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Massive Losses Force Glencore To Slash Dividends

Massive Losses Force Glencore To Slash Dividends

The coronavirus-fueled demand destruction of…

Gregory R. Copley

Gregory R. Copley

Historian, author, and strategic analyst — and onetime industrialist — Gregory R. Copley, who was born in 1946, has for almost five decades worked at…

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Why Oil Is Critical To U.S. Survival

One more word on Beijing’s plans leading up to, and during, the 2020 crisis. This crisis was to be the pivotal point for the Communist Party of China. If the People’s Republic of China (PRC) could not compete economically with the U.S. under the terms of the existing, Western-created, “rules-based world order”, then those terms of engagement would have to be changed.

If the PRC economy could not grow in terms defined by the West, then the West’s economies would have to be reduced. The 2020 crisis would potentially “level the playing field”: flattening the terrain of strategic engagement.

An integral byproduct of this was the reality that the 2020 crisis also lowered an already depressed global demand for energy, particularly fossil fuels which had come to be the primary energy driver of global economic growth. Oil, in particular, had been the great underpinning of 20th Century growth.

As a result of the lowered demand for oil and gas, those states which were primarily dependent upon the export of fossil fuels would see — as 2020 proved — a catastrophic reduction in market demand and therefore a reduction in the value of their exports. This meant that the first casualty of the crisis would be those states the wealth and power of which depended on the sale of oil and gas.

That included most of the state members of the Organization of Petroleum Exporting Countries (OPEC). But not all. And for as long as Beijing was able to halt or change the Western-defined “rules-based world order” those affected states would see their golden ages eclipsed.

Related: The Unnoticed Power Grab Unfolding In Libya’s Oil Crescent
But, again, not all: ancient and entrenched societies such as Persia (Iran) and Russia, although damaged, would retain viability because of historical social patterns and because of a level of diversification of economic survival patterns. They had firm agricultural and manufacturing bases, domestic consumer economies, and at least could benefit from their own low petroleum costs. The future, however, was to become, for them, less expansionist and more about rebuilding the security of their own nation-states.

For Beijing, this meant that Russia could possibly be humbled to true supplicancy to the PRC; to become a tributary state of the Middle Kingdom.

This era of “cheap oil and gas” — unsustainable for producers — could arguably have been seen as the removal of one impediment to the cost of economic growth… unless the economic unsustainability of fossil fuel production meant that it was no longer readily available. That situation would, of course, and under normal circumstances, automatically impel a cyclical rise in the price of oil and gas… Unless demand remained low because of Beijing’s success in continuing to depress global economic growth for its own strategic reasons.

There was no question, even in 2020, that the short-term economic depression would be partially overcome and that some revived energy demand would be evident in the near term. Prices would start to haltingly rise a little, albeit not enough to restore the economic fortunes of Saudi Arabia, Kuwait, the United Arab Emirates, Venezuela, Nigeria, Angola, and so on.

Their fates would, to varying degrees, become parlous once their sovereign wealth funds became depleted.

But at what cost to the world?

My old colleague, mentor, and partner, Stefan Possony, told me in 1972 — and I am sure wrote it somewhere in the pages of our Defense & Foreign Affairs publications — that all great powers (and notably Rome) have been hallmarked through history as being the most profligate users of energy in their respective eras.

It was this “waste” of energy which enabled the creation of strategic advantage. From the cooking of healthier food diets to the creation of sufficient light by which to extend the hours of learning and production. And certainly to forge better metals, from the creation of bronze from copper and tin, to the smelting of iron to the creation of steel, and so on.

Related: The Shale Basins That Have Been Hit Hardest By The Oil Price Crash

Possony, and co-author Jerry Pournelle, in 1970 discussed how, despite its advantage in resources and technical capacity, the U.S. was lagging behind the Soviet Union in key areas of the technology war. And yet, within 20 years, the U.S. had emerged as the dominant strategic power and the USSR had collapsed. Much of it was because the U.S. could be profligate in the resources under its command.

Continued protection and development of U.S. shale oil resources, then, is a critical U.S. national security priority in the post-COVID-19 space, and it would not be illogical for Washington to ringfence the U.S. energy situation so that a stable domestic supply of oil and gas remains economically feasible for commercial producers.

