Pity the poor petro-states. Once so wealthy from oil sales that they could finance wars, mega-projects, and domestic social peace simultaneously, some of them are now beset by internal strife or are on the brink of collapse as oil prices remain at ruinously low levels. Unlike other countries, which largely finance their governments through taxation, petro-states rely on their oil and natural gas revenues. Russia, for example, obtains about 50% of government income that way; Nigeria, 60%; and Saudi Arabia, a whopping 90%. When oil was selling at $100 per barrel or above, as was the case until 2014, these countries could finance lavish government projects and social welfare operations, ensuring widespread popular support. Now, with oil below $50 and likely to persist at that level, they find themselves curbing public spending and fending off rising domestic discontent or even incipient revolt.
At the peak of their glory, the petro-states played an outsized role in world affairs. The members of OPEC, the Organization of the Petroleum Exporting Countries, earned an estimated $821 billion from oil exports in 2013 alone. Flush with cash, they were able to exert influence over other countries through a wide variety of aid and patronage operations. Venezuela, for example, sought to counter U.S. influence in Latin America via its Bolivarian Alliance for the Peoples of Our America (ALBA), a cooperative network of mostly leftist governments. Saudi Arabia spread its influence throughout the Islamic world in part by financing the efforts of its ultra-conservative Wahhabi clergy to establish madrassas (religious academies) throughout the Islamic world. Russia, under Vladimir Putin, used its prodigious oil wealth to rebuild and refurbish its military, which had largely disintegrated following the collapse of the Soviet Union. Lesser members of the petro-state club like Angola, Azerbaijan, and Kazakhstan became accustomed to regular fawning visits from the presidents and prime ministers of major oil-importing countries.
That, of course, was then, and this is now. While these countries still matter, what worries these presidents and prime ministers now is the growing likelihood of civil violence or even state collapse. Take, for example, Venezuela, long an ardent foe of U.S. policy in Latin America, but today the potential site of a future bloody civil war between supporters and opponents of the current government. Similar kinds of internal strife and civil disorder are likely in oil-producing states like Algeria and Nigeria, where the potential for the further growth of terrorist violence amid chaos is always high.
Some petro-states like Venezuela and Iraq already appear to be edging up to the brink of collapse. Others like Russia and Saudi Arabia will be forced to reorient their economies if they hope to avoid such future outcomes. Whatever their degree of risk, all of them are already experiencing economic hardship, leaving their leaders under growing pressure to somehow alter course in the bleakest of circumstances — or face the consequences.
A Busted Business Model
Petro-states are different from other countries because the fates of their governing institutions are so deeply woven into the boom-and-bust cycles of the international petroleum economy. The challenges they face are only compounded by the unnaturally close ties between their political leaderships and senior officials of their state-owned or state-controlled oil and natural gas industries. Historically, their rulers have placed close allies or even family members in key industry positions, ensuring continuing government control and in many cases personal enrichment as well. In Russia, for example, the management of Gazprom, the state-controlled natural gas company, and Rosneft, the state-owned oil company, is almost indistinguishable from the senior leadership in the Kremlin, with both groups answering to President Putin. A similar pattern holds for Venezuela, where the government keeps the state-owned company, Petróleos de Venezuela, S.A. (PdVSA), on a tight leash, and in Saudi Arabia, where the royal family oversees the operations of the state-owned Saudi Aramco.
In 2016, one thing is finally clear, however: the business model for these corporatized states is busted. The most basic assumption behind their operation — that global oil demand will continue to outpace world petroleum supplies and ensure high prices into the foreseeable future — no longer holds. Instead, in what for any petro-state is a nightmarish, upside-down version of that model, supply, not demand, is forging ahead, leaving the market flooded with fossil fuels.
Most analysts, including those at the International Monetary Fund (IMF), now believe that increases in energy efficiency, the spread of affordable alternative energy sources (especially wind and solar), slowing worldwide economic growth, and concern over climate change will continue to put a damper on fossil fuel demand in the years ahead. Meanwhile, the oil industry — now equipped with fracking technology and other advanced extractive techniques — will continue to boost supplies. It’s a formula for keeping prices low. In fact, a growing number of analysts are convinced that world oil demand will in the not-so-distant future reach a peak and begin a long-term decline, ensuring that large reserves of petroleum will be left in the ground. For the petro-states, all of this means persistent pain unless they can find a new business model that is somehow predicated on a permanent low-oil-price environment.
These states vary in both their willingness and ability to respond to this new reality effectively. Some are too deeply committed to their existing business model (and its associated leadership system) to consider significant changes; others, increasingly aware of the need to do something, find almost insuperable structural roadblocks in the way; and a third group, recognizing the desperate need for change, is attempting a total economic overhaul of its oil economies. In recent weeks, examples of all three types – Venezuela for the first, Nigeria the second, and Saudi Arabia the third — have surfaced in the news.
Venezuela: A Nation on the Brink
Venezuela claims the world’s largest proven reserves of petroleum, an estimated 298 billion barrels of oil. In past decades, the exploitation of this vast fossil fuel patrimony has ensured incredible wealth for foreign companies and Venezuelan elites alike. After assuming the presidency in 1999, however, Hugo Chávez sought to channel the bulk of this wealth to Venezuela’s poor and working classes by forcing foreign firms to partner with the state-owned oil firm PdVSA and redirecting that company’s profits to government spending programs. Billions of dollars were funneled into state-directed “missions” to the poor, lifting millions of Venezuelans out of poverty. In 2002, when the company’s long-serving managers rebelled against these moves, Chávez simply replaced them with his own party loyalists and the diversion of funds continued.
In the wake of the ousting of that original management team, the country’s oil production began to decline. With prices running at or above $100 per barrel, this initially seemed to make little difference as money continued to pour into government coffers and those missions to the poor kept right on going. What Chavez didn’t do, however, was create the national equivalent of a rainy-day fund. Little of the oil money was channeled into a sovereign wealth fund for more problematic moments, nor was any invested in other kinds of industries that might in time have generated streams of non-fossil-fuel income for the government.
As a result, when prices began to drop in the fall of 2014, Chavez’s presidential successor, Nicolás Maduro, faced a triple calamity: diminished revenues for social services, scant savings to draw upon, and no alternative sources of income. Not surprisingly, as a new impoverishment spread, many former Chavistas lost faith in the regime and, in last December’s parliamentary elections, voted for emboldened opposition candidates.
Today, Venezuela is a nation living under an officially declared “state of emergency,” politically riven, experiencing food riots and other violence, and possibly on the brink of collapse. According to the IMF, the economy contracted by 5.7% in 2015 and is expected to diminish by another 8% this year — more, that is, than any other country on the planet. Inflation is out of control, unemployment and crime are soaring, and what little money Venezuela had in its rainy-day account has largely been spent. Only China has been willing to lend it money to pay off its debts. If Beijing chooses to hold back when the next payments come due this fall, the country could face default. Opposition leaders in the National Assembly seek to oust Maduro and move ahead with various reforms, but the government is using its control of the courts to block such efforts, and the nation remains in a state of paralysis.
Nigeria: Continuing Disorder
Nigeria possesses the largest oil and natural gas reserves in sub-Saharan Africa. The exploitation of those reserves has long proved immensely profitable for foreign companies like Royal Dutch Shell and Chevron and also for well-connected Nigerian elites. Very little of this wealth, however, has trickled down to those living in the Niger Delta region in the south of the country where most of the oil and gas is produced. Opposition to the central government in Abuja, the capital, to which the oil income flows, has long been strong in the Delta, leading to periodic outbursts of violence. Successive federal administrations have promised a more equitable allocation of oil revenues, but a promise this has remained.
From 2006 to 2009, Nigeria was wracked by an insurgency spearheaded by the Movement for the Emancipation of the Niger Delta, a militant group seeking to redirect oil revenues to the country’s impoverished southern states. In 2009, when President Umaru Musa Yar’Adua offered the militants an amnesty and monthly cash payments, the insurgency died down. His successor, Goodluck Jonathan, a southerner, promised to respect the amnesty and channel more funds to the region.
For a while, high oil prices enabled Jonathan to make good on some of his promises, even as entrenched elites in Abuja continued to pocket a substantial percentage of the country’s petroleum income. When prices began to plummet, however, he was confronted with mounting challenges. Pervasive corruption turned people against the government, feeding recruits into Boko Haram, the terror movement then growing in the country’s northern reaches; money intended for soldiers in the Nigerian army disappeared into the pockets of military elites, subverting efforts to fight the insurgents. In national elections held a year ago, Muhammadu Buhari, a former general who vowed to crack down on corruption, rescue the economy, and defeat Boko Haram, took the presidency from Jonathan.
Since assuming office, Buhari has demonstrated a grasp of Nigeria’s structural weaknesses, especially its overwhelming dependency on oil monies, along with a determination to overcome them. As promised, he has launched a serious crackdown on the sort of corruption that is a commonplace feature of petro-states, firing officials accused of blatant thievery. At the same time, he has stepped up military pressure on Boko Haram, for the first time putting a crimp in that group’s brutal activities. Crucially, he has announced plans to diversify the economy, placing more emphasis on agriculture and non-fossil-fuel-related industries, which might, if pursued seriously, help diminish Nigeria’s increasingly disastrous reliance on oil.
In the cold light of day, however, the country still needs those oil revenues for the lion’s share of its income, which means that in the current low-price environment it has ever less money to fight Boko Haram, pay for social services, or pursue alternative investment schemes. In addition, Buhari has been accused of disproportionately targeting southerners in his fight against corruption, sparking not just fresh discontent in the Delta region but the rise of a new militant group — the Niger Delta Avengers — that poses a threat to oil production. On May 4th, the Avengers attacked an offshore oil platform operated by Chevron and the Nigerian National Petroleum Corporation, forcing the companies to shut down production of about 90,000 barrels per day. Add that to other insurgent attacks on the country’s oil infrastructure and the Nigerian government is expected to lose $1 billion in May alone. If repairs are not completed on time, it may lose an equal amount in June. It remains a nation on edge, in danger of devastating impoverishment, and with few genuine alternatives available.
Saudi Arabia: Seeking a New Vision
With the world’s second largest reserves of oil, Saudi Arabia is also the planet’s leading producer, pumping out a staggering 10.2 million barrels daily. Originally, those massive energy reserves were owned by a consortium of American companies operating under the umbrella of the Arabian-American Oil Company (Aramco). In the 1970s, however, Aramco was nationalized and is now owned by the Saudi state — which is to say, the Saudi monarchy. Today, it is the world’s most valuable company, worth by some estimates as much as $10 trillion (10 times more than Apple), and so a source of almost unimaginable wealth for the Saudi royal family.
For decades, the country’s leadership pursued a consistent political-economic business plan: sell as much oil as possible and use the proceeds to enrich the numerous princes and princesses of the realm; provide lavish social benefits to the rest of the population, thereby averting popular unrest of the “Arab Spring” variety; finance the ultra-conservative Wahhabi clergy so as to ensure its loyalty to the regime; finance like-minded states in the region; and put aside money for those rainy-day periods of low oil prices.
Saudi leaders have recently come to recognize that this plan is no longer sustainable. In 2016, the Saudi budget has, for the first time in recent memory, moved into deficit territory and the monarchy has had to cut back on both its usual subsidies to and social programs for its people. Unlike the Venezuelans or the Nigerians, the Saudi royals socked away enough money in the country’s sovereign wealth fund to cover deficit spending for at least a couple of years. It is now, however, burning through those funds at a prodigious rate, in part to finance a brutal and futile war in Yemen. At some point, it will have to sharply curtail government spending. Given the youthfulness of the Saudi population — 70% of its citizens are under 30 — and its long dependence on government handouts, such moves could, in the view of many analysts, lead to widespread civil unrest.
Historically, Saudi leaders have been slow to initiate change. But recently, the royal family has defied expectations, taking radical steps to prepare the country for a transition to what’s being termed a post-petroleum economy. On April 25th, the powerful Deputy Crown Prince, Mohammed bin Salman, unveiled “Saudi Vision 2030,” a somewhat hazy blueprint for the kingdom’s economic diversification and modernization. Prince Mohammed also indicated that the country will soon begin to offer public shares in Saudi Aramco, with the intention of raising massive funds to invest in and create non-oil-related Saudi industries and revenue streams. On May 7th, the monarchy also abruptly dismissed its long-serving oil minister, Ali al-Naimi, and replaced him with the head of Saudi Aramco, Khalid al-Falih, a figure deemed more subservient to Prince Mohammed. Falih’s job title was also changed to minister of energy, industry, and mineral resources, which was (so the experts speculated) a signal from the monarchy of its determination to move beyond exclusive reliance on oil as a source of income.
This is all so unprecedented that there is no way of predicting whether the Saudi royals are actually capable of bringing anything like Saudi Vision 2030 to fruition, no less moving away in a serious fashion from its reliance on oil. Many obstacles remain, including the possibility that jealous royals will push Prince Mohammed (and his vision) aside when his father, King Salman, now 80, passes from the scene. (There are regular rumors that some members of the royal family resent the meteoric rise of the 31-year-old prince.) Nevertheless, his dramatic statements about the need to diversify the kingdom’s economy do show that even Saudi Arabia — the petro-state par excellence — now recognizes that some kind of new identity is now a necessity.
The Stakes for Us All
You may not live in a petro-state, but that doesn’t mean you don’t have a stake in the evolution of this unique political life form. From at least the “oil shock” of 1973, when the Arab OPEC members announced an “oil boycott” against the U.S. for its involvement in the Yom Kippur War, such countries have played an outsized role on the world stage, distorting international relations, and — in the Greater Middle East — involving themselves (and their financial resources) in one conflict after another from the Iran-Iraq War of 1980-1988 to the wars in Yemen and Syria today.
Their fervent support for and financing of favored causes — whether it be Wahhabism and associated jihadist groups (Saudi Arabia), anti-Westernism (Russia), or the survival of the Assad regime in Syria (Iran) — has provoked widespread disorder and misery. It will hardly be a tragedy if a lack of funds forces such states to pull back from efforts of this sort. But given the centrality of fossil fuels to our world for the last century or more, the chaos that could ensue in the oil heartlands of the planet from low oil prices and high supply is likely to create unpredictable new nightmares of its own.
And the greatest nightmares of all lurk not in any of this but in the inability of these states and those they supply to liberate themselves from reliance on fossil fuels fast enough. Looking into the future, the demise of petro-states as we’ve known them could have a profound impact on the struggle to avert catastrophic climate change. Although these states are not primarily responsible for the actual combustion of fossil fuels — that’s something we in the oil-importing countries must take responsibility for — their pivotal role in fueling the global petroleum economy has made them largely resistant to international efforts to curb emissions of carbon dioxide. As they try to repair their busted business model or collapse under the weight of its failures, we can only hope that the path they follow will entail significantly less dependence on oil exports as well as a determination to speed up the conclusion of the fossil fuel era and so diminish its legacy of climate disaster.
Copyright 2016 Michael T. Klare
The Desperate Plight of Petro-States
Sunday, April 17th was the designated moment. The world’s leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers.
It is hard to overstate the significance of the Doha debacle. At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity. It may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market. Most of all, however, it demonstrated that the petroleum-fueled world we’ve known these last decades — with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers — is no more. Replacing it is an anemic, possibly even declining, demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares.
The Road to Doha
Before the Doha gathering, the leaders of the major producing countries expressed confidence that a production freeze would finally halt the devastating slump in oil prices that began in mid-2014. Most of them are heavily dependent on petroleum exports to finance their governments and keep restiveness among their populaces at bay. Both Russia and Venezuela, for instance, rely on energy exports for approximately 50% of government income, while for Nigeria it’s more like 75%. So the plunge in prices had already cut deep into government spending around the world, causing civil unrest and even in some cases political turmoil.
No one expected the April 17th meeting to result in an immediate, dramatic price upturn, but everyone hoped that it would lay the foundation for a steady rise in the coming months. The leaders of these countries were well aware of one thing: to achieve such progress, unity was crucial. Otherwise they were not likely to overcome the various factors that had caused the price collapse in the first place. Some of these were structural and embedded deep in the way the industry had been organized; some were the product of their own feckless responses to the crisis.
On the structural side, global demand for energy had, in recent years, ceased to rise quickly enough to soak up all the crude oil pouring onto the market, thanks in part to new supplies from Iraq and especially from the expanding shale fields of the United States. This oversupply triggered the initial 2014 price drop when Brent crude — the international benchmark blend — went from a high of $115 on June 19th to $77 on November 26th, the day before a fateful OPEC meeting in Vienna. The next day, OPEC members, led by Saudi Arabia, failed to agree on either production cuts or a freeze, and the price of oil went into freefall.
The failure of that November meeting has been widely attributed to the Saudis’ desire to kill off new output elsewhere — especially shale production in the United States — and to restore their historic dominance of the global oil market. Many analysts were also convinced that Riyadh was seeking to punish regional rivals Iran and Russia for their support of the Assad regime in Syria (which the Saudis seek to topple).
The rejection, in other words, was meant to fulfill two tasks at the same time: blunt or wipe out the challenge posed by North American shale producers and undermine two economically shaky energy powers that opposed Saudi goals in the Middle East by depriving them of much needed oil revenues. Because Saudi Arabia could produce oil so much more cheaply than other countries — for as little as $3 per barrel — and because it could draw upon hundreds of billions of dollars in sovereign wealth funds to meet any budget shortfalls of its own, its leaders believed it more capable of weathering any price downturn than its rivals. Today, however, that rosy prediction is looking grimmer as the Saudi royals begin to feel the pinch of low oil prices, and find themselves cutting back on the benefits they had been passing on to an ever-growing, potentially restive population while still financing a costly, inconclusive, and increasingly disastrous war in Yemen.
Many energy analysts became convinced that Doha would prove the decisive moment when Riyadh would finally be amenable to a production freeze. Just days before the conference, participants expressed growing confidence that such a plan would indeed be adopted. After all, preliminary negotiations between Russia, Venezuela, Qatar, and Saudi Arabia had produced a draft document that most participants assumed was essentially ready for signature. The only sticking point: the nature of Iran’s participation.
The Iranians were, in fact, agreeable to such a freeze, but only after they were allowed to raise their relatively modest daily output to levels achieved in 2012 before the West imposed sanctions in an effort to force Tehran to agree to dismantle its nuclear enrichment program. Now that those sanctions were, in fact, being lifted as a result of the recently concluded nuclear deal, Tehran was determined to restore the status quo ante. On this, the Saudis balked, having no wish to see their arch-rival obtain added oil revenues. Still, most observers assumed that, in the end, Riyadh would agree to a formula allowing Iran some increase before a freeze. “There are positive indications an agreement will be reached during this meeting… an initial agreement on freezing production,” said Nawal Al-Fuzaia, Kuwait’s OPEC representative, echoing the views of other Doha participants.
But then something happened. According to people familiar with the sequence of events, Saudi Arabia’s Deputy Crown Prince and key oil strategist, Mohammed bin Salman, called the Saudi delegation in Doha at 3:00 a.m. on April 17th and instructed them to spurn a deal that provided leeway of any sort for Iran. When the Iranians — who chose not to attend the meeting — signaled that they had no intention of freezing their output to satisfy their rivals, the Saudis rejected the draft agreement it had helped negotiate and the assembly ended in disarray.
