The New Empires Posted by: Jon Henke
on Thursday, August 17, 2006
Guest blogging at Unqualified Offerings, Thoreau writes...
A lot of the world’s oil is controlled by state-run oil firms. (No surprise there.)
An even larger share of new discoveries will be controlled by state-run firms, since private firms have already thoroughly explored their territories (I’m simplifying a bit) while state-run firms have been rather inefficient at exploration [...] This might, in part, explain high prices: There isn’t much excess capacity out there because state-run firms weren’t terribly far-sighted.
[...] I know that libertarians (or at least the ones on internet forums) regard pessimism about oil as a symptom of statism, but is it OK if I say that I’m a little worried about the long term health of the global economy when large reserves of a key resource are controlled by inefficient state-run firms in oppressive places like Saudi Arabia, Iran, Russia, Venezuela, and Kazakhstan?
two States — with goals utterly inimical to our own — have already identified this geopolitical reality and are taking steps to dominate that new order. Assuming we do not find a post-petroleum energy source to replace large quantities of oil, I believe it's fair to say that the shape of the next world order will depend in large part on access to, control over, and need for oil. What's more, I believe two States — with goals utterly inimical to our own — have already identified this geopolitical reality and are taking steps to dominate that new order.
Those two States are the former Communist Russia and the new, 'softer' Communist China. That, I think, is no coincidence.
Both China and Russia have spent the better part of the last decade nationalizing private energy companies (Yukos, Sibneft) or shoring up their State-owned oil industries (Gazprom, CNOOC, Sinopec), and those companies have also been pursuing more global relationships, investing in oil fields, export, transportation and access rights — and just generally creating entangling alliances with nations and companies who need their goods and services. This is not limited to regional neighbors, either. Both China and Russia are investing extensively around the world — Africa, Central America, Europe, the Middle East. As the demand for energy increases, these alliances will almost inevitable turn into dependencies. As the demand for energy increases, these alliances will almost inevitable turn into dependencies. Again, if these were private companies, there would be little cause for concern. But these companies are not operating merely for profit, but as the geopolitical fulcrum of a communist China and an increasingly dictatorial Russia. In coming decades, China and Russia may have a significant part of the world over a barrel...without firing a single shot.
So, why is it no coincidence that China and Russia are the two States pursuing this tactic? One partial answer is that — unlike other oil-rich States who have limited military power or territorial interests, or oil-dependent States who generally have private oil industries — they are in a position to do so. But I think their Communism (be it 'former' or 'softer') may play an important role.
During the Cold War, the Communist countries were never able to compete with the free world economically. Their survival depended upon sheer domestic and/or international force, while the United States was able to build 'positions of strength' with its far more passive 'soft power'. Leaving aside moral perspectives on capitalism versus communism, the United States won the world because we made the world a better offer. make no mistake, both long to once again be dominant "imperial centers" It seems to me that the Communists may have learned the lessons of the Cold War. If Russia and China are to get their way this time around — and make no mistake, both long to once again be dominant "imperial centers" — the key will be to do so through economic hegemony, rather than military force.
Vladimir Putin has said that "Russia must aspire to claim world leadership in the realm of energy". We would be well-served to ask where exactly he and the Chi-coms are planning to lead the world.
I expect them to lead the world no where...and not to sound like Mona, but why would a libertarian worry about what a set of State-Owned Enterprises are going to do to the world? More than likely waste the resources and use a Capitalist firm to manage them, that’s what I expect them to do.
I would imagine the chance to make LARGE DOLLARS in the world market will force their management tems to look a lot like western management teams. to the extent that they do not but waste their resources, their states and economies will become poorer.
why would a libertarian worry about what a set of State-Owned Enterprises are going to do to the world?
Can you please explain why a rich Russian or rich Chinese economy is inimical to a prosperous American economy?
Privately owned companies operate for shareholder profit alone. State-owned companies are not simply profit-generating machines, they are geopolitical tools. That’s why, e.g., people care about the Middle East. State owned oil companies are—or can create—leverage. Properly built, that can give Russia and China a great deal of leverage down the road; with that, they could alter the national interest calculations of other players. The Russian and Chinese regimes have little interest in democracy promotion and freedom. You want them to have superior geopolitical leverage?
What about the tar sands in canada and oil shale in colorado? Both those reserves are larger than the current reserves for the entire middle east.
before we get all excited, they have more access to cheaply extracted oil, but we have plenty of access to slightly more expensive oil. In time it will all work out.
I am not being pollyannish. In order for the Chinese, for instance, to increase their economy will have to sell more to the west. If the west has no energy, guess what? we won’t be buying much form the Chinese. therefore, all concerned will see it in their best interest to sell oil to the highest bidder.
Why do we blame private oil companies more than nationalized ones? Becuase private oil companies are independent actors and state-owned companies are arms of the state. Why blame Saudi Aramco when you can just blame Saudi Arabia?
However, I’m more optimistic than you.
Russia must aspire to claim world leadership in the realm of energy". We would be well-served to ask where exactly he and the Chi-coms are planning to lead the world.
These are two dissimilar cases. Russia is a supplier and absolutely willing to throw its oil muscle around geopolitically, but it’s going to be all but out of oil in 30 years. It’s at the peak right now and only going to decline. Its fields are tapped out.
China is a consumer. It’s running around making deals, but this is not inherently sinister. It’s either that or run its economy into the ground. We all grub at the same filthy trough. It’s only their new aggressiveness that gets the headlines, and that’s just a function of their supply/demand curve.
Chris your numbers are opaque.... what do you mean $30 and $40 per barrel? Production cost, 1973 Spot Market cost, I mean oil’s $70 a barrel, isn’t that greater than $30/40.
Jon Henke, in 1973 and 1979 a set of SOE’s raised oil prices for geo-politcal reasons. And yet, and yet the West survived...I think Money Talks...