The question, then, is whether the U.S. and its allies allow themselves to be reduced on this occasion because of the adoption of strategies which embrace reduced energy use. Clearly, the PRC has a strong vested interest in ensuring that the world adheres to the Paris Accords, which effectively limit fossil fuel use. All the while the PRC clearly does not adhere to those Accords, which it champions for everyone but itself. Which is why Beijing claims exemption from the Paris Accords because the PRC, in its own words, is not yet a “developed nation”.

What, then, does Beijing’s “new rules-based world order” promise to us if its first order of effect is to ensure a decline in the economic levels of the world merely so that Beijing can emerge at the top of the heap — not even a soaring mountain — of human growth? 

Beijing’s maxim as it entered and passed through the crisis of 2020 was that to succeed all others must fail.

By Gregory R. Copley via Defense and Foreign Affairs

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  • Stanko Dronjak on May 06 2020 said:
    In essence the 2020 crisis started 30 years earlier when Bill Clinton repealed Glass-Steagel and subverted the “Western rules based order” the United States itself created by illegally bombing Serbia to amputate a portion of its sovereign territory to serve as a client vassal state.

    The former led to the contagion of quantitative easing (QE), zero percent interest (ZIRP) when the housing bubble burst, and the latter the disastrous wars in Afghanistan, Iraq and the absurd doctrine of Responsibility to Protect (R2P) which bled the imperial center of resources.

    The 2020 crises had little to do with China and all to do with an inflated stock and bond market that actually started bursting in late 2019 by the Feds monetary policy of ZIRP, which Wall Street wisely used and lent for stock buybacks.

    Then the unthinkable happenned when the Covid19 virus emerged and contagion locked down a third of the world’s population. That combined with OPEC + flooding global oil markets with no demand hyper-exposed and accelerated the schizophrenic monetary policy and expanded the Feds balance sheet some 9 trillion and counting.

    I’m not sure how this will end for the “Western Rules Based (dis)Order”, but China I’m sure will be seeking to level the playing field.
  • Mamdouh Salameh on May 07 2020 said:
    If anything, the coronavirus outbreak with its destructive power of both the global economy and the global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.

    Furthermore, there could neither be a global economy nor a modern civilization as we know and enjoy without oil and vice versa. The global economy operates on oil and will continue to do so throughout the 21st century and probably far beyond.

    However, the global economy can’t reconcile itself with low oil prices because the main Ingredients that make up the global economy, namely, global investments, the oil industry and the economies of the oil-producing countries, will all be undermined.

    A fair price for oil, in my opinion, ranges from $100-$120 a barrel. Such a price range could be within our reach in the next five years underpinned by growing global oil demand and a major decline by the oil industry’s investments. Globally, Oil majors are deferring as much as $131 billion worth of oil and gas projects slated for approval in 2020.

    For the two largest economies of the world, China and the United States, oil is not just a vital fuel for their economies, it is a geopolitical tool of considerable importance. The US presence in the Gulf region is based on the premise that he who controls the world’s largest proven oil reserves and its routes of shipping and Straits controls the global economy. This was the very underlying factor that led America to invade Iraq in 2003. If won the military battles but lost the war to China and Iran.

    China’s economy, the world’s largest based on purchasing power parity (PPP) would collapse without oil, hence the United States geopolitical tool to starve China’s economy of oil in any future confrontation between them through blocking oil supplies through the Straits of Hormuz and Malacca. China is aware of this and is taking measures under the Belt & Road Initiative (BRI) to counter US plans. Moreover China has made itself the quintessential driver of both the global economy and the global oil market with considerable influence on both.
    Furthermore, the main purpose of the petro-yuan which is gaining market share is to eventually deprive the United States of any sway in the global oil market and undermine the US financial system based on the petrodollar.

    And whilst the coronavirus outbreak might show an aspect of rivalry between the United States and China, their rivalry goes far beyond whoever recovers first from the heinous coronavirus. It is about the next world order and who will emerge as the dominant power in the 21st century. It is also about the petro-yuan supplanting the petrodollar as the oil currency of the world.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Keenan Roberts on May 10 2020 said:
    All good points, Dr Salameh. With the exception that you forgot to mention one important factor determining the fate of Great Powers, and which is the very foundation upon which a Great Power can exist: Economic stability and viability. Without climate and environmental sustainability, you cannot have economic stability and viability. If your economic system can only function by doing things that undermine the very same economic system, you are headed for collapse. If the very underpinning of your power - oil - is undermining the very foundations of your existence as a Great Power, as well as threatening the long term existence of human civilization as a whole, what's the point of even having such a power?

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