Geopolitics to the Fore
Most analysts have since suggested that the Saudi royals simply considered punishing Iran more important than raising oil prices. No matter the cost to them, in other words, they could not bring themselves to help Iran pursue its geopolitical objectives, including giving yet more support to Shiite forces in Iraq, Syria, Yemen, and Lebanon. Already feeling pressured by Tehran and ever less confident of Washington’s support, they were ready to use any means available to weaken the Iranians, whatever the danger to themselves.
“The failure to reach an agreement in Doha is a reminder that Saudi Arabia is in no mood to do Iran any favors right now and that their ongoing geopolitical conflict cannot be discounted as an element of the current Saudi oil policy,” said Jason Bordoff of the Center on Global Energy Policy at Columbia University.
Many analysts also pointed to the rising influence of Deputy Crown Prince Mohammed bin Salman, entrusted with near-total control of the economy and the military by his aging father, King Salman. As Minister of Defense, the prince has spearheaded the Saudi drive to counter the Iranians in a regional struggle for dominance. Most significantly, he is the main force behind Saudi Arabia’s ongoing intervention in Yemen, aimed at defeating the Houthi rebels, a largely Shia group with loose ties to Iran, and restoring deposed former president Abd Rabbuh Mansur Hadi. After a year of relentless U.S.-backed airstrikes (including the use of cluster bombs), the Saudi intervention has, in fact, failed to achieve its intended objectives, though it has produced thousands of civilian casualties, provoking fierce condemnation from U.N. officials, and created space for the rise of al-Qaeda in the Arabian Peninsula. Nevertheless, the prince seems determined to keep the conflict going and to counter Iranian influence across the region.
For Prince Mohammed, the oil market has evidently become just another arena for this ongoing struggle. “Under his guidance,” the Financial Times noted in April, “Saudi Arabia’s oil policy appears to be less driven by the price of crude than global politics, particularly Riyadh’s bitter rivalry with post-sanctions Tehran.” This seems to have been the backstory for Riyadh’s last-minute decision to scuttle the talks in Doha. On April 16th, for instance, Prince Mohammed couldn’t have been blunter to Bloomberg, even if he didn’t mention the Iranians by name: “If all major producers don’t freeze production, we will not freeze production.”
With the proposed agreement in tatters, Saudi Arabia is now expected to boost its own output, ensuring that prices will remain bargain-basement low and so deprive Iran of any windfall from its expected increase in exports. The kingdom, Prince Mohammed told Bloomberg, was prepared to immediately raise production from its current 10.2 million barrels per day to 11.5 million barrels and could add another million barrels “if we wanted to” in the next six to nine months. With Iranian and Iraqi oil heading for market in larger quantities, that’s the definition of oversupply. It would certainly ensure Saudi Arabia’s continued dominance of the market, but it might also wound the kingdom in a major way, if not fatally.
A New Global Reality
No doubt geopolitics played a significant role in the Saudi decision, but that’s hardly the whole story. Overshadowing discussions about a possible production freeze was a new fact of life for the oil industry: the past would be no predictor of the future when it came to global oil demand. Whatever the Saudis think of the Iranians or vice versa, their industry is being fundamentally transformed, altering relationships among the major producers and eroding their inclination to cooperate.
Until very recently, it was assumed that the demand for oil would continue to expand indefinitely, creating space for multiple producers to enter the market, and for ones already in it to increase their output. Even when supply outran demand and drove prices down, as has periodically occurred, producers could always take solace in the knowledge that, as in the past, demand would eventually rebound, jacking prices up again. Under such circumstances and at such a moment, it was just good sense for individual producers to cooperate in lowering output, knowing that everyone would benefit sooner or later from the inevitable price increase.
But what happens if confidence in the eventual resurgence of demand begins to wither? Then the incentives to cooperate begin to evaporate, too, and it’s every producer for itself in a mad scramble to protect market share. This new reality — a world in which “peak oil demand,” rather than “peak oil,” will shape the consciousness of major players — is what the Doha catastrophe foreshadowed.
At the beginning of this century, many energy analysts were convinced that we were at the edge of the arrival of “peak oil”; a peak, that is, in the output of petroleum in which planetary reserves would be exhausted long before the demand for oil disappeared, triggering a global economic crisis. As a result of advances in drilling technology, however, the supply of oil has continued to grow, while demand has unexpectedly begun to stall. This can be traced both to slowing economic growth globally and to an accelerating “green revolution” in which the planet will be transitioning to non-carbon fuel sources. With most nations now committed to measures aimed at reducing emissions of greenhouse gases under the just-signed Paris climate accord, the demand for oil is likely to experience significant declines in the years ahead. In other words, global oil demand will peak long before supplies begin to run low, creating a monumental challenge for the oil-producing countries.
This is no theoretical construct. It’s reality itself. Net consumption of oil in the advanced industrialized nations has already dropped from 50 million barrels per day in 2005 to 45 million barrels in 2014. Further declines are in store as strict fuel efficiency standards for the production of new vehicles and other climate-related measures take effect, the price of solar and wind power continues to fall, and other alternative energy sources come on line. While the demand for oil does continue to rise in the developing world, even there it’s not climbing at rates previously taken for granted. With such countries also beginning to impose tougher constraints on carbon emissions, global consumption is expected to reach a peak and begin an inexorable decline. According to experts Thijs Van de Graaf and Aviel Verbruggen, overall world peak demand could be reached as early as 2020.
In such a world, high-cost oil producers will be driven out of the market and the advantage — such as it is — will lie with the lowest-cost ones. Countries that depend on petroleum exports for a large share of their revenues will come under increasing pressure to move away from excessive reliance on oil. This may have been another consideration in the Saudi decision at Doha. In the months leading up to the April meeting, senior Saudi officials dropped hints that they were beginning to plan for a post-petroleum era and that Deputy Crown Prince bin Salman would play a key role in overseeing the transition.
On April 1st, the prince himself indicated that steps were underway to begin this process. As part of the effort, he announced, he was planning an initial public offering of shares in state-owned Saudi Aramco, the world’s number one oil producer, and would transfer the proceeds, an estimated $2 trillion, to its Public Investment Fund (PIF). “IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” the prince pointed out. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
For a country that more than any other has rested its claim to wealth and power on the production and sale of petroleum, this is a revolutionary statement. If Saudi Arabia says it is ready to begin a move away from reliance on petroleum, we are indeed entering a new world in which, among other things, the titans of oil production will no longer hold sway over our lives as they have in the past.
This, in fact, appears to be the outlook adopted by Prince Mohammed in the wake of the Doha debacle. In announcing the kingdom’s new economic blueprint on April 25th, he vowed to liberate the country from its “addiction” to oil.” This will not, of course, be easy to achieve, given the kingdom’s heavy reliance on oil revenues and lack of plausible alternatives. The 30-year-old prince could also face opposition from within the royal family to his audacious moves (as well as his blundering ones in Yemen and possibly elsewhere). Whatever the fate of the Saudi royals, however, if predictions of a future peak in world oil demand prove accurate, the debacle in Doha will be seen as marking the beginning of the end of the old oil order.
Copyright 2016 Michael T. Klare
Debacle at Doha
Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.
The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity. The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.
Understandably enough, the stunning increase in North American oil production in the past few years simply wasn’t on their radar. According to the Energy Information Administration (EIA) of the Department of Energy, U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels as 2016 began, an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye. Similarly unexpected was the success of Canadian producers in extracting oil (in the form of bitumen, a semi-solid petroleum substance) from the tar sands of Alberta. Today, the notion that oil is becoming scarce has all but vanished, and so have the benefits of a new era of petroleum plenty being touted, until recently, by energy analysts and oil company executives.
“The picture in terms of resources in the ground is a good one,” Bob Dudley, the chief executive officer of oil giant BP, typically exclaimed in January 2014. “It’s very different [from] past concerns about supply peaking. The theory of peak oil seems to have, well, peaked.”
The Arrival of a New Energy Triumphalism
With the advent of North American energy abundance in 2012, petroleum enthusiasts began to promote the idea of a “new American industrial renaissance” based on accelerated shale oil and gas production and the development of related petrochemical enterprises. Combine such a vision with diminished fears about reliance on imported oil, especially from the Middle East, and the United States suddenly had — so the enthusiasts of the moment asserted — a host of geopolitical advantages and fresh life as the planet’s sole superpower.
“The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere,” oil industry adviser Daniel Yergin proclaimed in the Washington Post. “The new energy axis runs from Alberta, Canada, down through [the shale fields of] North Dakota and South Texas… to huge offshore oil deposits found near Brazil.” All of this, he asserted, “points to a major geopolitical shift,” leaving the United States advantageously positioned in relation to any of its international rivals.
If the blindness of so much of this is beginning to sound a little familiar, the reason is simple enough. Just as the peak oil theorists failed to foresee crucial technological breakthroughs in the energy world and how they would affect fossil fuel production, the industry and its boosters failed to anticipate the impact of a gusher of additional oil and gas on energy prices. And just as the introduction of fracking made peak oil theory irrelevant, so oil and gas abundance — and the accompanying plunge of prices to rock-bottom levels — shattered the prospects for a U.S. industrial renaissance based on accelerated energy production.
As recently as June 2014, Brent crude, the international benchmark blend, was selling at $114 per barrel. As 2015 began, it had plunged to $55 per barrel. By 2016, it was at $36 and still heading down. The fallout from this precipitous descent has been nothing short of disastrous for the global oil industry: many smaller companies have already filed for bankruptcy; larger firms have watched their profits plummet; whole countries like Venezuela, deeply dependent on oil sales, seem to be heading for receivership; and an estimated 250,000 oil workers have lost their jobs globally (50,000 in Texas alone).
In addition, some major oil-producing areas are being shut down or ruled out as likely future prospects for exploration and exploitation. The British section of the North Sea, for example, is projected to lose as many as 150 of its approximately 300 oil and gas drilling platforms over the next decade, including those in the Brent field, the once-prolific reservoir that gave its name to the benchmark blend. Meanwhile, virtually all plans for drilling in the increasingly ice-free waters of the Arctic have been put on hold.
Many reasons have been given for the plunge in oil prices and various “conspiracy theories” have arisen to explain the seemingly inexplicable. In the past, when prices fell, the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would curtail production to push them higher. This time, they actually increased output, leading some analysts to suggest that Riyadh was trying to punish oil producers Iran and Russia for supporting the Assad regime in Syria. New York Times columnist Thomas Friedman, for instance, claimed that the Saudis were trying to “bankrupt” those countries “by bringing down the price of oil to levels below what both Moscow and Tehran need to finance their budgets.” Variations on this theme have been advanced by other pundits.
The reality of the matter has turned out to be significantly more straightforward: U.S. and Canadian producers were adding millions of barrels a day in new production to world markets at a time when global demand was incapable of absorbing so much extra crude oil. An unexpected surge in Iraqi production added additional crude to the growing glut. Meanwhile, economic malaise in China and Europe kept global oil consumption from climbing at the heady pace of earlier years and so the market became oversaturated with crude. It was, in other words, a classic case of too much supply, too little demand, and falling prices. “We are still seeing a lot of supply,” said BP’s Dudley last June. “There is demand growth, there’s just a lot more supply.”
A War of Attrition
Threatened by this new reality, the Saudis and their allies faced a painful choice. Accounting for about 40% of world oil output, the OPEC producers exercise substantial but not unlimited power over the global marketplace. They could have chosen to rein in their own production and so force prices up. There was, however, little likelihood of non-OPEC producers like Brazil, Canada, Russia, and the United States following suit, so any price increases would have benefitted the energy industries of those countries most, while undoubtedly taking market share from OPEC. However counterintuitive it might have seemed, the Saudis, unwilling to face such a loss, decided to pump more oil. Their hope was that a steep decline in prices would drive some of their rivals, especially American oil frackers with their far higher production expenses, out of business. “It is not in the interest of OPEC producers to cut their production, whatever the price is,” the Saudi oil minister Ali al-Naimi explained. “If I reduce [my price], what happens to my market share? The price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.”
In adopting this strategy, the Saudis knew they were taking big risks. About 85% of the country’s export income and a staggeringly large share of government revenues come from petroleum sales. Any sustained drop in prices would threaten the royal family’s ability to maintain public stability through the generous payments, subsidies, and job programs it offers to so many of its citizens. However, when oil prices were high, the Saudis socked away hundreds of billions of dollars in various investment accounts around the world and are now drawing on those massive cash reserves to keep public discontent to a minimum (even while belt-tightening begins). “If prices continue to be low, we will be able to withstand it for a long, long time,” Khalid al-Falih, the chairman of Saudi Aramco, the kingdom’s national oil company, insisted in January at the World Economic Forum in Davos, Switzerland.
The result of all this has been an “oil war of attrition” — a struggle among the major oil producers for maximum exposure in an overcrowded energy bazaar. Eventually, the current low prices will drive some producers out of business and so global oversupply will assumedly dissipate, pushing prices back up. But how long that might take no one knows. If Saudi Arabia can indeed hold out for the duration without stirring significant domestic unrest, it will, of course, be in a strong position to profit when the price rebound finally occurs.
It is not yet certain, however, that the Saudis will succeed in their drive to crush shale producers in the United States or other competitors elsewhere before they drain their overseas investment accounts and the foundations of their world begin to crumble. In recent weeks, in fact, there have been signs that they are beginning to get nervous. These include moves to reduce government subsidies and talks initiated with Russia and Venezuela about freezing, if not reducing, output.
An Oil Glut Unleashes “World-Class Havoc”
In the meantime, there can be no question that the war of attrition is beginning to take its toll. In addition to hard-hit Arctic and North Sea producers, companies exploiting Alberta’s Athabasca tar sands are exhibiting all the signs of an oncoming crisis. While most tar sands outfits continue to operate (often at a loss), they are now postponing or cancelling future projects, while the space between the future and the present shrinks ominously.
Just about every firm in the oil business is being hurt by the new price norms, but hardest struck have been those that rely on “unconventional” means of extraction like Brazilian deep-sea drilling, U.S. hydro-fracking, and Canadian tar sands exploitation. Such techniques were developed by the major companies to compensate for an expected long-term decline in conventional oil fields (those close to the surface, close to shore, and in permeable rock formations). By definition, unconventional or “tough oil” requires more effort to pry out of the ground and so costs more to exploit. The break-even point for tar sands production, for example, sometimes reaches $80 per barrel, for shale oil typically $50 to $60 a barrel. What isn’t a serious problem when oil is selling at $100 a barrel or more becomes catastrophic when it languishes in the $30 to $40 range, as it has over much of the past half-year.
And keep in mind that, in such an environment, as oil companies contract or fail, they take with them hundreds of smaller companies — field services providers, pipeline builders, transportation handlers, caterers, and so on — that benefitted from the all-too-brief “energy renaissance” in North America. Many have already laid off a large share of their workforce or simply been driven out of business. As a result, once-booming oil towns like Williston, North Dakota, and Fort McMurray, Alberta, have fallen into hard times, leaving their “man camps” (temporary housing for male oil workers) abandoned and storefronts shuttered.
In Williston — once the epicenter of the shale oil boom — many families now line up for free food at local churches and rely on the Salvation Army for clothes and other necessities, according to Tim Marcin of the International Business Times. Real estate has also been hard hit. “As jobs dried up and families fled, some residential neighborhoods became ghost towns,” Marcin reports. “City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60% occupancy in November.”
Add to this another lurking crisis: the failure or impending implosion of many shale producers is threatening the financial health of American banks which lent heavily to the industry during the boom years from 2010 to 2014. Over the past five years, according to financial data provider Dealogic, oil and gas companies in the United States and Canada issued bonds and took out loans worth more than $1.3 trillion. Much of this is now at risk as companies default on loans or declare bankruptcy. Citibank, for example, reports that 32% of its loans in the energy sector were given to companies with low credit ratings, which are considered at greater risk of default. Wells Fargo says that 17% of its energy exposure was to such firms. As the number of defaults has increased, banks have seen their stock values decline, and this — combined with the falling value of oil company shares — has been rattling the stock market.
The irony, of course, is that the technological breakthroughs so lauded in 2012 for their success in enhancing America’s energy prowess are now responsible for the market oversupply that is bringing so much misery to people, companies, and communities in North America’s oil patches. “At the beginning of 2014, [the U.S.] was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investments and millions of new jobs,” commented energy expert Steve LeVine in February. Two years later, he points out, “faces are aghast as the same oil instead has unleashed world-class havoc.”
The Geopolitical Scorecard From Hell
If that promised new industrial renaissance has failed to materialize, what about the geopolitical advantages that new oil and gas production was to give an emboldened Washington? Yergin and others asserted that the surge in North American output would shift the center of gravity of world production to the Western Hemisphere, allowing, among other things, the export of U.S. liquefied natural gas, or LNG, to Europe. That, in turn, would diminish the reliance of allies like Germany on Russian gas and so increase American influence and power. We were, in other words, to be in a new triumphalist world in which the planet’s sole superpower would benefit greatly from, as energy analysts Amy Myers Jaffe and Ed Morse put it in 2013, a “counterrevolution against the energy world created by OPEC.”
So far, there is little evidence of such a geopolitical bonanza. In Saudi attrition-war fashion, for instance, Russia’s natural gas giant Gazprom has begun lowering the price at which it sells gas to Europe, rendering American LNG potentially uncompetitive in markets there. True, on February 25th, the first cargo of that LNG was shipped to foreign markets, but it was destined for Brazil, not Europe.
Meanwhile, Brazil and Canada — two anchors of the “new world oil map” predicted by Yergin in 2011 — have been devastated by the oil price decline. Production in the United States has not yet suffered as greatly, thanks largely to increased efficiency in the producing regions. However, pillars of the new industry are starting to go out of business or are facing possible bankruptcy, while in the global war of attrition, the Saudis have so far retained their share of the market and are undoubtedly going to play a commanding role in global oil deals for decades to come (assuming, of course, that the country doesn’t come apart at the seams under the strains of the present oil glut). So much for the “counterrevolution” against OPEC. Meanwhile, the landscapes of Texas, Pennsylvania, North Dakota, and Alberta are increasingly littered with the rusting detritus of a brand-new industry already in decline, and American power is no more robust than before.
In the end, the oil attrition wars may lead us not into a future of North American triumphalism, nor even to a more modest Saudi version of the same, but into a strange new world in which an unlimited capacity to produce oil meets an increasingly crippled capitalist system without the capacity to absorb it.
Think of it this way: in the conflagration of the take-no-prisoners war the Saudis let loose, a centuries-old world based on oil may be ending in both a glut and a hollowing out on an increasingly overheated planet. A war of attrition indeed.
Copyright 2016 Michael T. Klare
Energy Wars of Attrition
As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century. All evidence, however, points to a continuing depression in oil prices in 2016 — one that may, in fact, stretch into the 2020s and beyond. Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout.
