their handmaidens.
This article was written by Gregory R. Copley for OilPrice.com - the no.1 source for oil price information
It was first published on March 20, 2009 – almost a year ago – and yet it is already proving to have been a significant harbinger as to how the global strategic framework is emerging. It is worth repeating here.