Whilst the world’s attention is locked on the Israel-Hizbullah war, more far-reaching and potentially dangerous threats to global security are growing dramatically, though almost unnoticed. Last month the US Energy Secretary, Samuel Bodman, let the cat out of the bag: “At least at the present time and for the foreseeable future, we’re going to see oil demand exceeding supply” – a potentially explosive development that the world has never faced before.
The month before ex-President Clinton raised the alarm that the world could be out of ‘recoverable oil’ in 35-50 years, elevating the risk of ‘resource-based wars of all kinds’. And last November Joe Lieberman, a former Vice-Presidential candidate, warned that efforts by the US and China to use imports to meet growing demand may escalate competition to something ‘as hot and dangerous’ as the nuclear arms race between the US and Soviet Union. Yet all this passes almost without mention in Britain.
The bare facts behind the gathering geopolitical oil race are stark. The world is currently consuming about 84 million barrels a day, but because of rapidly increasing demand from accelerating economic growth in China, India and some other fast-industrialising countries, the US Energy Information Administration recently forecast demand at 121 million barrels a day by 2025. Yet there is no way that a near-50% increase in demand could remotely be met within 20 years. As the Head of Exploration at Total recently put it: “Numbers like 120 million barrels per day will never be reached, never”.
First, the oil isn’t there. For the last decade the world has used some 24 billion barrels a year, but has found on average less than 10 billion barrels of new oil annually. Second, even if the oil were available, the cost implications are prohibitive. The World Energy Outlook 2005 estimated that investment of $17 trillion would be required to bring the oil to consumers – that is one half again more than total current US GDP. Third, even if the oil were there and the cost was not prohibitive, the infrastructure does not exist to deliver it without unmanageable price spikes. Global spare production capacity is virtually gone, and global spare refining capacity has in the last 6 years all but disappeared. Global spare production and refining capacity is virtually gone. The politics of this rapidly approaching peak oil are equally devastating.
Within the next 20 years the West’s dependence on the 5 key Gulf producers – Iran, Iraq, Saudi Arabia, Kuwait and the UAE – will almost double, as their share of world oil production rises from a quarter to almost half. With the addition of Russia and Venezuela, they are expected to be responsible for over 60% of world oil production by 2025. Already non-OPEC production is near its peak and subsequent decline, and then when by 2010 it cannot meet incremental demand, OPEC itself will steadily become less and less able to accommodate short-term fluctuations. At that point abrupt and volatile price hikes will become inevitable, and demand growth will have to be curtailed.
There are only three ways out of this looming crisis. One is ‘demand destruction’, as it is called, which falling supply will to some extent enforce, but almost certainly too little, too late. A second route is to diversify swiftly out of fossil fuels and into renewable sources of energy and energy conservation. There are no signs that this is being pursued worldwide on the scale necessary to avert either energy shortage or climate change chaos. The third route, both short-sighted and counter-productive, but the one being overwhelmingly pursued at present, is oil wars to grab the lion’s share of the ever-dwindling oil repositories that remain.
The power play related to oil is unmistakeable. General Abizaid, Commander US Central Command, told the US House Appropriations Committee in March that US forces may need to stay in Iraq indefinitely because of the oil, even though the eventual cost of the war and its aftermath might cost over $1 trillion. In opposition, over the last year China, India, Russia and Iran have signed energy deals valued at some $500 billion with one another and have begun creating a Central Asian ‘energy club’ that would have its own pipeline network and energy market. This is taking shape as the deceptively named Shanghai Cooperation Organisation (SCO) which includes not only China and Russia, but is about to invite Iran, India and Pakistan to become full members. The economic end-game is clearly to dilute US efforts to dominate the Caspian Sea’s energy reserves.
The SCO is not a NATO clone – though clearly founded in the face of the militarised and unilateral foreign policy of the Bush Administration. It has brought together Iran – a country with less oil than Saudi Arabia and less gas than Russia, but more of both than any other country in the world, yet lacking the refining capacity with which Russia and China can assist – with Russia, positioned now to use its new oil bourse to challenge dollar hegemony and rebuild its armed forces on the doorstep of a US military presence trapped by the Iraq war on the strategic spur of Eurasia. Indeed Vice-President Cheney’s recent foray into Central Asia was designed to counter such moves and in particular to woo Kazakhstan, the richest oil and natural gas state in the region. But it quickly led to Russian retaliation with the Kremlin threatening to block US participation in the Shtokman project in the Barents Sea, the world’s biggest undeveloped gas resource, if America continued to oppose Russia’s admission to the WTO. The SCO is well on track to become an organisation that directly challenges the geopolitical reach of the US. Not without reason it has indeed been described as ‘OPEC with bombs’.
The situation over gas is, if anything, even more threatening. Deepening ties between Russia and Algeria are already causing concerns that the recent talks between Gazprom and Sonatrach, the Algerian state energy company, could be the first step to the formation of a natural gas cartel. Clearly the dwindling number of supplier nations could encourage the formation of an OPEC of gas, and an alliance between the top 3 or 4 gas exporters which would be much more effective than the oil OPEC remains a looming nightmare for international markets.
The Age of Energy Insecurity is already here, but it is set to intensify sharply. This is a turning point in history of unprecedented magnitude, for never before has a resource as fundamental as oil faced rapid decline without an adequate or better substitute in sight. The Oil Age from the mid-nineteenth century allowed the world population to explode 6-fold, exactly in line with the economic productivity it generated. Unless the present self-destructive strategy of using military pressure and war to corner diminishing global oil and gas supplies is urgently switched towards building a new world energy order based on a renewables and hydrogen economy combined with huge demand reduction through energy conservation, then it is no exaggeration to say we are risking a second Great Depression as well as sharply rising military tensions and a real prospect of major wars.