To put things in perspective, it was not so long ago — in June 2014, to be exact — that Brent crude, the global benchmark for oil, was selling at $115 per barrel. Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future, and might gradually rise to even more stratospheric levels. Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed “unconventional” reserves: Arctic oil, Canadian tar sands, deep offshore reserves, and dense shale formations. It seemed obvious then that whatever the problems with, and the cost of extracting, such energy reserves, sooner or later handsome profits would be made. It mattered little that the cost of exploiting such reserves might reach $50 or more a barrel.
As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040. Think of this as the energy equivalent of a monster earthquake — a pricequake — that will doom not just many “tough oil” projects now underway but some of the over-extended companies (and governments) that own them.
The current rout in oil prices has obvious implications for the giant oil firms and all the ancillary businesses — equipment suppliers, drill-rig operators, shipping companies, caterers, and so on — that depend on them for their existence. It also threatens a profound shift in the geopolitical fortunes of the major energy-producing countries. Many of them, including Nigeria, Saudi Arabia, Russia, and Venezuela, are already experiencing economic and political turmoil as a result. (Think of this, for instance, as a boon for the terrorist group Boko Haram as Nigeria shudders under the weight of those falling prices.) The longer such price levels persist, the more devastating the consequences are likely to be.
A Perfect Storm
Generally speaking, oil prices go up when the global economy is robust, world demand is rising, suppliers are pumping at maximum levels, and little stored or surplus capacity is on hand. They tend to fall when, as now, the global economy is stagnant or slipping, energy demand is tepid, key suppliers fail to rein in production in consonance with falling demand, surplus oil builds up, and future supplies appear assured.
During the go-go years of the housing boom, in the early part of this century, the world economy was thriving, demand was indeed soaring, and many analysts were predicting an imminent “peak” in world production followed by significant scarcities. Not surprisingly, Brent prices rose to stratospheric levels, reaching a record $143 per barrel in July 2008. With the failure of Lehman Brothers on September 15th of that year and the ensuing global economic meltdown, demand for oil evaporated, driving prices down to $34 that December.
With factories idle and millions unemployed, most analysts assumed that prices would remain low for some time to come. So imagine the surprise in the oil business when, in October 2009, Brent crude rose to $77 per barrel. Barely more than two years later, in February 2011, it again crossed the $100 threshold, where it generally remained until June 2014.
Several factors account for this price recovery, none more important than what was happening in China, where the authorities decided to stimulate the economy by investing heavily in infrastructure, especially roads, bridges, and highways. Add in soaring automobile ownership among that country’s urban middle class and the result was a sharp increase in energy demand. According to oil giant BP, between 2008 and 2013, petroleum consumption in China leaped 35%, from 8.0 million to 10.8 million barrels per day. And China was just leading the way. Rapidly developing countries like Brazil and India followed suit in a period when output at many existing, conventional oil fields had begun to decline; hence, that rush into those “unconventional” reserves.
This is more or less where things stood in early 2014, when the price pendulum suddenly began swinging in the other direction, as production from unconventional fields in the U.S. and Canada began to make its presence felt in a big way. Domestic U.S. crude production, which had dropped from 7.5 million barrels per day in January 1990 to a mere 5.5 million barrels in January 2010, suddenly headed upwards, reaching a stunning 9.6 million barrels in July 2015. Virtually all the added oil came from newly exploited shale formations in North Dakota and Texas. Canada experienced a similar sharp uptick in production, as heavy investment in tar sands began to pay off. According to BP, Canadian output jumped from 3.2 million barrels per day in 2008 to 4.3 million barrels in 2014. And don’t forget that production was also ramping up in, among other places, deep-offshore fields in the Atlantic Ocean off both Brazil and West Africa, which were just then coming on line. At that very moment, to the surprise of many, war-torn Iraq succeeded in lifting its output by nearly one million barrels per day.
Add it all up and the numbers were staggering, but demand was no longer keeping pace. The Chinese stimulus package had largely petered out and international demand for that country’s manufactured goods was slowing, thanks to tepid or nonexistent economic growth in the U.S., Europe, and Japan. From an eye-popping annual rate of 10% over the previous 30 years, China’s growth rate fell into the single digits. Though China’s oil demand is expected to keep rising, it is not projected to grow at anything like the pace of recent years.
At the same time, increased fuel efficiency in the United States, the world’s leading oil consumer, began to have an effect on the global energy picture. At the height of the country’s financial crisis, when the Obama administration bailed out both General Motors and Chrysler, the president forced the major car manufacturers to agree to a tough set of fuel-efficiency standards now noticeably reducing America’s demand for petroleum. Under a plan announced by the White House in 2012, the average fuel efficiency of U.S.-manufactured cars and light vehicles will rise to 54.5 miles per gallon by 2025, reducing expected U.S. oil consumption by 12 billion barrels between now and then.
In mid-2014, these and other factors came together to produce a perfect storm of price suppression. At that time, many analysts believed that the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would, as in the past, respond by reining in production to bolster prices. However, on November 27, 2014 — Thanksgiving Day — OPEC confounded those expectations, voting to maintain the output quotas of its member states. The next day, the price of crude plunged by $4 and the rest is history.
A Dismal Prospect
In early 2015, many oil company executives were expressing the hope that these fundamentals would soon change, pushing prices back up again. But recent developments have demolished such expectations.
Aside from the continuing economic slowdown in China and the surge of output in North America, the most significant factor in the unpromising oil outlook, which now extends bleakly into 2016 and beyond, is the steadfast Saudi resistance to any proposals to curtail their production or OPEC’s. On December 4th, for instance, OPEC members voted yet again to keep quotas at their current levels and, in the process, drove prices down another 5%. If anything, the Saudis have actually increased their output.
Many reasons have been given for the Saudis’ resistance to production cutbacks, including a desire to punish Iran and Russia for their support of the Assad regime in Syria. In the view of many industry analysts, the Saudis see themselves as better positioned than their rivals for weathering a long-term price decline because of their lower costs of production and their large cushion of foreign reserves. The most likely explanation, though, and the one advanced by the Saudis themselves is that they are seeking to maintain a price environment in which U.S. shale producers and other tough-oil operators will be driven out of the market. “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils,” a top Saudi official told the Financial Times last spring.
Despite the Saudis’ best efforts, the larger U.S. producers have, for the most part, adjusted to the low-price environment, cutting costs and shedding unprofitable operations, even as many smaller firms have filed for bankruptcy. As a result, U.S. crude production, at about 9.2 million barrels per day, is actually slightly higher than it was a year ago.
In other words, even at $33 a barrel, production continues to outpace global demand and there seems little likelihood of prices rising soon, especially since, among other things, both Iraq and Iran continue to increase their output. With the Islamic State slowly losing ground in Iraq and most major oil fields still in government hands, that country’s production is expected to continue its stellar growth. In fact, some analysts project that its output could triple during the coming decade from the present three million barrels per day level to as much as nine million barrels.
For years, Iranian production has been hobbled by sanctions imposed by Washington and the European Union (E.U.), impeding both export transactions and the acquisition of advanced Western drilling technology. Now, thanks to its nuclear deal with Washington, those sanctions are being lifted, allowing it both to reenter the oil market and import needed technology. According to the U.S. Energy Information Administration, Iranian output could rise by as much as 600,000 barrels per day in 2016 and by more in the years to follow.
Only three developments could conceivably alter the present low-price environment for oil: a Middle Eastern war that took out one or more of the major energy suppliers; a Saudi decision to constrain production in order to boost prices; or an unexpected global surge in demand.
The prospect of a new war between, say, Iran and Saudi Arabia — two powers at each other’s throats at this very moment — can never be ruled out, though neither side is believed to have the capacity or inclination to undertake such a risky move. A Saudi decision to constrain production is somewhat more likely sooner or later, given the precipitous decline in government revenues. However, the Saudis have repeatedly affirmed their determination to avoid such a move, as it would largely benefit the very producers — namely shale operators in the U.S. — they seek to eliminate.
The likelihood of a sudden spike in demand appears unlikely indeed. Not only is economic activity still slowing in China and many other parts of the world, but there’s an extra wrinkle that should worry the Saudis at least as much as all that shale oil coming out of North America: oil itself is beginning to lose some of its appeal.
While newly affluent consumers in China and India continue to buy oil-powered automobiles — albeit not at the breakneck pace once predicted — a growing number of consumers in the older industrial nations are exhibiting a preference for hybrid and all-electric cars, or for alternative means of transportation. Moreover, with concern over climate change growing globally, increasing numbers of young urban dwellers are choosing to subsist without cars altogether, relying instead on bikes and public transit. In addition, the use of renewable energy sources — sun, wind, and water power — is on the rise and will only grow more rapidly in this century.
These trends have prompted some analysts to predict that global oil demand will soon peak and then be followed by a period of declining consumption. Amy Myers Jaffe, director of the energy and sustainability program at the University of California, Davis, suggests that growing urbanization combined with technological breakthroughs in renewables will dramatically reduce future demand for oil. “Increasingly, cities around the world are seeking smarter designs for transport systems as well as penalties and restrictions on car ownership. Already in the West, trendsetting millennials are urbanizing, eliminating the need for commuting and interest in individual car ownership,” she wrote in the Wall Street Journal last year.
The Changing World Power Equation
Many countries that get a significant share of their funds from oil and natural gas exports and that gained enormous influence as petroleum exporters are already experiencing a significant erosion in prominence. Their leaders, once bolstered by high oil revenues, which meant money to spread around and buy popularity domestically, are falling into disfavor.
Nigeria’s government, for example, traditionally obtains 75% of its revenues from such sales; Russia’s, 50%; and Venezuela’s, 40%. With oil now at a third of the price of 18 months ago, state revenues in all three have plummeted, putting a crimp in their ability to undertake ambitious domestic and foreign initiatives.
In Nigeria, diminished government spending combined with rampant corruption discredited the government of President Goodluck Jonathan and helped fuel a vicious insurgency by Boko Haram, prompting Nigerian voters to abandon him in the most recent election and install a former military ruler, Muhammadu Buhari, in his place. Since taking office, Buhari has pledged to crack down on corruption, crush Boko Haram, and — in a telling sign of the times — diversify the economy, lessening its reliance on oil.
Venezuela has experienced a similar political shock thanks to depressed oil prices. When prices were high, President Hugo Chávez took revenues from the state-owned oil company, Petróleos de Venezuela S.A., and used them to build housing and provide other benefits for the country’s poor and working classes, winning vast popular support for his United Socialist Party. He also sought regional support by offering oil subsidies to friendly countries like Cuba, Nicaragua, and Bolivia. After he died in March 2013, his chosen successor, Nicolas Maduro, sought to perpetuate this strategy, but oil didn’t cooperate and, not surprisingly, public support for him and for Chávez’s party began to collapse. On December 6th, the center-right opposition swept to electoral victory, taking a majority of the seats in the National Assembly. It now seeks to dismantle Chávez’s “Bolivarian Revolution,” though Maduro’s supporters have pledged firm resistance to any such moves.
The situation in Russia remains somewhat more fluid. President Vladimir Putin continues to enjoy widespread popular support and, from Ukraine to Syria, he has indeed been moving ambitiously on the international front. Still, falling oil prices combined with economic sanctions imposed by the E.U. and the U.S. have begun to cause some expressions of dissatisfaction, including a recent protest by long-distance truckers over increased highway tolls. Russia’s economy is expected to contract in a significant way in 2016, undermining the living standards of ordinary Russians and possibly sparking further anti-government protests. In fact, some analysts believe that Putin took the risky step of intervening in the Syrian conflict partly to deflect public attention from deteriorating economic conditions at home. He may also have done so to create a situation in which Russian help in achieving a negotiated resolution to the bitter, increasingly internationalized Syrian civil war could be traded for the lifting of sanctions over Ukraine. If so, this is a very dangerous game, and no one — least of all Putin — can be certain of the outcome.
Saudi Arabia, the world’s leading oil exporter, has been similarly buffeted, but appears — for the time being, anyway — to be in a somewhat better position to weather the shock. When oil prices were high, the Saudis socked away a massive trove of foreign reserves, estimated at three-quarters of a trillion dollars. Now that prices have fallen, they are drawing on those reserves to sustain generous social spending meant to stave off unrest in the kingdom and to finance their ambitious intervention in Yemen’s civil war, which is already beginning to look like a Saudi Vietnam. Still, those reserves have fallen by some $90 billion since last year and the government is already announcing cutbacks in public spending, leading some observers to question how long the royal family can continue to buy off the discontent of the country’s growing populace. Even if the Saudis were to reverse course and limit the kingdom’s oil production to drive the price of oil back up, it’s unlikely that their oil income would rise high enough to sustain all of their present lavish spending priorities.
Other major oil-producing countries also face the prospect of political turmoil, including Algeria and Angola. The leaders of both countries had achieved the usual deceptive degree of stability in energy producing countries through the usual oil-financed government largesse. That is now coming to an end, which means that both countries could face internal challenges.
And keep in mind that the tremors from the oil pricequake have undoubtedly yet to reach their full magnitude. Prices will, of course, rise someday. That’s inevitable, given the way investors are pulling the plug on energy projects globally. Still, on a planet heading for a green energy revolution, there’s no assurance that they will ever reach the $100-plus levels that were once taken for granted. Whatever happens to oil and the countries that produce it, the global political order that once rested on oil’s soaring price is doomed. While this may mean hardship for some, especially the citizens of export-dependent states like Russia and Venezuela, it could help smooth the transition to a world powered by renewable forms of energy.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.
Copyright 2016 Michael T. Klare
The Oil Pricequake
Historically, the transition from one energy system to another, as from wood to coal or coal to oil, has proven an enormously complicated process, requiring decades to complete. In similar fashion, it will undoubtedly be many years before renewable forms of energy — wind, solar, tidal, geothermal, and others still in development — replace fossil fuels as the world’s leading energy providers. Nonetheless, 2015 can be viewed as the year in which the epochal transition from one set of fuels to another took off, with renewables making such significant strides that, for the first time in centuries, the beginning of the end of the Fossil Fuel Era has come into sight.
This shift will take place no matter how well or poorly the deal just achieved at the U.N. climate summit in Paris is carried out. Although a robust commitment by participating nations to curb future carbon emissions will certainly help speed the transition, the necessary preconditions — political will, investment capital, and technological momentum — are already in place to drive the renewable revolution forward. Lending a hand to this transformation will be a sharp and continuing reduction in the cost of renewable energy, making it increasingly competitive with fossil fuels. According to the Paris-based International Energy Agency (IEA), between now and 2040 global investments in renewable power capacity will total $7 trillion, accounting for 60% of all power plant investment.
Fossil fuels will not, of course, disappear during this period. Too much existing infrastructure — refineries, distribution networks, transportation systems, power plants, and the like — are dependent on oil, coal, and natural gas, which means, unfortunately, that these fuels will continue to play a prominent role for decades. But the primary thrust of new policies, new investment, and new technology will be in the advancement of renewables.
Two events on the periphery of the Paris climate summit were especially noteworthy in terms of the renewable revolution: the announcement of an International Solar Alliance by India and France, and the launching of the Breakthrough Energy Coalition by Bill Gates of Microsoft, Jeff Bezos of Amazon, and a host of other billionaires.
As described by Indian Prime Minister Narendra Modi, the International Solar Alliance is meant to mobilize private and public funds for the development and installation of affordable solar systems on a global scale, especially in developing countries. “We intend making joint efforts through innovative policies, projects, programs, capacity-building measures, and financial instruments to mobilize more than 1,000 billion U.S. dollars of investments that are needed by 2030 for the massive deployment of affordable solar energy,” Modi and French President François Hollande indicated in a joint statement on November 30th.
According to its sponsors, the aim of this program is to pool financing from both public and private sources in order to bring down the costs of solar systems even further and speed their utilization, especially in poor tropical countries. “The vast majority of humans are blessed with sunlight throughout the year,” Modi explained. “We want to bring solar energy into their lives.”
To get the alliance off the ground, the Indian government will commit some $30 billion for the establishment of the alliance’s headquarters in New Delhi. Modi has also pledged to increase solar power generation in India by 2,500% over the next seven years, expanding output from 4 to 100 gigawatts — thereby creating a vast new market for solar technology and devices. “This day is the sunrise of new hope, not just for clean energy, but for villages and homes still in darkness,” he said in Paris, adding that the solar alliance would create “unlimited economic opportunities” for green energy entrepreneurs.
The Breakthrough Energy Coalition, reportedly the brainchild of Bill Gates, will seek to channel private and public funds into the development of advanced green-energy technologies to speed the transition from fossil fuels to renewables. “Technology will help solve our energy issues,” the project’s website states. “Scientists, engineers, and entrepreneurs can invent and scale the innovative technologies that will limit the impact of climate change while providing affordable and reliable energy to everyone.”
As Gates imagines it, the new venture will seek to bundle funds from wealthy investors in order to move innovative energy breakthroughs from the laboratory — where they often languish — to full-scale development and production. “Experience indicates that even the most promising ideas face daunting commercialization challenges and a nearly impassable Valley of Death between promising concept and viable product,” the project notes. “This collective failure can be addressed, in part, by a dramatically scaled-up public research pipeline, linked to a different kind of private investor with a long-term commitment to new technologies who is willing to put truly patient flexible risk capital to work.”
Joining Gates and Bezos in this venture are a host of super-rich investors, including Jack Ma, founder and executive chairman of Alibaba, the Chinese internet giant; Mark Zuckerberg, the founder and chairman of Facebook; George Soros, chairman of Soros Fund Management; and Ratan Tata, chairman emeritus of India’s giant Tata Sons conglomerate. While seeking to speed the progress of green technology, these investors also see a huge potential for future profits in this field and, as the venture claims, “will certainly be motivated partly by the possibility of making big returns over the long-term, but also by the criticality of an energy transition.”
While vast in their ambitions, these two schemes are not without their critics. Some environmentalists worry, for example, that Modi’s enthusiasm for the International Solar Alliance might actually be a public relations device aimed at deflecting criticism from his plans for increasing India’s reliance on coal to generate electricity. A report by Climate Action Tracker, an environmental watchdog group, noted, for instance, that “the absolute growth in [India’s] coal-powered electric generating capacity would be significantly larger than the absolute increase in renewable/non-fossil generation capacity” in that country between 2013 and 2030. “Ultimately, this would lead to a greater lock-in of carbon-intensive power infrastructure in India than appears necessary.”
The Gates initiative has come under criticism for favoring still-experimental “breakthrough” technologies over further improvements in here-and-now devices such as solar panels and wind turbines. For example, Joe Romm, a climate expert and former acting assistant secretary of energy, recently wrote at the website Climate Progress that “Gates has generally downplayed the amazing advances we’ve had in the keystone clean technologies,” such as wind and solar, while “investing in new nuclear power, geo-engineering technologies, and off-the-wall stuff.”
Despite such criticisms, the far-reaching implications and symbolic importance of these initiatives shouldn’t be dismissed. By funneling billions — and in the end undoubtedly trillions — of dollars into the development and deployment of green technologies, these politicians and plutocrats are ensuring that the shift from fossil fuels to renewables will gain further momentum with each passing year until it becomes unstoppable.
The Developing World Goes Green
In another sign of this epochal shift, ever more countries in the developing world — including some oil-producing ones — are embracing renewables as their preferred energy sources. According to the IEA, the newly industrialized countries, spearheaded by China and India, will spend $2.7 trillion on renewable-based power plants between 2015 and 2040, far more than the older industrialized nations.
This embrace of renewables by the developing world is especially significant given the way the major oil and gas companies — led by ExxonMobil and BP — have long argued that cheap fossil fuels provide these countries with the smoothest path to rapid economic development. Exxon CEO Rex Tillerson has even claimed that there is a “humanitarian imperative” to providing the developing world with cheap fossil fuels in order to save “millions and millions of lives.”
In accordance with this self-serving rhetoric, Exxon, BP, Royal Dutch Shell, and other energy giants have been madly expanding their oil and gas distribution networks in Asia, Africa, and other developing areas.
Increasingly, however, the targets of this push are rejecting fossil fuels in favor of renewables. Morocco, for example, has pledged to obtain 42% of its electricity from renewables by 2020, far more than planned by the members of the European Union. Later this month, the country will commence operations at the Ouarzazate solar thermal plant, a mammoth facility capable of supplying electricity to one million homes by relying on an array of revolving parabolic mirrors covering some 6,000 acres. These will concentrate the power of sunlight and use it to produce steam for electricity-generating turbines.
Elsewhere in Africa, authorities in Rwanda have commissioned a vast solar array at Agahozo-Shalom Youth Village, about 40 miles east of Kigali, the capital. Consisting of 28,360 computer-controlled solar panels, the array can generate 8.5 megawatts of electricity, or about 6% of Rwanda’s capacity. Spread over an undulating hill, the panels are laid out in the shape of the African continent and are meant to be symbolic of solar energy’s importance to that energy-starved continent. “We have plenty of sun,” said Twaha Twagirimana, the plant supervisor. “Some are living in remote areas where there is no energy. Solar will be the way forward for African countries.”
Even more significant, a number of major oil-producing countries have begun championing renewables, too. On November 28th, for example, Sheikh Mohammed bin Rashid, vice president and ruler of Dubai, launched the Dubai Clean Energy Strategy 2050, which aims to make the emirate a global center of green energy. According to present plans, 25% of Dubai’s energy will come from clean energy sources by 2030 and 75% by 2050. As part of this drive, solar panels will be made mandatory for all rooftops by 2030. “Our goal is to become the city with the smallest carbon footprint in the world by 2050,” Sheikh Mohammed said when announcing the initiative.
As part of its green energy drive, Dubai is constructing the Mohammed bin Rashid Al Maktoum Solar Park, intended to be the world’s largest solar facility. When completed, around 2030, the giant complex will produce some 5,000 megawatts of energy — about eight times as much as the Ouarzazate solar plant.
Evidence that an accelerating shift to renewables is already underway can also be found in recent studies of the global energy industry, most notably in the IEA’s just-released annual assessment of industry trends, World Energy Outlook 2015. “There are unmistakable signs that the much needed global energy transition is under way,” the report noted, with “60 cents of every dollar invested in new power plants to 2040 [to be] spent on renewable energy technologies.”
The growing importance of renewables, the IEA noted, is especially evident in the case of electricity generation. As more countries follow the growth patterns seen in China and South Korea, electricity is expected to provide an ever-increasing share of world energy requirements. Global electricity use, the report says, will grow by 46% between 2013 and 2040; all other forms of energy use, by only 24%. As a result, the share of total world energy provided by electricity will rise from 38% to 42%.
This shift is significant because renewables will provide a greater share of the energy used to generate electricity. Whereas they contributed only 12% of energy to power generation in 2013, the IEA reports, they are expected to supply 24% in 2040; meanwhile, the shares provided by coal and natural gas will grow by far smaller percentages, and that by oil will actually shrink. While coal and gas are still likely to dominate the power sector in 2040, the trend lines suggest that they will lose ever more ground to renewables as time goes on.
Contributing to the growing reliance on renewables, the IEA finds, is a continuing drop in the cost of deploying these technologies. Once considered pricey compared to fossil fuels, renewables are beginning to win out on cost alone. In 2014, the agency noted, “about three-quarters of global renewables-based [power] generation was competitive with electricity from other types of power plants without subsidies,” with large hydropower facilities contributing much of this share.
Certainly, renewables continue to benefit from subsidies of various sorts. In 2014, the IEA reports, governments provided some $112 billion to underwrite renewable power generation. While this may seem like a significant amount, it is only about a quarter of the $490 billion in subsidies governments offered globally to the fossil fuel industry. If those outsized subsidies were eliminated and a price imposed on the consumption of carbon, as proposed in many of the schemes to be introduced in the wake of the Paris climate summit, renewables would become instantly competitive without subsidies.
Go Green Young Man and Young Woman
All this is not to say that the world will be a green-energy paradise in 2030 or 2040. Far from it. Barring the unexpected, fossil fuels will continue to rule in many areas, especially transportation, and the resulting carbon emissions will continue to warm the planet disastrously. By then, however, most new investment in the energy field will, at least, be devoted to renewables and in most places globally there will be rules and regulations aimed at facilitating their installation.
As a college professor, I often think about such developments in terms of my students. When they ask me for career advice these days, I urge them to gear their studies toward some field likely to prosper in exactly this future environment: renewable energy systems, green architecture and city planning, alternative transportation and industrial systems, sustainable development, and environmental law, among others. And more and more of my students are, in fact, choosing such paths.
Likewise, if I were a future venture capitalist, I would follow the lead of Gates, Bezos, and the other tycoons in the Breakthrough Energy Coalition by seeking out the most innovative work in the green energy field. It offers as close as you can get to a guarantee against failure. As the consumption of renewable energy explodes, the incentives for power and money-saving technical breakthroughs are only going to grow and the rate of discovery is sure to rise as well, undoubtedly offering enormous payback possibilities for those getting a piece of the action early.
Finally, if I were an aspiring politician, whether in this country or elsewhere, I would be spinning plans for my city, state, or nation to take the lead in the green energy revolution. Once the transition from fossil fuels to renewables gains more momentum, leadership in the development and deployment of green technologies will become a far more popular position, which means it will increase your electability. This proposition is already beginning to be tested. For example, the Labor Party candidate for mayor of London, Sadiq Khan, is now leading the way by building his campaign around a promise to set that city on course to be 100% powered by renewables by 2050.
You’re still going to hear a lot about fossil fuels — and for good reason — but make no mistake about it: the future belongs to renewables. Of course, Big Energy, the giant utilities, and the lobbyists and politicians in their pay, including just about the complete climate-change-denying Republican Party, will do everything in their (not insignificant) power to perpetuate the Fossil Fuel Era. In the process, they will cause immeasurable harm to the planet and to us all. They will win some battles. In the process, they will also be committing some of the great crimes of history. But the war they are fighting is a losing one. Inevitably, ever more people — especially the most dynamic and creative of the young — will be hitching their futures to the coming of a genuinely green civilization, ensuring its ultimate triumph.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.
Copyright 2015 Michael Klare
A New World Beckons
At the end of November, delegations from nearly 200 countries will convene in Paris for what is billed as the most important climate meeting ever held. Officially known as the 21st Conference of the Parties (COP-21) of the United Nations Framework Convention on Climate Change (the 1992 treatythat designated that phenomenon a threat to planetary health and human survival), the Paris summit will be focused on the adoption of measures that would limit global warming to less than catastrophic levels. If it fails, world temperatures in the coming decades are likely to exceed 2 degrees Celsius (3.5 degrees Fahrenheit), the maximum amount most scientists believe the Earth can endure without experiencing irreversible climate shocks, includingsoaring temperatures and a substantial rise in global sea levels.
A failure to cap carbon emissions guarantees another result as well, though one far less discussed. It will, in the long run, bring on not just climate shocks, but also worldwide instability, insurrection, and warfare. In this sense, COP-21 should be considered not just a climate summit but a peace conference — perhaps the most significant peace convocation in history.
To grasp why, consider the latest scientific findings on the likely impacts of global warming, especially the 2014 report of the Intergovernmental Panel on Climate Change (IPCC). When first published, that report attracted worldwide media coverage for predicting that unchecked climate change willresult in severe droughts, intense storms, oppressive heat waves, recurring crop failures, and coastal flooding, all leading to widespread death and deprivation. Recent events, including a punishing drought in California and crippling heat waves in Europe and Asia, have focused more attention on just such impacts. The IPCC report, however, suggested that global warming would have devastating impacts of a social and political nature as well, including economic decline, state collapse, civil strife, mass migrations, and sooner or later resource wars.
These predictions have received far less attention, and yet the possibility of such a future should be obvious enough since human institutions, like natural systems, are vulnerable to climate change. Economies are going to suffer when key commodities — crops, timber, fish, livestock — grow scarcer, are destroyed, or fail. Societies will begin to buckle under the strain of economic decline and massive refugee flows. Armed conflict may not be the most immediate consequence of these developments, the IPCC notes, but combine the effects of climate change with already existing poverty, hunger, resource scarcity, incompetent and corrupt governance, and ethnic, religious, or national resentments, and you’re likely to end up with bitter conflicts over access to food, water, land, and other necessities of life.
The Coming of Climate Civil Wars
Such wars would not arise in a vacuum. Already existing stresses and grievances would be heightened, enflamed undoubtedly by provocative acts and the exhortations of demagogic leaders. Think of the current outbreak of violence in Israel and the Palestinian territories, touched off by clashes over access to the Temple Mount in Jerusalem (also known as the Noble Sanctuary) and the inflammatory rhetoric of assorted leaders. Combine economic and resource deprivation with such situations and you have a perfect recipe for war.
The necessities of life are already unevenly distributed across the planet. Often the divide between those with access to adequate supplies of vital resources and those lacking them coincides with long-term schisms along racial, ethnic, religious, or linguistic lines. The Israelis and Palestinians, for example, harbor deep-seated ethnic and religious hostilities but also experience vastly different possibilities when it comes to access to land and water. Add the stresses of climate change to such situations and you can naturally expect passions to boil over.
Climate change will degrade or destroy many natural systems, often already under stress, on which humans rely for their survival. Some areas that now support agriculture or animal husbandry may become uninhabitable or capable only of providing for greatly diminished populations. Under the pressure of rising temperatures and increasingly fierce droughts, the southern fringe of the Sahara desert, for example, is now being transformed from grasslands capable of sustaining nomadic herders into an empty wasteland, forcing local nomads off their ancestral lands. Many existing farmlands in Africa, Asia, and the Middle East will suffer a similar fate. Rivers that once supplied water year-round will run only sporadically or dry up altogether, again leaving populations with unpalatable choices.
As the IPCC report points out, enormous pressure will be put upon often weak state institutions to adjust to climate change and aid those in desperate need of emergency food, shelter, and other necessities. “Increased human insecurity,” the report says, “may coincide with a decline in the capacity of states to conduct effective adaptation efforts, thus creating the circumstances in which there is greater potential for violent conflict.”
A good example of this peril is provided by the outbreak of civil war in Syria and the subsequent collapse of that country in a welter of fighting and a wave of refugees of a sort that hasn’t been seen since World War II. Between 2006 and 2010, Syria experienced a devastating drought in which climate change is believed to have been a factor, turning nearly 60% of the country into desert. Crops failed and most of the country’s livestock perished, forcing millions of farmers into penury. Desperate and unable to live on their land any longer, they moved into Syria’s major cities in search of work, often facing extreme hardship as well as hostility from well-connected urban elites.
Had Syrian autocrat Bashar al-Assad responded with an emergency program of jobs and housing for those displaced, perhaps conflict could have been averted. Instead, he cut food and fuel subsidies, adding to the misery of the migrants and fanning the flames of revolt. In the view of several prominent scholars, “the rapidly growing urban peripheries of Syria, marked by illegal settlements, overcrowding, poor infrastructure, unemployment, and crime, were neglected by the Assad government and became the heart of the developing unrest.”
A similar picture has unfolded in the Sahel region of Africa, the southern fringe of the Sahara, where severe drought has combined with habitat decline and government neglect to provoke armed violence. The area has faced many such periods in the past, but now, thanks to climate change, there is less time between the droughts. “Instead of 10 years apart, they became five years apart, and now only a couple years apart,” observes Robert Piper, the United Nations regional humanitarian coordinator for the Sahel. “And that, in turn, is putting enormous stresses on what is already an incredibly fragile environment and a highly vulnerable population.”
In Mali, one of several nations straddling this region, the nomadic Tuaregshave been particularly hard hit, as the grasslands they rely on to feed their cattle are turning into desert. A Berber-speaking Muslim population, the Tuaregs have long faced hostility from the central government in Bamako, once controlled by the French and now by black Africans of Christian or animist faith. With their traditional livelihoods in peril and little assistance forthcoming from the capital, the Tuaregs revolted in January 2012, capturing half of Mali before being driven back into the Sahara by French and other foreign forces (with U.S. logistical and intelligence support).
Consider the events in Syria and Mali previews of what is likely to come later in this century on a far larger scale. As climate change intensifies, bringing not just desertification but rising sea levels in low-lying coastal areas and increasingly devastating heat waves in regions that are already hot, ever more parts of the planet will be rendered less habitable, pushing millions of people into desperate flight.
While the strongest and wealthiest governments, especially in more temperate regions, will be better able to cope with these stresses, expect to see the number of failed states grow dramatically, leading to violence and open warfare over what food, arable land, and shelter remains. In other words, imagine significant parts of the planet in the kind of state that Libya, Syria, and Yemen are in today. Some people will stay and fight to survive; others will migrate, almost assuredly encountering a far more violent version of thehostility we already see toward immigrants and refugees in the lands they head for. The result, inevitably, will be a global epidemic of resource civil wars and resource violence of every sort.
Most of these conflicts will be of an internal, civil character: clan against clan, tribe against tribe, sect against sect. On a climate-changed planet, however, don’t rule out struggles among nations for diminished vital resources — especially access to water. It’s already clear that climate change will reduce the supply of water in many tropical and subtropical regions, jeopardizing the continued pursuit of agriculture, the health and functioning of major cities, and possibly the very sinews of society.
The risk of “water wars” will arise when two or more countries depend on the same key water source — the Nile, the Jordan, the Euphrates, the Indus, the Mekong, or other trans-boundary river systems — and one or more of them seek to appropriate a disproportionate share of the ever-shrinking supply of its water. Attempts by countries to build dams and divert the water flow of such riverine systems have already provoked skirmishes and threats of war, as when Turkey and Syria erected dams on the Euphrates, constraining the downstream flow.
One system that has attracted particular concern in this regard is theBrahmaputra River, which originates in China (where it is known as the Yarlung Tsangpo) and passes through India and Bangladesh before emptying into the Indian Ocean. China has already erected one dam on the river and has plans for more, producing considerable unease in India, where the Brahmaputra’s water is vital for agriculture. But what has provoked the most alarm is a Chinese plan to channel water from that river to water-scarce areas in the northern part of that country.
The Chinese insist that no such action is imminent, but intensified warming and increased drought could, in the future, prompt such a move, jeopardizing India’s water supply and possibly provoking a conflict. “China’s construction of dams and the proposed diversion of the Brahmaputra’s waters is not only expected to have repercussions for water flow, agriculture, ecology, and lives and livelihoods downstream,” Sudha Ramachandran writes in The Diplomat, “it could also become another contentious issue undermining Sino-Indian relations.”
Of course, even in a future of far greater water stresses, such situations are not guaranteed to provoke armed combat. Perhaps the states involved will figure out how to share whatever limited resources remain and seek alternative means of survival. Nonetheless, the temptation to employ force is bound to grow as supplies dwindle and millions of people face thirst and starvation. In such circumstances, the survival of the state itself will be at risk, inviting desperate measures.
Lowering the Temperature
There is much that undoubtedly could be done to reduce the risk of water wars, including the adoption of cooperative water-management schemes and the introduction of the wholesale use of drip irrigation and related processes that use water far more efficiently. However, the best way to avoid future climate-related strife is, of course, to reduce the pace of global warming. Every fraction of a degree less warming achieved in Paris and thereafter will mean that much less blood spilled in future climate-driven resource wars.
This is why the Paris climate summit should be viewed as a kind of preemptive peace conference, one that is taking place before the wars truly begin. If delegates to COP-21 succeed in sending us down a path that limits global warming to 2 degrees Celsius, the risk of future violence will be diminished accordingly. Needless to say, even 2 degrees of warming guarantees substantial damage to vital natural systems, potentially severe resource scarcities, and attendant civil strife. As a result, a lower ceiling for temperature rise would be preferable and should be the goal of future conferences. Still, given the carbon emissions pouring into the atmosphere, even a 2-degree cap would be a significant accomplishment.
To achieve such an outcome, delegates will undoubtedly have to begin dealing with conflicts of the present moment as well, including those in Syria, Iraq, Yemen, and Ukraine, in order to collaborate in devising common, mutually binding climate measures. In this sense, too, the Paris summit will be a peace conference. For the first time, the nations of the world will have to step beyond national thinking and embrace a higher goal: the safety of the ecosphere and all its human inhabitants, no matter their national, ethnic, religious, racial, or linguistic identities. Nothing like this has ever been attempted, which means that it will be an exercise in peacemaking of the most essential sort — and, for once, before the wars truly begin.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.
Copyright 2015 Michael T. Klare
Why the Paris Climate Summit Will Be a Peace Conference
Not so long ago, it was science fiction. Now, it’s hard science — and that should frighten us all. The latest reports from the prestigious and sober Intergovernmental Panel on Climate Change (IPCC) make increasingly hair-raising reading, suggesting that the planet is approaching possible moments of irreversible damage in a fashion and at a speed that had not been anticipated.
Scientists have long worried that climate change will not continue to advance in a “linear” fashion, with the planet getting a little bit hotter most years. Instead, they fear, humanity could someday experience “non-linear” climate shifts (also known as “singularities” or “tipping points”) after which there would be sudden and irreversible change of a catastrophic nature. This was the premise of the 2004 climate-disaster film The Day After Tomorrow. In that movie — most notable for its vivid scenes of a frozen-over New York City — melting polar ice causes a disruption in the North Atlantic Current, which in turn triggers a series of catastrophic storms and disasters. At the time of its release, many knowledgeable scientists derided the film’s premise, insisting that the confluence of events it portrayed was unlikely or simply impossible.
Fast forward 11 years and the prospect of such calamitous tipping points in the North Atlantic or elsewhere no longer looks improbable. In fact, climate scientists have begun to note early indicators of possible catastrophes.
Take the disruption of the North Atlantic Current, the pivotal event in The Day After Tomorrow. Essentially an extension of the Gulf Stream, that deep-sea current carries relatively warm salty water from the South Atlantic and the Caribbean to the northern reaches of the Atlantic. In the process, it helps keep Europe warmer than it would otherwise be. Once its salty water flows into sub-Arctic areas carried by this prolific stream, it gets colder and heavier, sinks to lower depths, and starts a return trip to warmer climes in the south where the whole process begins again.
So long as this “global conveyor belt” — known to scientists as the Atlantic Meridional Overturning Circulation, or AMOC — keeps functioning, the Gulf Stream will also continue to bring warmer waters to the eastern United States and Europe. Should it be disrupted, however, the whole system might break down, in which case the Euro-Atlantic climate could turn colder and more storm-prone. Such a disruption might occur if the vast Greenland ice sheet melts in a significant way, as indeed is already beginning to happen today, pouring large quantities of salt-free fresh water into the Atlantic Ocean. Because of its lighter weight, this newly introduced water will remain close to the surface, preventing the submergence of salty water from the south and so effectively shutting down the conveyor belt. Indeed, exactly this process now seems to be underway.
By all accounts, 2015 is likely to wind up as the hottest year on record, with large parts of the world suffering from severe heat waves and wildfires. Despite all this, however, a stretch of the North Atlantic below Iceland and Greenland is experiencing all-time cold temperatures, according to the National Oceanic and Atmospheric Administration. What explains this anomaly? According to scientists from the Potsdam Institute for Climate Impact Research and Pennsylvania State University, among other institutions, the most likely explanation is the arrival in the area of cold water from the Greenland ice sheet that is melting ever more rapidly thanks to climate change. Because this meltwater starts out salt-free, it has remained near the surface and so, as predicted, is slowing the northern advance of warmer water from the North Atlantic Current.
So far, the AMOC has not suffered a dramatic shutdown, but it is slowing, and scientists worry that a rapid increase in Greenland ice melt as the Arctic continues to warm will pour ever more meltwater into the North Atlantic, severely disrupting the conveyor system. That would, indeed, constitute a major tipping point, with severe consequences for Europe and eastern North America. Not only would Europe experience colder temperatures on an otherwise warmer planet, but coastal North America could witness higher sea levels than those predicted from climate change alone because the Gulf Stream tends to pull sea water away from the eastern U.S. and push it toward Europe. If it were to fail, rising sea levels could endanger cities like New York and Boston. Indeed, scientists discovered that just such a slowing of the AMOC helped produce a sea-level rise of four inches from New York to Newfoundland in 2009 and 2010.
In its 2014 report on the status of global warming, the IPCC indicated that the likelihood of the AMOC collapsing before the end of this century remains relatively low. But some studies suggest that the conveyor system is already 15%-20% below normal with Greenland’s melting still in an early stage. Once that process switches into high gear, the potential for the sort of breakdown that was once science fiction starts to look all too real.
Tipping Points on the Horizon
In a 2014 report, “Impacts, Adaptation, and Vulnerability,” Working Group II of the IPCC identified three other natural systems already showing early-warning signs of catastrophic tipping points: the Arctic, coral reefs, and the Amazonian forest. All three, the report suggested, could experience massive and irreversible changes with profound implications for human societies.
The Arctic comes in for particular scrutiny because it has experienced more warming than any other region on the planet and because the impact of climate change there is already so obvious. As the report put it, “For the Arctic region, new evidence indicates a biophysical regime shift is taking place, with cascading impacts on physical systems, ecosystems, and human livelihoods.”
This has begun with a massive melt of sea ice in the region and a resulting threat to native marine species. “For Arctic marine biota,” the report notes, “the rapid reduction of summer ice covers causes a tipping element that is now severely affecting pelagic [sub-surface] ecosystems as well as ice-dependent mammals such as seals and polar bears.” Other flora and fauna of the Arctic biome are also demonstrating stress related to climate change. For example, vast areas of tundra are being invaded by shrubs and small trees, decimating the habitats of some animal species and increasing the risk of fires.
This Arctic “regime shift” affects many other aspects of the ecosystem as well. Higher temperatures, for instance, have meant widespread thawing and melting of permafrost, the frozen soil and water that undergirds much of the Arctic landmass. In this lies another possible tipping-point danger, since frozen soils contain more than twice the carbon now present in the atmosphere. As the permafrost melts, some of this carbon is released in the form of methane, a potent greenhouse gas with many times the warming potential of carbon dioxide and other such gases. In other words, as the IPCC noted, any significant melting of Arctic permafrost will “create a potentially strong positive feedback to accelerate Arctic (and global) warming.” This, in fact, could prove to be more than a tipping point. It could be a planetary catastrophe.
Along with these biophysical effects, the warming of the Arctic is threatening the livelihoods and lifestyles of the indigenous peoples of the region. The loss of summer sea ice, for example, has endangered the marine species on which many such communities depend for food and the preservation of their cultural traditions. Meanwhile, melting permafrost and coastal erosion due to sea-level rise have threatened the very existence of their coastal villages. In September, President Obama visited Kotzebue, a village in Alaska some 30 miles above the Arctic Circle that could disappear as a result of melting permafrost, rising sea levels, and ever bigger storm surges.
Coral Reefs at Risk
Another crucial ecosystem that’s showing signs of heading toward an irreversible tipping point is the world’s constellation of coral reefs. Remarkably enough, although such reefs make up less than 1% of the Earth’s surface area, they house up to 25% of all marine life. They are, that is, essential for both the health of the oceans and of fishing communities, as well as of those who depend on fish for a significant part of their diet. According to one estimate, some 850 million people rely on coral reefs for their food security.
Corals, which are colonies of tiny animals related to sea anemones, have proven highly sensitive to changes in the acidity and temperature of their surrounding waters, both of which are rising due to the absorption of excess carbon dioxide from the atmosphere. As a result, in a visually dramatic process called “bleaching,” coral populations have been dying out globally. According to a recent study by the Worldwide Fund for Nature, coral reef extent has declined by 50% in the last 30 years and all reefs could disappear as early as 2050 if current rates of ocean warming and acidification continue.
“This irreversible loss of biodiversity,” reports the IPCC, will have “significant consequences for regional marine ecosystems as well as the human livelihoods that depend on them.” Indeed, the growing evidence of such losses “strengthens the conclusion that increased mass bleaching of corals constitutes a strong warning signal for the singular event that would constitute the irreversible loss of an entire biome.”
The Amazon has long been viewed as the epitome of a tropical rainforest, with extraordinary plant and animal diversity. The Amazonian tree cover also plays a vital role in reducing the pace of global warming by absorbing vast amounts of carbon dioxide from the atmosphere during the process of photosynthesis. For years, however, the Amazon has been increasingly devastated by a process of deforestation, as settlers from Brazil’s coastal regions clear land for farming and ranching, and loggers (many operating illegally) harvest timber for wood products. Now, as if to add insult to injury, the region faces a new threat from climate change: tree mortality due to a rise in severe drought and the increased forest fire risk that accompanies it.
Although it can rain year-round in the Amazon region, there is a distinct wet season with heavy rainfall and a dry season with much less of it. An extended dry season with little rain can endanger the survival of many trees and increase the risk of wildfires. Research conducted by scientists at the University of Texas has found that the dry season in the southern Amazonian region has grown by a week every decade since 1980 while the annual fire season has lengthened. “The dry season over the southern Amazon is already marginal for maintaining rainforest,” says Rong Fu, the leader of the research team. “At some point, if it becomes too long, the rainforest will reach a tipping point” and disappear.
Because the Amazon harbors perhaps the largest array of distinctive flora and fauna on the planet, its loss would represent an irreversible blow to global biodiversity. In addition, the region hosts some of the largest assemblages of indigenous peoples still practicing their traditional ways of life. Even if their lives were saved (through relocation to urban slums or government encampments), the loss of their cultures, representing thousands of years of adaptation to a demanding environment, would be a blow for all humankind.
As in the case of the Arctic and coral reefs, the collapse of the Amazon will have what the IPCC terms “cascading impacts,” devastating ecosystems, diminishing biodiversity, and destroying the ways of life of indigenous peoples. Worse yet, as with the melting of the Arctic, so the drying-out of Amazonia is likely to feed into climate change, heightening its intensity and so sparking yet more tipping points on a planet increasingly close to the brink.
In its report, the IPCC, whose analysis tends, if anything, to be on the conservative side of climate science, indicated that the Amazon faced a relatively low risk of dying out by 2100. However, a 2009 study conducted by Britain’s famed Meteorological (Met) Office suggests that the risk is far greater than previously assumed. Even if global temperatures were to be held to an increase of 2 degrees Celsius, the study notes, as much as 40% of the Amazon would perish within a century; with 3 degrees of warming, up to 75% would vanish; and with 4 degrees, 85% would die. “The forest as we know it would effectively be gone,” said Met researcher Vicky Pope.
Of Tipping Points and Singularities
These four natural systems are by no means the only ones that could face devastating tipping points in the years to come. The IPCC report and other scientific studies hint at further biomes that show early signs of potential catastrophe. But these four are sufficiently advanced to tell us that we need to look at climate change in a new way: not as a slow, linear process to which we can adapt over time, but as a non-linear set of events involving dramatic and irreversible changes to the global ecosphere.
The difference is critical: linear change gives us the luxury of time to devise and implement curbs on greenhouse gas emissions, and to construct protective measures such as sea walls. Non-linear change puts a crimp on time and confronts us with the possibility of relatively sudden, devastating climate shifts against which no defensive measures can protect us.
Were the Atlantic Meridional Overturning Circulation to fail, for example, there would be nothing we could do to turn it back on, nor would we be able to recreate coral reefs or resurrect the Amazon. Add in one other factor: when natural systems of this magnitude fail, should we not expect human systems to fail as well? No one can answer this question with certainty, but we do know that earlier human societies collapsed when faced with other kinds of profound changes in climate.
All of this should be on the minds of delegates to the upcoming climate summit in Paris, a meeting focused on adopting an international set of restrictions on greenhouse gas emissions. Each participating nation is obliged to submit a set of measures it is ready to take, known as “intended nationally determined contributions,” or INDCs, aimed at achieving the overall goal of preventing planetary warming from exceeding 2 degrees Celsius. However, the INDCs submitted to date, including those from the United States and China, suggest a distinctly incremental approach to the problem. Unfortunately, if planetary tipping points are in our future, this mindset will not measure up. It’s time to start thinking instead in terms of civilizational survival.
Copyright 2015 Michael T. Klare
Welcome to a New Planet
The plunge of global oil prices began in June 2014, when benchmark Brent crude was selling at $114 per barrel. It hit bottom at $46 this January, a near-collapse widely viewed as a major but temporary calamity for the energy industry. Such low prices were expected to force many high-cost operators, especially American shale oil producers, out of the market, while stoking fresh demand and so pushing those numbers back up again. When Brent rose to $66 per barrel this May, many oil industry executives breathed a sigh of relief. The worst was over. The price had “reached a bottom” and it “doesn’t look like it is going back,” a senior Saudi official observed at the time.
Skip ahead three months and that springtime of optimism has evaporated. Major producers continue to pump out record levels of crude and world demand remains essentially flat. The result: a global oil glut that is again driving prices toward the energy subbasement. In the first week of August, Brent fell to $49, and West Texas Intermediate, the benchmark for U.S. crude, sank to $45. On top of last winter’s rout, this second round of price declines has played havoc with the profits of the major oil companies, put tens of thousands of people out of work, and obliterated billions of dollars of investments in future projects. While most oil-company executives continue to insist that a turnaround is sure to occur in the near future, some analysts are beginning to wonder if what’s underway doesn’t actually signal a fundamental transformation of the industry.
Recently, as if to underscore the magnitude of the current rout, ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years. Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015. Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014. In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo). Chevron also announced plans to eliminate 1,500 jobs.
Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant. To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel.
According to Wood Mackenzie, an oil-industry consultancy, the top firms have already shelved $200 billion worth of spending on new projects, including 46 major oil and natural gas ventures containing an estimated 20 billion barrels of oil or its equivalent. Most of these are in Canada’s Athabasca tar sands (also called oil sands) or in deep waters off the west coast of Africa. Royal Dutch Shell has postponed its Bonga South West project, a proposed $12 billion development in the Atlantic Ocean off the coast of Nigeria, while the French company Total has delayed a final investment decision on Zinia 2, a field it had planned to exploit off the coast of Angola. “The upstream industry is winding back its investment in big pre-final investment decision developments as fast as it can,” Wood Mackenziereported in July.
As the price of oil continues on its downward course, the cancellation or postponement of such mega-projects has been sending powerful shock waves through the energy industry, and also ancillary industries, communities, and countries that depend on oil extraction for the bulk of their revenues. Consider it a straw in the wind that, in February, Halliburton, a major oil-services provider, announced layoffs of 7% of its work force, or about 6,000 people. Other firms have announced equivalent reductions.
Such layoffs are, of course, impacting whole communities. For instance, Fort McMurray in Alberta, Canada, the epicenter of the tar sands industry and not so long ago a boom town, has seen its unemployment rate double over the past year and public spending slashed. Families that once enjoyed six-digit annual incomes are now turning to community food banks for essential supplies. “In a very short time our world has changed, and changed dramatically,” observes Rich Kruger, chief executive of Imperial Oil, an Exxon subsidiary and major investor in Alberta’s tar sands.
A similar effect can be seen on a far larger scale when it comes to oil-centric countries like Russia, Nigeria, and Venezuela. All three are highly dependent on oil exports for government operations. Russia’s government relies on its oil and gas industry for 50% of its budget revenues, Nigeria for 75%, and Venezuela for 45%. All three have experienced sharp drops in oil income. The resulting diminished government spending has meant economic hardship, especially for the poor and marginalized, and prompted increased civil unrest. In Russia, President Vladimir Putin has clearly sought to deflect attention from the social impact of reduced oil revenue by whipping up patriotic fervor about the country’s military involvement in Ukraine. Russia’s actions have, however, provoked Western economic sanctions, only adding to its economic and social woes.
No Relief in Sight
What are we to make of this unexpected second fall in oil prices? Could we, in fact, be witnessing a fundamental shift in the energy industry? To answer either of these questions, consider why prices first fell in 2014 and why, at the time, analysts believed they would rebound by the middle of this year.
The initial collapse was widely attributed to three critical factors: an extraordinary surge in production from shale formations in the United States, continued high output by members of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia, and a slackening of demand from major consuming nations, especially China.
According to the Energy Information Administration of the Department of Energy, crude oil production in the United States took aleap from 5.6 million barrels per day in June 2011 to 8.7 million barrels in June 2014, a mind-boggling increase of 55% in just three years. The addition of so much new oil to global markets — thanks in large part to the introduction of fracking technology in America’s western energy fields — occurred just as China’s economy (and so its demand for oil) was slowing, undoubtedly provoking the initial price slide. Brent crude went from $114 to $84 per barrel, a drop of 36% between June and October 2014.
Historically, OPEC has responded to such declines by scaling back production by its member states, and so effectively shoring up prices. This time, however, the organization, which met in Vienna last November, elected to maintain production at current levels, ensuring a global oil glut. Not surprisingly, in the weeks after the meeting, Brent prices went into free fall, ending up at $55 per barrel on the last day of 2014.
Most industry analysts assumed that the Persian Gulf states, led by Saudi Arabia, were simply willing to absorb a temporary loss of income to force the collapse of U.S. shale operators and other emerging competitors, including tar sands operations in Canada and deep-offshore ventures in Africa and Brazil. A senior Saudi official seemed to confirm this in May, telling the Financial Times, “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils.”
Believing that the Saudi strategy had succeeded and noting signs of increasing energy demand in China, Europe, and the United States, many analysts concluded that prices would soon begin to rise again, as indeed they briefly did. It now appears, however, that these assumptions were off the mark. While numerous high-cost projects in Canada and Africa were delayed or cancelled, the U.S. shale industry has found ways to weather the downturn in prices. Some less-productive wells have indeed been abandoned, but drillers also developed techniques to extract more oil less expensively from their remaining wells and kept right on pumping. “We can’t control commodity prices, but we can control the efficiency of our wells,” said one operator in the Eagle Ford region of Texas. “The industry has taken this as a wake-up call to get more efficient or get out.”
Responding to the challenge, the Saudis ramped up production, achieving a record 10.3 million barrels per day in May 2014. Other OPEC members similarly increased their output and, to the surprise of many, the Iraqi oil industry achieved unexpected production highs, despite the country’s growing internal disorder. Meanwhile, with economic sanctions on Iran expected to ease in the wake of its nuclear deal with the U.S., China, France, Russia, England, and Germany, that country’s energy industry is soon likely to begin gearing up to add to global supply in a significant way.
With ever more oil entering the market and a future seeded with yet more of the same, only an unlikely major boost in demand could halt a further price drop. Although American consumers are driving more and buying bigger vehicles in response to lower gas prices, Europe shows few signs of recovery from its present austerity moment, and China, following a catastrophic stock market contraction in June, is in no position to take up the slack. Put it all together and the prognosis seems inescapable: low oil prices for the foreseeable future.
A Whole New Ballgame?
Big Energy is doing its best to remain optimistic about the situation, believing a turnaround is inevitable. “Globally in the industry $130 billion of projects have been delayed, deferred, or cancelled,” Bod Dudley, chief executive of BP, commented in June. “That’s going to have an impact down the road.”
But what if we’ve entered a new period in which supply just keeps expanding while demand fails to take off? For one thing, there’s no evidence that the shale and fracking revolution that has turned the U.S. into “Saudi America” will collapse any time soon. Although some smaller operators may be driven out of business, those capable of embracing the newest cost-cutting technologies are likely to keep pumping out shale oil even in a low-price environment.
Meanwhile, there’s Iran and Iraq to take into account. Those two countries are desperate for infusions of new income and possess some of the planet’s largest reserves of untapped petroleum. Over the decades, both have been ravaged by war and sanctions, but their energy industries are now poised for significant growth. To the surprise of analysts, Iraqi production rose from 2.4 million barrels per day in 2010 to 4 million barrels this summer. Some experts are convinced that by 2020 total output, including from the country’s semiautonomous Kurdistan region, could more than double to 9 million barrels. Of course, continued fighting in Iraq, which has already lost major cities in the north to the Islamic State and its new “caliphate,” could quickly undermine such expectations. Still, through years of chaos, civil war, and insurgency, the Iraqi energy industry has proven remarkably resilient and adept first at sustaining and then boosting its output.
Iran’s once mighty oil industry, crippled by fierce economic sanctions, has suffered from a lack of access to advanced Western drilling technology. At about 2.8 million barrels per day in 2014, its crude oil production remains far below levels experts believe would be easily attainable if modern technology were brought to bear. Once the Iran nuclear deal is approved — by the Europeans, Russians, and Chinese, even if the U.S. Congress shoots it down — and most sanctions lifted, Western companies are likely to flock back into the country, providing the necessary new oil technology and knowhow in return for access to its massive energy reserves. While this wouldn’t happen overnight — it takes time to restore a dilapidated energy infrastructure — output could rise by one million barrels per day within a year, and considerably more after that.
All in all, then, global oil production remains on an upward trajectory. What, then, of demand? On this score, the situation in China will prove critical. That country has, after all, been the main source of new oil demand since the start of this century. According to BP, oil consumption in China rose from 6.7 million barrels per day in 2004 to 11.1 million barrels in 2014. As domestic production only amounts to about 4 million barrels per day, all of those additional barrels represented imported energy. If you want a major explanation for the pre-2014 rise in the price of oil, rapid Chinese growth — and expectations that its spurt in consumption would continue into the indefinite future — is it.
Woe, then, to the $100 barrel of oil, since that country’s economy has been cooling off since 2014 and its growth is projected to fall below 7% this year, the lowest rate in decades. This means, in turn, less demand for extra oil. China’s consumption rose only 300,000 barrels per day in 2014 and is expected to remain sluggish for years to come. “[T]he likelihood now is that import growth will be minimal for the next two or three years,” energy expert Nick Butler of the Financial Times observed. “That in turn will compound and extend the existing surplus of supply over demand.”
Finally, don’t forget the Paris climate summit this December. Although no one yet knows what, if anything, it will accomplish, dozens of countries have already submitted preliminary plans for the steps they will pledge to take to reduce their carbon emissions. These include, for example, tax breaks and other incentives for those acquiring hybrid and electric-powered cars, along with increased taxes on oil and other forms of carbon consumption. Should such measures begin to kick in, demand for oil will take another hit and conceivably its use will actually drop years before supplies become scarce.
Winners and Losers
The initial near collapse of oil prices caused considerable pain and disarray in the oil industry. If this second rout continues for any length of time, it will undoubtedly produce even more severe and unpredictable consequences. Some outcomes already appear likely: energy companies that cannot lower their costs will be driven out of business or absorbed by other firms, while investment in costly, “unconventional” projects like Canadian tar sands, ultra-deep Atlantic fields, and Arctic oil will largely disappear. Most of the giant oil companies will undoubtedly survive, but possibly in downsized form or as part of merged enterprises.
All of this is bad news for Big Energy, but unexpectedly good news for the planet. As a start, those “unconventional” projects like tar sands require more energy to extract oil than conventional fields, which means a greater release of carbon dioxide into the atmosphere. Heavier oils like tar sands and Venezuelan extra-heavy crude also contain more carbon than do lighter fuels and so emit more carbon dioxide when consumed. If, in addition, global oil consumption slows or begins to contract, that, too, would obviously reduce carbon dioxide emissions, slowing the present daunting pace of climate change.
Most of us are used to following the ups and downs of the Dow Jones Industrial Average as a shorthand gauge for the state of the world economy. However, following the ups and downs of the price of Brent crude may, in the end, tell us far more about world affairs on our endangered planet.
Copyright 2015 Michael T. Klare
Double-Dip Oil Rout
America’s grand strategy, its long-term blueprint for advancing national interests and countering major adversaries, is in total disarray. Top officials lurch from crisis to crisis, improvising strategies as they go, but rarely pursuing a consistent set of policies. Some blame this indecisiveness on a lack of resolve at the White House, but the real reason lies deeper. It lurks in a disagreement among foreign policy elites over whether Russia or China constitutes America’s principal great-power adversary.
Knowing one’s enemy is usually considered the essence of strategic planning. During the Cold War, enemy number one was, of course, unquestioned: it was the Soviet Union, and everything Washington did was aimed at diminishing Moscow’s reach and power. When the USSR imploded and disappeared, all that was left to challenge U.S. dominance were a few “rogue states.” In the wake of 9/11, however, President Bush declared a “global war on terror,” envisioning a decades-long campaign against Islamic extremists and their allies everywhere on the planet. From then on, with every country said to be either with us or against us, the chaos set in. Invasions, occupations, raids, drone wars ensued — all of it, in the end, disastrous – while China used its economic clout to gain new influence abroad and Russia began to menace its neighbors.
Among Obama administration policymakers and their Republican opponents, the disarray in strategic thinking is striking. There is general agreement on the need to crush the Islamic State (ISIS), deny Iran the bomb, and give Israel all the weapons it wants, but not much else. There is certainly no agreement on how to allocate America’s strategic resources, including its military ones, even in relation to ISIS and Iran. Most crucially, there is no agreement on the question of whether a resurgent Russia or an ever more self-assured China should head Washington’s enemies list. Lacking such a consensus, it has become increasingly difficult to forge long-term strategic plans. And yet, while it is easy to decry the current lack of consensus on this point, there is no reason to assume that the anointment of a common enemy — a new Soviet Union — will make this country and the world any safer than it is today.
Choosing the Enemy
For some Washington strategists, including many prominent Republicans, Russia under the helm of Vladimir Putin represents the single most potent threat to America’s global interests, and so deserves the focus of U.S. attention. “Who can doubt that Russia will do what it pleases if its aggression goes unanswered?” Jeb Bush asserted on June 9th in Berlin during his first trip abroad as a potential presidential contender. In countering Putin, he noted, “our alliance [NATO], our solidarity, and our actions are essential if we want to preserve the fundamental principles of our international order, an order that free nations have sacrificed so much to build.”
For many in the Obama administration, however, it is not Russia but China that poses the greatest threat to American interests. They feel that its containment should take priority over other considerations. If the U.S. fails to enact a new trade pact with its Pacific allies, Obama declared in April, “China, the 800-pound gorilla in Asia, will create its own set of rules,” further enriching Chinese companies and reducing U.S. access “in the fastest-growing, most dynamic economic part of the world.”
In the wake of the collapse of the Soviet Union, the military strategists of a seemingly all-powerful United States — the unchallenged “hyperpower” of the immediate post-Cold War era – imagined the country being capable of fighting full-scale conflicts on two (or even three fronts) at once. The shock of the twenty-first century in Washington has been the discovery that the U.S. is not all-powerful and that it can’t successfully take on two major adversaries simultaneously (if it ever could). It can, of course, take relatively modest steps to parry the initiatives of both Moscow and Beijing while also fighting ISIS and other localized threats, as the Obama administration is indeed attempting to do. However, it cannot also pursue a consistent, long-range strategy aimed at neutralizing a major adversary as in the Cold War. Hence a decision to focus on either Russia or China as enemy number one would have significant implications for U.S. policy and the general tenor of world affairs.
Choosing Russia as the primary enemy, for example, would inevitably result in a further buildup of NATO forces in Eastern Europe and the delivery of major weapons systems to Ukraine. The Obama administration has consistently opposed such deliveries, claiming that they would only inflame the ongoing conflict and sabotage peace talks. For those who view Russia as the greatest threat, however, such reluctance only encourages Putin to escalate his Ukrainian intervention and poses a long-term threat to U.S. interests. In light of Putin’s ruthlessness, said Senator John McCain, chairman of the Senate Armed Services Committee and a major advocate of a Russia-centric posture, the president’s unwillingness to better arm the Ukrainians “is one of the most shameful and dishonorable acts I have seen in my life.”
On the other hand, choosing China as America’s principal adversary means a relatively restrained stance on the Ukrainian front coupled with a more vigorous response to Chinese claims and base building in the South China Sea. This was the message delivered to Chinese leaders by Secretary of Defense Ashton Carter in late May at U.S. Pacific Command headquarters in Honolulu. Claiming that Chinese efforts to establish bases in the South China Sea were “out of step” with international norms, he warned of military action in response to any Chinese efforts to impede U.S. operations in the region. “There should be… no mistake about this — the United States will fly, sail, and operate wherever international law allows.”
If you happen to be a Republican (other than Rand Paul) running for president, it’s easy enough to pursue an all-of-the-above strategy, calling for full-throttle campaigns against China, Russia, Iran, Syria, ISIS, and any other adversary that comes to mind. This, however, is rhetoric, not strategy. Eventually, one or another approach is likely to emerge as the winner and the course of history will be set.
The “Pivot” to Asia
The Obama administration’s fixation on the “800-pound gorilla” that is China came into focus sometime in 2010-2011. Plans were then being made for what was assumed to be the final withdrawal of U.S. forces from Iraq and the winding down of the American military presence in Afghanistan. At the time, the administration’s top officials conducted a systematic review of America’s long-term strategic interests and came to a consensus that could be summed up in three points: Asia and the Pacific Ocean had become the key global theater of international competition; China had taken advantage of a U.S. preoccupation with Iraq and Afghanistan to bolster its presence there; and to remain the world’s number one power, the United States would have toprevent China from gaining more ground.
This posture, spelled out in a series of statements by President Obama, Secretary of State Hillary Clinton, and other top administration officials, was initially called the “pivot to Asia” and has since been relabeled a “rebalancing” to that region. Laying out the new strategy in 2011, Clintonnoted, “The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas… it boasts almost half of the world’s population [and] includes many of the key engines of the global economy.” As the U.S. withdrew from its wars in the Middle East, “one of the most important tasks of American statecraft over the next decade will therefore be to lock in substantially increased investment — diplomatic, economic, strategic, and otherwise — in the Asia-Pacific region.”
This strategy, administration officials claimed then and still insist, was never specifically aimed at containing the rise of China, but that, of course, was a diplomatic fig leaf on what was meant to be a full-scale challenge to a rising power. It was obvious that any strengthened American presence in the Pacific would indeed pose a direct challenge to Beijing’s regional aspirations. “My guidance is clear,” Obama told the Australian parliament that same November. “As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in this region. We will preserve our unique ability to project power and deter threats to peace.”
Implementation of the pivot, Obama and Clinton explained, would include support for or cooperation with a set of countries that ring China, including increased military aid to Japan and the Philippines, diplomatic outreach to Burma, Indonesia, Malaysia, Vietnam, and other nations in Beijing’s economic orbit, military overtures to India, and the conclusion of a major trade arrangement, the Trans-Pacific Partnership (TPP), that would conveniently include most countries in the region but exclude China.
Many in Washington have commented on how much more limited the administration’s actions in the Pacific have proven to be than the initial publicity suggested. Of course, Washington soon found itself re-embroiled in the Greater Middle East and shuttling many of its military resources back into that region, leaving less than expected available for a rebalancing to Asia. Still, the White House continues to pursue a strategic blueprint aimed at bolstering America’s encirclement of China. “No matter how many hotspots emerge elsewhere, we will continue to deepen our enduring commitment to this critical region,” National Security Adviser Susan Rice declared in November 2013.
For Obama and his top officials, despite the challenge of ISIS and of disintegrating states like Yemen and Libya wracked with extremist violence, China remains the sole adversary capable of taking over as the world’s top power. (Its economy already officially has.) To them, this translates into a simple message: China must be restrained through all means available. This does not mean, they claim, ignoring Russia and other potential foes. The White House has, for example, signaled that it will begin storing heavy weaponry, including tanks, in Eastern Europe for future use by any U.S. troops rotated into the region to counter Russian pressure against countries that were once part of the Soviet Union. And, of course, the Obama administration is continuing to up the ante against ISIS, most recentlydispatching yet more U.S. military advisers to Iraq. They insist, however, that none of these concerns will deflect the administration from the primary task of containing China.
Countering the Resurgent Russian Bear
Not everyone in Washington shares this China-centric outlook. While most policymakers agree that China poses a potential long-term challenge to U.S. interests, an oppositional crew of them sees that threat as neither acute nor immediate. After all, China remains America’s second-leading trading partner (after Canada) and its largest supplier of imported goods. Many U.S. companies do extensive business in China, and so favor a cooperative relationship. Though the leadership in Beijing is clearly trying to secure what it sees as its interests in Asian waters, its focus remains primarily economic and its leaders seek to maintain friendly relations with the U.S., while regularly engaging in high-level diplomatic exchanges. Its president, Xi Jinping, is expected to visit Washington in September.
Vladimir Putin’s Russia, on the other hand, looks far more threatening to many U.S. strategists. Its annexation of Crimea and its ongoing support for separatist forces in eastern Ukraine are viewed as direct and visceral threatson the Eurasian mainland to what they see as a U.S.-dominated world order. President Putin, moreover, has made no secret of his contempt for the West and his determination to pursue Russian national interests wherever they might lead. For many who remember the Cold War era — and that includes most senior U.S. policymakers — this looks a lot like the menacing behavior of the former Soviet Union; for them, Russia appears to be posing an existential threat to the U.S. in a way that China does not.
Among those who are most representative of this dark, eerily familiar, and retrograde outlook is Senator McCain. Recently, offering an overview of the threats facing America and the West, he put Russia at the top of the list:
“In the heart of Europe, we see Russia emboldened by a significant modernization of its military, resurrecting old imperial ambitions, and intent on conquest once again. For the first time in seven decades on this continent, a sovereign nation has been invaded and its territory annexed by force. Worse still, from central Europe to the Caucuses, people sense Russia’s shadow looming larger, and in the darkness, liberal values, democratic sovereignty, and open economies are being undermined.”
For McCain and others who share his approach, there is no question about how the U.S. should respond: by bolstering NATO, providing major weapons systems to the Ukrainians, and countering Putin in every conceivable venue. In addition, like many Republicans, McCain favors increased production via hydro-fracking of domestic shale gas for export as liquefied natural gas to reduce the European Union’s reliance on Russian gas supplies.
McCain’s views are shared by many of the Republican candidates for president. Jeb Bush, for instance, described Putin as “a ruthless pragmatist who will push until someone pushes back.” Senator Ted Cruz, when asked on Fox News what he would do to counter Putin, typically replied, “One, we need vigorous sanctions… Two, we should immediately reinstate the antiballistic missile batteries in Eastern Europe that President Obama canceled in 2009 in an effort to appease Russia. And three, we need to open up the export of liquid natural gas, which will help liberate Ukraine and Eastern Europe.” Similar comments from other candidates and potential candidates are commonplace.
As the 2016 election season looms, expect the anti-Russian rhetoric to heat up. Many of the Republican candidates are likely to attack Hillary Clinton, the presumed Democratic candidate, for her role in the Obama administration’s 2009 “reset” of ties with Moscow, an attempted warming of relations that is now largely considered a failure. “She’s the one that literally brought the reset button to the Kremlin,” said former Texas Governor Rick Perry in April.
If any of the Republican candidates other than Paul prevails in 2016, anti-Russianism is likely to become the centerpiece of foreign policy with far-reaching consequences. “No leader abroad draws more Republican criticism than Putin does,” a conservative website noted in June. “The candidates’ message is clear: If any of them are elected president, U.S. relations with Russia will turn even more negative.”
The Long View
Whoever wins in 2016, what Yale historian Paul Kennedy has termed “imperial overstretch” will surely continue to be an overwhelming reality for Washington. Nonetheless, count on a greater focus of attention and resources on one of those two contenders for the top place on Washington’s enemies list. A Democratic victory spearheaded by Hillary Clinton is likely to result in a more effectively focused emphasis on China as the country’s greatest long-term threat, while a Republican victory would undoubtedly sanctify Russia as enemy number one.
For those of us residing outside Washington, this choice may appear to have few immediate consequences. The defense budget will rise in either case; troops will, as now, be shuttled desperately around the hot spots of the planet, and so on. Over the long run, however, don’t think for a second that the choice won’t matter.
A stepped-up drive to counter Russia will inevitably produce a grim, unpredictable Cold War-like atmosphere of suspicion, muscle-flexing, and periodic crises. More U.S. troops will be deployed to Europe; American nuclear weapons may return there; and saber rattling, nuclear or otherwise, will increase. (Note that Moscow recently announced a decision to add another 40 intercontinental ballistic missiles to its already impressive nuclear arsenal and recall Senator Cruz’s proposal for deploying U.S. anti-missile batteries in Eastern Europe.) For those of us who can remember the actual Cold War, this is hardly an appealing prospect.
A renewed focus on China would undoubtedly prove no less unnerving. It would involve the deployment of additional U.S. naval and air forces to the Pacific and an attendant risk of armed confrontation over China’s expanded military presence in the East and South China Seas. Cooperation on trade and the climate would be imperiled, along with the health of the global economy, while the flow of ideas and people between East and West would be further constricted. (In a sign of the times, China recently announced new curbs on the operations of foreign nongovernmental organizations.) Although that country possesses far fewer nuclear weapons than Russia, it is modernizingits arsenal and the risk of nuclear confrontation would undoubtedly increase as well.
In short, the options for American global policy, post-2016, might be characterized as either grim and chaotic or even grimmer, if more focused. Most of us will fare equally badly under either of those outcomes, though defense contractors and others in what President Dwight Eisenhower first dubbed the “military-industrial complex” will have a field day. Domestic needs like health, education, infrastructure, and the environment will suffer either way, while prospects for peace and climate stability will recede.
A country without a coherent plan for advancing its national interests is a sorry thing. Worse yet, however, as we may find out in the years to come, would be a country forever on the brink of crisis and conflict with a beleaguered, nuclear-armed rival.
Copyright 2015 Michael T. Klare
Russia vs. China
Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?
This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”
Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (akaRome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”
H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity — given few nations in history — to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”
For Bush, of course, “extending the peace” would turn out to mean invading Iraq and igniting a devastating regional conflagration that only continues to grow and spread to this day. Even after it began, he did not doubt — nor (despite the reputed wisdom offered by hindsight) does he today – that this was the price that had to be paid for the U.S. to retain its vaunted status as the world’s sole superpower.
The problem, as many mainstream observers now acknowledge, is that such a strategy aimed at perpetuating U.S. global supremacy at all costs was always destined to result in what Yale historian Paul Kennedy, in his classic book The Rise and Fall of the Great Powers, unforgettably termed “imperial overstretch.” As he presciently wrote in that 1987 study, it would arise from a situation in which “the sum total of the United States’ global interests and obligations is… far larger than the country’s power to defend all of them simultaneously.”
Indeed, Washington finds itself in exactly that dilemma today. What’s curious, however, is just how quickly such overstretch engulfed a country that, barely a decade ago, was being hailed as the planet’s first “hyperpower,” a status even more exalted than superpower. But that was before George W.’s miscalculation in Iraq and other missteps left the U.S. to face a war-ravaged Middle East with an exhausted military and a depleted treasury. At the same time, major and regional powers like China, India, Russia, Iran, Saudi Arabia, and Turkey have been building up their economic and military capabilities and, recognizing the weakness that accompanies imperial overstretch, are beginning to challenge U.S. dominance in many areas of the globe. The Obama administration has been trying, in one fashion or another, to respond in all of those areas — among them Ukraine, Syria, Iraq, Yemen, and the South China Sea — but without, it turns out, the capacity to prevail in any of them.
Nonetheless, despite a range of setbacks, no one in Washington’s power elite — Senators Rand Paul and Bernie Sanders being the exceptions that prove the rule — seems to have the slightest urge to abandon the role of sole superpower or even to back off it in any significant way. President Obama, who is clearly all too aware of the country’s strategic limitations, has been typical in his unwillingness to retreat from such a supremacist vision. “The United States is and remains the one indispensable nation,” he toldgraduating cadets at West Point in May 2014. “That has been true for the century past and it will be true for the century to come.”
How, then, to reconcile the reality of superpower overreach and decline with an unbending commitment to global supremacy?
The first of two approaches to this conundrum in Washington might be thought of as a high-wire circus act. It involves the constant juggling of America’s capabilities and commitments, with its limited resources (largely of a military nature) being rushed relatively fruitlessly from one place to another in response to unfolding crises, even as attempts are made to avoid yet more and deeper entanglements. This, in practice, has been the strategy pursued by the current administration. Call it the Obama Doctrine.
After concluding, for instance, that China had taken advantage of U.S. entanglement in Iraq and Afghanistan to advance its own strategic interests in Southeast Asia, Obama and his top advisers decided to downgrade the U.S. presence in the Middle East and free up resources for a more robust one in the western Pacific. Announcing this shift in 2011 — it would first be called a “pivot to Asia” and then a “rebalancing” there — the president made no secret of the juggling act involved.
“After a decade in which we fought two wars that cost us dearly, in blood and treasure, the United States is turning our attention to the vast potential of the Asia Pacific region,” he told members of the Australian Parliament that November. “As we end today’s wars, I have directed my national security team to make our presence and mission in the Asia Pacific a top priority. As a result, reductions in U.S. defense spending will not — I repeat, will not — come at the expense of the Asia Pacific.”
Then, of course, the new Islamic State launched its offensive in Iraq in June 2014 and the American-trained army there collapsed with the loss of four northern cities. Videoed beheadings of American hostages followed, along with a looming threat to the U.S.-backed regime in Baghdad. Once again, President Obama found himself pivoting — this time sending thousands of U.S. military advisers back to that country, putting American air power into its skies, and laying the groundwork for another major conflict there.
Meanwhile, Republican critics of the president, who claim he’s doing too little in a losing effort in Iraq (and Syria), have also taken him to task for not doing enough to implement the pivot to Asia. In reality, as his juggling act that satisfies no one continues in Iraq and the Pacific, he’s had a hard time finding the wherewithal to effectively confront Vladimir Putin in Ukraine, Bashar al-Assad in Syria, the Houthi rebels in Yemen, the various militias fighting for power in fragmenting Libya, and so on.
The Party of Utter Denialism
Clearly, in the face of multiplying threats, juggling has not proven to be a viable strategy. Sooner or later, the “balls” will simply go flying and the whole system will threaten to fall apart. But however risky juggling may prove, it is not nearly as dangerous as the other strategic response to superpower decline in Washington: utter denial.
For those who adhere to this outlook, it’s not America’s global stature that’s eroding, but its will — that is, its willingness to talk and act tough. If Washington were simply to speak more loudly, so this argument goes, and brandish bigger sticks, all these challenges would simply melt away. Of course, such an approach can only work if you’re prepared to back up your threats with actual force, or “hard power,” as some like to call it.
Among the most vocal of those touting this line is Senator John McCain, the chair of the Senate Armed Services Committee and a persistent critic of President Obama. “For five years, Americans have been told that ‘the tide of war is receding,’ that we can pull back from the world at little cost to our interests and values,” he typically wrote in March 2014 in a New York Timesop-ed. “This has fed a perception that the United States is weak, and to people like Mr. Putin, weakness is provocative.” The only way to prevent aggressive behavior by Russia and other adversaries, he stated, is “to restore the credibility of the United States as a world leader.” This means, among other things, arming the Ukrainians and anti-Assad Syrians, bolstering the NATO presence in Eastern Europe, combating “the larger strategic challenge that Iran poses,” and playing a “more robust” role (think: more “boots” on more ground) in the war against ISIS.
Above all, of course, it means a willingness to employ military force. “When aggressive rulers or violent fanatics threaten our ideals, our interests, our allies, and us,” he declared last November, “what ultimately makes the difference… is the capability, credibility, and global reach of American hard power.”
A similar approach — in some cases even more bellicose – is being articulated by the bevy of Republican candidates now in the race for president, Rand Paul again excepted. At a recent “Freedom Summit” in the early primary state of South Carolina, the various contenders sought to out-hard-power each other. Florida Senator Marco Rubio was loudly cheered for promising to make the U.S. “the strongest military power in the world.” Wisconsin Governor Scott Walker received a standing ovation for pledging to further escalate the war on international terrorists: “I want a leader who is willing to take the fight to them before they take the fight to us.”
In this overheated environment, the 2016 presidential campaign is certain to be dominated by calls for increased military spending, a tougher stance toward Moscow and Beijing, and an expanded military presence in the Middle East. Whatever her personal views, Hillary Clinton, the presumed Democratic candidate, will be forced to demonstrate her backbone by embracing similar positions. In other words, whoever enters the Oval Office in January 2017 will be expected to wield a far bigger stick on a significantly less stable planet. As a result, despite the last decade and a half ofinterventionary disasters, we’re likely to see an even more interventionist foreign policy with an even greater impulse to use military force.
However initially gratifying such a stance is likely to prove for John McCain and the growing body of war hawks in Congress, it will undoubtedly prove disastrous in practice. Anyone who believes that the clock can now be turned back to 2002, when U.S. strength was at its zenith and the Iraq invasion had not yet depleted American wealth and vigor, is undoubtedly suffering from delusional thinking. China is far more powerful than it was 13 years ago, Russia has largely recovered from its post-Cold War slump, Iran has replacedthe U.S. as the dominant foreign actor in Iraq, and other powers have acquired significantly greater freedom of action in an unsettled world. Under these circumstances, aggressive muscle-flexing in Washington is likely to result only in calamity or humiliation.
Time to Stop Pretending
Back, then, to our original question: What is a declining superpower supposed to do in the face of this predicament?
Anywhere but in Washington, the obvious answer would for it to stop pretending to be what it’s not. The first step in any 12-step imperial-overstretch recovery program would involve accepting the fact that American power is limited and global rule an impossible fantasy. Accepted as well would have to be this obvious reality: like it or not, the U.S. shares the planet with a coterie of other major powers — none as strong as we are, but none so weak as to be intimidated by the threat of U.S. military intervention. Having absorbed a more realistic assessment of American power, Washington would then have to focus on how exactly to cohabit with such powers — Russia, China, and Iran among them — and manage its differences with them without igniting yet more disastrous regional firestorms.
If strategic juggling and massive denial were not so embedded in the political life of this country’s “war capital,” this would not be an impossibly difficult strategy to pursue, as others have suggested. In 2010, for example, Christopher Layne of the George H.W. Bush School at Texas A&M argued in the American Conservative that the U.S. could no longer sustain its global superpower status and, “rather than having this adjustment forced upon it suddenly by a major crisis… should get ahead of the curve by shifting its position in a gradual, orderly fashion.” Layne and others have spelled outwhat this might entail: fewer military entanglements abroad, a diminishing urge to garrison the planet, reduced military spending, greater reliance on allies, more funds to use at home in rebuilding the crumbling infrastructure of a divided society, and a diminished military footprint in the Middle East.
But for any of this to happen, American policymakers would first have to abandon the pretense that the United States remains the sole global superpower — and that may be too bitter a pill for the present American psyche (and for the political aspirations of certain Republican candidates) to swallow. From such denialism, it’s already clear, will only come further ill-conceived military adventures abroad and, sooner or later, under far grimmer circumstances, an American reckoning with reality.
Copyright 2015 Michael T. Klare
Delusionary Thinking in Washington
Don’t hold your breath, but future historians may look back on 2015 as the year that the renewable energy ascendancy began, the moment when the world started to move decisively away from its reliance on fossil fuels. Those fuels — oil, natural gas, and coal — will, of course, continue to dominate the energy landscape for years to come, adding billions of tons of heat-trapping carbon to the atmosphere. For the first time, however, it appears that a shift to renewable energy sources is gaining momentum. If sustained, it will have momentous implications for the world economy — as profound as the shift from wood to coal or coal to oil in previous centuries.
Global economic growth has, of course, long been powered by an increasing supply of fossil fuels, especially petroleum. Beginning with the United States, countries that succeeded in mastering the extraction and utilization of oil gained immense economic and political power, while countries with huge reserves of oil to exploit and sell, like Kuwait and Saudi Arabia, became fabulously wealthy. The giant oil companies that engineered the rise of petroleum made legendary profits, accumulated vast wealth, and grew immensely powerful. Not surprisingly, the oil states and those energy corporations continue to dream of a future in which they will play a dominant role.
“Fossil fuels are our most enduring energy source,” said Ali Al-Naimi, Saudi Arabia’s minister of petroleum and mineral resources, in April 2013. “They are the driving force of economic development in the U.S., Saudi Arabia, and for much of the developed and developing world [and] they have the capacity to sustain us well into the future.”
But new developments, including a surprising surge in wind and solar installations, suggest that oil’s dominance may not prove as “enduring” as imagined. “Rapidly spreading solar technology could change everything,” energy analyst Nick Butler recently wrote in the Financial Times. “There is growing evidence that some fundamental changes are coming that will over time put a question mark over investments in old energy systems.”
Normally, transitions from one energy system to another take many decades. According to Vaclav Smil of the University of Manitoba, the shift from wood to coal and coal to oil each took 50 years. The same length of time, he has argued, will be needed to complete the transition to renewables, which would leave any green energy era in the distant future. “The slow pace of this energy transition is not surprising,” he wrote in Scientific American. “In fact, it is expected.”
Smil’s analysis, however, assumes two things: first, that a business-as-usual environment in which decisions about energy investments will largely be made within the same profit-seeking outlook as in the past will continue to prevail; and second, that it will take decades for renewables to best fossil fuels in terms of cost and practicality. Both assumptions, however, appear increasingly flawed. Concern over climate change is already altering the political and regulatory landscape, while improvements in wind and solar technology are occurring at an extraordinary rate, rapidly eliminating the price advantage of fossil fuels. “The direction of change is clear,” Butler writes. With the cost of renewable installations falling, solar power has moved “from being a niche supplier to being a major regional competitor [to fossil fuels].”
Experts largely agree that renewables will claim a larger share of the global energy budget in the years ahead. Nevertheless, most mainstream analysts continue to believe that fossil fuels will be the dominant form of energy for decades to come. The U.S. Department of Energy (DoE) typically predicts that the share of world energy provided by renewables, nuclear, and hydro combined will climb from 17% in 2015 to a mere22% in 2040 — hardly change on a scale that would threaten the predominance of fossil fuels. There are, however, four key trends that could speed the transition to renewables in striking ways: the world’s growing determination to put a brake on the advance of climate change; a sea change in China’s stance on growth and the environment; the increasing embrace of green energy in the developing world; and the growing affordability of renewable energy.
Taking Climate Change Seriously
Resistance to progress on climate change is widespread and well entrenched. As Naomi Klein documents in her latest book, This Changes Everything, the major fossil fuel companies have mounted well-financed campaigns for years to sow doubt about the reality of climate change, while politicians, often in their pay, have obstructed efforts to place restraints on carbon emissions. At the same time, many ordinary people have been reluctant to acknowledge what’s happening and so consider steps to bring it under control (a phenomenon examined by George Marshall in Don’t Even Think About It). As the devastating effects of extreme weather, including droughts, floods, and ever more powerful storms, gain greater prominence in everyday life, however, all of this is clearly in flux.
Considerable evidence can be assembled to support this assessment, including recent polling data, but perhaps the most impressive indication of this shift can be found in the carbon-reduction plans major nations are now submitting to U.N. authorities in preparation for a global climate summit to be held this December in Paris. Under a measure adopted by delegates to the most recent summit, held last December in Lima, Peru, all parties to the U.N. Framework Convention on Climate Change (UNFCCC) are obliged to submit detailed action plans known as “intended nationally determined contributions” (INDCs) to the global climate effort. These plans, for the most part, have proven to be impressively tough and ambitious. More important yet, the numbers being offered when it comes to carbon reduction would have been inconceivable only a few years ago.
The U.S. plan, for example, promises that national carbon emissions will drop 26%-28% below 2005 levels by 2025, which represents a substantial reduction. There are, of course, many obstacles to achieving this goal, most notably the diehard resistance of Republican legislators with strong ties to the fossil fuel industry. The White House insists, however, that many of the measures included in the INDC can be achieved through executive branch action, including curbs on carbon emissions from coal plants and mandated improvements in the fuel efficiency of cars and trucks.
Other countries have submitted similarly ambitious INDCs. Mexico, for example, has pledged to cap its carbon emissions by 2026, and to achieve a 22% reduction in greenhouse gas levels by 2030. Its commitment is considered especially significant, since it’s the first such pledge by a major developing nation. “Mexico is setting an example for the rest of the world by submitting an INDC that is timely, clear, ambitious, and supported by robust, unconditional policy commitments,” the Obama White House noted in a congratulatory statement.
No one can predict the outcome of the December climate summit, but few observers expect the measures it may endorse to be tough enough to keep future increases in global temperatures below two degrees Celsius, the maximum amount most scientists believe the planet can absorb without incurring climate disasters far beyond anything seen to date. Nevertheless, implementation of the INDCs, or even a significant portion of them, would at least produce a significant reduction in fossil fuel consumption and point the way to a different future.
A Sea Change in Chinese Energy Behavior
Of equal importance is China’s evident determination to reduce its reliance on fossil fuels — a critical change in stance, given its projected energy needs in the decades to come. According to the DoE, China’s share of world energy consumption is expected to jump from an already impressive 19% in 2010 to 27% in 2040, with most of its added energy coming from fossil fuels. Should this indeed occur, China would consume another 88 quadrillion British thermal units of such energy over the next 30 years, or 43% of all added fossil fuel consumption worldwide. So any significantmoves by China to reduce its reliance on those energy sources, as now being promised by senior government officials, would have an outsized impact on the global energy equation.
China has not yet submitted its INDC, but its plan is expected to incorporate the commitments made by President Xi Jinping in a meeting with President Obama in Beijing last November. Xi promised to cap China’s carbon emissions by 2030 and increase the share of non-fossil fuels in primary energy consumption to around 20% by that time. He also agreed to work with the U.S. “to make sure international climate change negotiations will reach agreement as scheduled at the Paris conference in 2015.”
Although the Chinese plan allows for continued growth in carbon emissions for another 15 years, it substantially reduces the amount of new energy that will be derived from fossil fuels. According to a White House statement, “It will require China to deploy an additional 800-1,000 gigawatts of nuclear, wind, solar, and other zero-emission generation capacity by 2030 — more than all the coal-fired power plants that exist in China today.”
It appears, moreover, that Chinese leaders are preparing to move even faster than their pledge would require in transitioning away from fossil fuels. Under pressure from urban residents to reduce punishing levels of smog, the authorities have announced ambitious plans to lessen reliance on coal for electricity generation and rely instead on hydropower, nuclear, wind, and solar power, as well as natural gas. “We will strive for zero-growth in the consumption of coal in key areas of the country,” Premier Li Keqiang told the National People’s Congress, China’s legislature, this March.
As in the United States, the Chinese leadership will face opposition from entrenched fossil fuel interests, as well as local government structures. However, their evident determination to reduce reliance on oil and coal represents a real change of mood and thinking. It’s likely to result in a far different energy landscape than the one laid out by the Department of Energy and, until recently, most other experts. Despite repeated predictions of ever-increasing coal consumption, for instance, China actually burned less coal in 2014 than in the previous year, the first such decline in decades. At the same time, it increased its spending on renewable forms of energy by an impressive 33% in 2014, investing a total of $83.3 billion — the most ever spent by a single country in one year –to a renewable future. If China leads the way globally and such trends continue, the transition from fossil fuels to renewables will occur far sooner than expected.
Green Goes Global
The giant oil companies have long acknowledged that the most advanced countries, led by the U.S., Japan, and Europe, would eventually transition from fossil fuels to renewables, but they continue to insist that developing nations — eager to expand their economies but too poor to invest in alternative energy — will continue to rely on fossil fuels in a big way. This outlook led ExxonMobil and other oil firms to make massive investments in new refineries, pipelines, and other infrastructure aimed at satisfying anticipated demand from the global South. But surprise, surprise: those countries are also showing every sign of turning to renewables in their drive to expand energy output.
The global South’s surprisingly enthusiastic embrace of renewables is impressively documented in Global Trends in Renewable Energy Investment 2015, a recent collaboration between the Frankfurt School of Finance and Management and the U.N. Environment Programme. It reports that the developing countries, excluding China, spent $30 billion on renewables in 2014, a substantial rise over the previous year. Together with China, investment in renewables in the developing world totaled nearly as much as that spent by the developed countries that year. Significant increases in spending on renewables were registered by Brazil (for a total of $7.6 billion), India ($7.4 billion), and South Africa ($5.5 billion); investments of $1 billion or more were posted by Chile, Indonesia, Kenya, Mexico, and Turkey. Given how little such countries were devoting to a renewable future just a few years ago, consider this a sign of changing times.
No less striking is the degree to which oil-producing countries are beginning to embrace green energy. In January, for example, the Dubai Electricity and Water Authority awarded a contract to Saudi Arabia’s ACWA Power International to build a 200-megawatt, $330 million solar electricity plant. The deal received widespread attention, as ACWA promised to deliver electricity from the plant for $58.50 per megawatt-hour, one-third less than the cost of natural gas-fired generation.
“This is a major breakthrough in the oil-fired Emirates and a clear demonstration of the ongoing global energy transition,” suggested Mark Lewis of Kepler Cheuvreux, a European financial services company. “We think this is a landmark deal both in terms of the extremely competitive cost at which the project will generate power and the potential for a much greater take-up of renewables in countries that have so far been slow to embrace them.”
The Falling Price of Renewables
As the Dubai deal indicates, price is playing a crucial role in the shift from fossil fuels to renewables. Listen to the apostles of coal and oil and you’d think that poor countries had no choice but to rely on their chosen form of energy because of its low cost compared to other fuels. “There are still hundreds of millions, billions of people living in abject poverty around the world,” said Rex Tillerson, the CEO and Chairman of ExxonMobil. “They need electricity they can count on, that they can afford… They’d love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably.”
Until recently, this would have been gospel among mainstream energy experts, but the cost of renewables, especially solar power, is dropping so rapidly that, even in a moment when the price of oil has been halved, the news on the horizon couldn’t be clearer: fossil fuels are no longer guaranteed a price advantage in delivering energy to developing countries. Among the harbingers of this change: the cost of solar photovoltaic cells (PVs) has plunged by 75% since 2009 and the cost of electricity generated by solar PVs has fallen globally by 50% since 2010. In other words, solar is now becoming competitive with oil and natural gas, even at their currently depressed prices. “Cost is no longer a reason not to proceed with renewables,” concluded a report released by the National Bank of Abu Dhabi in March. Says Lewis of Kepler Cheuvreux: “Over time, as renewable-technology costs continue to come down and economies of scale continue to increase, the relative competitiveness of renewables in the global energy mix will only increase further.”
Keep in mind as well that developing nations have a powerful reason to favor renewables over fossil energy that has nothing to do with price and everything to do with costs of another sort. As the most recent reports from the U.N.’s Intergovernmental Panel on Climate Change (IPCC) make clear, poor countries in the global South will suffer more (and sooner) from the ravages of climate change than countries in the global North. This is so because these countries are expected to experience some of the sharpest declines in rainfall and so the most droughts, endangering the food supply for hundreds of millions of people. Combine such concerns with the plunging prices of renewable energy, and it appears that the transition away from fossil fuels will occur faster than predicted in the very regions that the oil companies were counting on for their future profits.
A New World’s A-Coming
Add up these factors, all relatively unexpected, and one conclusion seems self-evident: we are witnessing the start of a global energy transition that could turn expectations upside down, politically, environmentally, and economically. This transformation won’t happen overnight and it will face fierce opposition from powerful and entrenched fossil fuel interests. Even so, it shows every sign of accelerating, which means that while we may be talking decades, the half-century horizon previously offered by experts like Vaclav Smil is probably no longer in the cards. Fossil fuels — and the companies, politicians, and petro-states they have long enriched — will lose their dominant status and be overtaken by the purveyors of renewable energy far more quickly than that.
Even with the quickening of investment in green technology, the likelihood that world temperatures will be held at a 2 degrees Celsius rise, that all-important threshold for catastrophic damage, is unfortunately vanishingly small. Which means that our children and grandchildren will live in a distinctly less inviting world. But as the destructive effects of climate change become more pronounced and more embedded in daily life across the planet, the impetus to slow the warming phenomenon will only intensify. This means that the urge to impose strict curbs on fossil fuel consumption and the companies that promote it will grow, too.
We’re talking, in other words, about the building of genuine momentum for an energy transition which, in turn, means that the majority of people alive on the planet today will experience the ascendancy of renewables. As with previous energy transitions, this shift is going to produce both winners and losers. Countries and companies that assume early leadership in the development and installation of advanced green technologies are likely to prosper in the years ahead, while those committed to the perpetuation of fossil energy will see their wealth and power decline or disappear. For the planet as a whole, such a transition can’t come soon enough.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.
Copyright 2015 Michael T. Klare
The Renewable Revolution
Around the world, carbon-based fuels are under attack. Increasingly grim economic pressures, growing popular resistance, and the efforts of government regulators have all shocked the energy industry. Oil prices are falling, colleges and universities are divesting from their carbon stocks, voters are instituting curbs on hydro-fracking, and delegates at the U.N. climate conference in Peru have agreed to impose substantial restrictions on global carbon emissions at a conference in Paris later in the year. All this has been accompanied by what might be viewedas a moral assault on the very act of extracting carbon-based fuels from the earth,in which the major oil, gas, and coal companies find themselves portrayed as the enemies of humankind.
Under such pressures, you might assume that Big Energy would react defensively, perhaps apologizing for its role in spurring climate change while assuming a leadership position in planning for the transition to a post-carbon economy. But you would be wrong: instead of retreating, the major companies have gone on the offensive, extolling their contributions to human progress and minimizing the potential for renewables to replace fossil fuels in just about any imaginable future.
That the big carbon outfits would seek to perpetuate their privileged market position in the global economy is, of course, hardly surprising. After all, oil is the the most valuable commodity in international commerce and major producing firms like ExxonMobil, Chevron, and Shell regularly top lists of the world’s most profitable enterprises. Still, these companies are not just employing conventional legal and corporate tactics to protect their position, they’re mounting a moral assault of their own, claiming that fossil fuels are an essential factor in eradicating poverty and achievinga decent life on this planet.
Improbable as such claims may seem, they are being echoed by powerful officials around the world — typically, the leaders of carbon-producing nations like Russia and Saudi Arabia or the representatives of American energy-producing states like Texas and Kentucky. Count on one thing: this crew of fossil fuel enthusiasts is intent on ensuring that any path to a carbon-free future will, at best, be long and arduous. While you’re at it, add top Congressional leadersto this crew, since many of the Republican victors in the 2014 midterm election are from oil and coal-producing states and regularly laud carbon production for its contribution to local prosperity, while pocketing contributions by Big Oil and other energy firms.
Unless directly challenged, this pro-carbon offensive –backed by copious Big Energy advertising –is likely to attract at least as much favor as the claims of anti-carbon activists. At this point, of course, the moral arguments against carbon consumption are — or at least should be — well known. The oil, gas, and coal companies, it is claimed, are selfishly pursuing mega-profits at the expense of the climate, the environment, our children and grandchildren, and even possibly a future of any reasonable sort for humanity as a whole. “Basically [the big energy companies have] said, we’re going to wreck the planet, we don’t care what you say, we think we can, and we dare you to stop us,” observed climate activist and 350.org cofounder Bill McKibben in a recent interview. This outlook was reflected in many of the signs carried by the estimated 400,000 demonstrators who participated in the People’s Climate March in New York City last September.
The fossil fuel industry is often also portrayed as the nucleus of a global system of wealth and power that drags down democracy and perpetuates grotesque planetary inequalities. “Fossil fuels really do create a hyper-stratified economy,” explained Naomi Klein, author of the bestselling book This Changes Everything: Capitalism vs. The Climate. “It’s the nature of the resources that they are concentrated, and you need a huge amount of infrastructure to get them out and to transport them. And that lends itself to huge profits and they're big enough that you can buy off politicians.”
Views like these animate the struggles against “fracking” in the United States, against the transport of tar-sands oil via the Keystone XL pipeline, and against the shipment of coal to ports in the Pacific Northwest. They also undergird the drive to rid college and university endowments and other institutions of their fossil fuel stocks, which gained momentum in recent months, thanks to the decisions of both the Stanford University board of trustees to divest from coal company stocks and of the Rockefeller Brothers Fund to eventually rid itself of its fossil fuel stocks and invest in alternative energy.
Once upon a time, the giant carbon companies like Exxon sought to deflect these attacks by denying the very existence of climate change or the role of humans in causing it — or at least by raising the banner of “uncertainty” about the science behind it. They also financed the efforts of rogue scientists to throw doubt on global warming. While denialism still figures in the propaganda of some carbon companies, they have now largely chosen to embrace another strategy: extolling the benefits of fossil fuels and highlighting their contributions to human wellbeing and progress.
At the moment, this carbon counterattack is most clearly and fully articulated in the speeches of top industry officials and in various corporate publications. Of these, the most recent and authoritative, ExxonMobil’s The Outlook for Energy: A View to 2040, was released in December. Described as a planning guide for future corporate investment and decision-making, the Outlook combines an analysis of global energy trends with a summary of the company’s pro-carbon ethos –and so offers us a vivid look at where Big Energy is heading in its counterattack on the climate movement.
If a climate movement is going to challenge the energy powers of this planet effectively, it’s crucial to grasp the vision into which Big Energy is undoubtedly planning to sink incredible resources and which, across much of the planet, will become a living, breathing argument for ignoring the catastrophic warming of the planet. They present it, of course, as a glowing dreamscape of a glorious future — though a nightmare is what should come to mind.
Here, then, in a nutshell is the argument that Big Energy is going to seed into the planet for the foreseeable future. Prepare yourself.
No Growth Without Us
The cornerstone of the Exxon report is its claimsthat ever-increasing supplies of energy are needed to sustain economic growth and ensure human betterment, and that fossil fuels alone exist in sufficient quantity (and at affordable enough prices) to satisfy rising international demand. “Forecasting long-term energy trends begins with a simple fact: people need energy,” the report asserts. “Over the next few decades, population and income growth — and an unprecedented expansion of the global middle class — are expected to create new demands for energy.”
Some of this added energy, Exxon acknowledges, will come from nuclear and renewable energy. Most, however, will have to come from fossil fuels. All told, the Outlook estimates, the world will need 35% more energy in 2040 than it does today. That would mean adding an additional 191 quadrillion British thermal units (BTUs) to global supplies over and above the 526 quadrillion BTUs consumed in 2010. A small percentage of those added BTUs, about 12%, will come from renewables, but the vast majority — estimated by Exxon at 67% — will be provided by fossil fuels.
Without fossil fuels, this argument holds, there can be no economic growth. Here’show Exxon CEO and Chairman Rex Tillerson puts it: “Energy is fundamental to economic growth, and oil is fundamental because to this point in time, we have not found, through technology or other means, another fuel that can substitute for the role that oil plays in transportation, not just passenger, individual transportation, but commercial transportation, jet fuel, marine, all the ways in which we use oil as a fuel to move people and things about this planet.”
Natural gas is equally essential, Tillerson argues, because it is the world’s fastest-growing source of energy and a key ingredient in electric power generation. Nor will coal be left out of the mix. It, too, will play an important role in promoting economic growth, largely by facilitating a rapid increase in global electricity supplies. Despite all the concern over coal’s contributions to both urban pollution and climate change, Exxon predicts that it will remain “the No. 1 fuel for power generation” in 2040.
Yes, other sources of energy will play a role in helping to satisfying global needs, but without carbon-based fuels, Exxon insists, economic growth will screech to a halt and the world’s poor and disadvantaged will stay immersed in poverty.
Propelling the New Global Middle Class
If there is one overarching theme to the new Exxon ethos, it is that we are witnessing the emergence of a new global middle class with glittering possibilities and that this expanding multitude, constituting perhaps one-half of the world’s population by 2040, will require ever greater quantities of oil, coal, and natural gas if it is to have any hope of achieving its true potential.
Citing data from the Brookings Institution, the company notes that the number of people who earn enough to be considered members of that global middle class will jump from approximately 1.9 billion in 2010 to 4.7 billion in 2030 — representing what it calls “the largest collective increase in living standards in history.” China and India will be the two countries adding most substantially to the global middle class, with each acquiring hundreds of millions of newly affluent citizens, but substantial gains will also be achieved by such “key growth” countries as Brazil, Mexico, Turkey, Thailand, and Indonesia.
The emergence of a middle-class bulge on a planetary scale, representing a kind of consumerism gone wild, is something to be celebrated the company insists in its new report, echoing the words of the U.N. Development Programme:“When dozens of countries and billions of people move up the development ladder, as they are doing today, it has a direct impact on wealth creation and broader human progress in all countries and regions of the world.”
For all this to occur, however, that rising middle class will need staggering amounts of added energy — of course, we’re talking about new suppliesof the same old carbon-based energy forms here — to build and power all the cars, homes, businesses, appliances, and resorts that such consumers would undoubtedly crave and demand. More income, Exxon explains, “means new demand for food, for travel, for electricity, for housing, schools, and hospitals” — and all of these benefits “depend on energy.”
By itself, an increase in world energy supplies could indeed be widely beneficial, if supplied largely by climate-friendly fuels. But such genuinely “alternative” sources of energy (into which, by the way, the giant energy companies have invested next to none of their profits) generally cost more than fossil fuels to produce, at least initially, and that, says Exxon, creates a problem once you consider where demand will be coming from in 2040.
According to the Outlook, virtually none of the expected increase in global energy demand will come from the older industrialized countries, which can afford more costly alternatives; rather, its source will be developing countries, which generally seek cheap energy quickly — that is, coal and natural gas for electricity generation and oil for transportation. Of the 201 quadrillion BTUs in added energy required by the developing world between now and 2040, predicts Exxon, 148 quadrillion, or 74%, will be provided by fossil fuels — a statistic that, if accurate, should chill us to the bone in climate change terms.
The role of fossil fuels in satisfying the aspirations of the world’s growing middle class is especially evident in the field of transportation. “Rising prosperity will drive increased demand for transportation,” the Outlook notes. “An expanding global middle class means millions of people will buy a car for the first time.” Between 2010 and 2040, the human population is expected to grow by 29%, from approximately seven billion to nine billion people; the global population of cars, SUVs, and other light-duty vehicles, however, is projected to grow by more than 100%, from 825 million to 1.7 billion. And while an increasing number of these vehicles will be powered by gas-electric hybrid engines, the majority will still be fueled by petroleum, pushing up the demand for petroleum and pumping ever more carbon dioxide into the atmosphere.
A rising middle class seeking more consumer products, urban amenities, and travel opportunities will also require a commensurate fleet of trucks, buses, trains, ships, and planes. Reliance on trucks and container ships for moving goods around the world will, in turn, generate a huge demand for diesel and heavy oil, while all those low-cost air carriers (like ill-fated Air Asia) will only up the requirement for aviation fuel.
Finally, the new global middle class will want more computers, flat-screen TVs, air-conditioners, and other appliances, stoking a soaring demand for electricity. Among the advanced nations that make up the Organization for Economic Cooperation and Development (OECD), a growing share of the energy used in generating electricity will indeed come from renewables and natural gas, while coal use will decline sharply. In non-OECD countries, however, the drive for electrification will be accompanied by a significant increase in the consumption of coal — from 54 quadrillion BTUs in 2010 to 82 quadrillion in 2040. This means that the non-OECD’s contribution to global warming will continue to soar, although that’s not a point that Exxon is likely to emphasize.
Nor does the Exxon blueprint neglect the needs of the world’s poorer citizens. “The progress enabled by modern energy has not reached everyone,” the Outlook notes. “One out of every five people in the worldstill has no access to electricity. Even more lack modern cooking fuels.”
This is the basis for what can only be termed “carbon humanitarianism” — the claim that cheap carbon-based fuels are the best possible response to the energy-poor of the planet (despite everything we know about the devastation climate change will cause, above all in the lives of the poor). This vision of Big Energy as the Good Samaritan of our world was articulated by Rex Tillerson in a June 2013 address to the Asia Society Global Forum. “Approximately 1.3 billion people on our planet,” he said, “still do not have access to electricity for basic needs like clean water, cooking, sanitation, light, or for the safe storage of food and medicine… [which means that] the need to expand energy supplies has a humanitarian dimension that should inform and should guide our energy policy.”
Asked whether climate change didn’t pose a greater challenge to the world’s poor, Tillerson chose to demur. “I think here are much more pressing priorities that we… need to deal with,” he told the Council on Foreign Relations in June 2012. “There are still hundreds of millions, billions of people living in abject poverty around the world. They need electricity… They need fuel to cook their food on that’s not animal dung… They'd love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably. You'd save millions upon millions of lives by making fossil fuels more available to a lot of the part of the world that doesn't have it.”
In fact, Exxon predicts that reliance on fossil fuels will grow fastest in the poorest parts of the world — precisely the areas that are expected to suffer the most from climate change. Africa, for example, is expected to witness a 103% increase in net energy consumption between now and 2040, with 83% of that increase supplied by fossil fuels.
We Can Do It Better
The final part of the industry’s counterattack is the claim that, for all their purported benefits, renewable sources of energy like wind and solar power are just not up to the task of providing the necessary extra energy needed to sustain economic growth and propel billions of people into the middle class.
The problem, Exxon claims, is that wind and solar are more costly than the fossil fuel alternatives and so are not growing fast enough to meet rising world demand. Even though the energy provided by these renewables will expand by 315% between now and 2040, it still represents such a small share of the total global energy mix that, by the end of this period, it will only reach the 4% mark in its share of total world energy consumption (compared to 77% for carbon fuels). Renewables are also said to be problematic as they provide only intermittent sources of energy — failing at night and on windless days — and must be bolstered by other fuels to ensure uninterrupted energy output.
Facing the Challenge
Put together, this represents a dazzling vision of a future in which growing numbers of people enjoy the benefits of abundant energy and unlimited growth. You can already imagine the heartwarming TV commercials that will be generated on a massive scale to propagate such a message: pictures of hard-working individuals of all genders and hues enjoying the American Dream globally thanks to Exxon and its cohorts. Needless to say, in such imagery there will be nothing to mar the promise of unbridled prosperity for all — no horrific droughts, colossal superstorms, or mass migrations of desperate people seeking to flee devastated areas.
But this vision, like so much contemporary advertising, is based on a lie: in this case, on the increasingly bizarre idea that, in the twenty-first century, humanity can burn its way through significant parts of the planet’s reserves of fossil fuels to achieve a world in which everything is essentially the same — there’s just more of it for everyone. In the world portrayed by Exxon, it’s possible for a reassuring version of business-as-usual to proceed without environmental consequences. In that world, the unimpeded and accelerated release of carbon into the atmosphere has no significant impact on people’s lives. This is, of course, a modern fairy tale that, if believed, will have the most disastrous of results.
Someday, it will also be seen as one of the more striking lies on whatever’s left of the historical record. In fact, follow this vision to 2040, burning through whatever fossil fuels the energy companies and energy states can pull out of the earth and the ballooning carbon emissions produced will ensure planetary warming far beyond the two degrees Celsius deemed by scientists to be the maximum that the planet can safely absorb without catastrophic climate effects.
In fact, those dreamy landscapes in the new pro-carbon version of the planetary future will, in reality, be replaced by burning forests, flooded coastlines, and ever-expanding deserts. Forget the global rise of the middle class, forget all those cars and trucks and planes and resorts, forget the good life entirely. As climate conditions deteriorate, croplands will wither, coastal cities and farmlands will be eradicated, infrastructure will be devastated, the existing middle class will shrink, and the poor will face ever-increasing deprivation.
Preventing these catastrophes will involve sustained and dedicated effort by all those who truly care about the future of humanity. This will certainly require better educating people about the risks of climate change and the role played by fossil fuel combustion in producing it. But it will also require deconstructing and exposing the futuristic fantasies deployed by the fossil fuel companies to perpetuate their dominance. However fraudulent their arguments may be, they have the potential to blunt significant progress on climate change and so must be vigorously repudiated. Unless we do so, the apostles of carbon will continue to dominate the debate and bring us ever closer to a planetary inferno. This is the only way to thwart and discredit those who seek to perpetuate the Reign of Carbon.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary film version of his book Blood and Oil is available from the Media Education Foundation. Links to his work can be found at michaelklare.com.
Copyright 2015 Michael T. Klare
Pop the champagne corks in Washington! It’s party time for Big Energy. In the wake of the midterm elections, Republican energy hawks are ascendant, having taken the Senate and House by storm. They are preparing to put pressure on a president already presiding over a largely drill-baby-drill administration to take the last constraints off the development of North American fossil fuel reserves.
The new Republican majority is certain to push their agenda on a variety of key issues, including tax reform and immigration. None of their initiatives, however, will have as catastrophic an impact as their coming drive to ensure that fossil fuels will dominate the nation's energy landscape into the distant future, long after climate change has wrecked the planet and ruined the lives of millions of Americans.
It’s already clear that the new Republican leadership in the Senate will make construction of the Keystone XL Pipeline, intended to carry heavy oil (or “tar sands”) from Alberta, Canada, to refineries on the U.S. Gulf Coast, one of their top legislative priorities. If the lame-duck Congress fails to secure Keystone's approval now with the help of pro-carbon Senate Democrats, it certainly will push the measure through when a Republican-dominated Senate arrives in January. Approval of that pipeline, said soon-to-be Senate majority leader Mitch McConnell, will be among the first measures “we’re very likely to be voting on.” But while the Keystone issue is going to command the Senate’s attention, it’s only one of many measures being promoted by the Republicans to speed the exploitation of the country’s oil, coal, and natural gas reserves. So devoted are their leaders to fossil fuel extraction that we should start thinking of them not as the Grand Old Party, but the Grand Oil Party.
In seeking to boost fossil fuel production, the GOP leadership is already mapping out plans to fight on several fronts in addition to Keystone. For example, New Jersey Governor Chris Christie, a likely presidential candidate, is promoting a scheme to eliminate what he calls government “obstacles” — that is, federal oversight of energy-related matters — to the construction of any border-crossing pipelines, whether for the importation of tar sands from Canada or the export of natural gas to Mexico. Other prominent Republicans, including McConnell (who comes from coal-rich Kentucky), are eager to prevent the Environmental Protection Agency (EPA) from imposing strict carbon restraints on the use of coal, ban federal oversight of hydro-fracking, open offshore Alaska and Virginia to drilling, and facilitate foreign sales of U.S. crude oil and liquefied natural gas (LNG).
Whatever individual initiatives one Republican figure or another may be pushing, as a group they fervently believe in the desirability of boosting the consumption of fossil fuels and the absolute need to defeat any measures designed to slow climate change through restraints on such consumption. For many of them, this is both an economic issue, aimed at boosting the profits of U.S. energy firms, and bedrock ideology, part of a quasi-mystical belief in the national-power-enhancing nature of petroleum. Top Republicans argue, for instance, that the best way to counter Russian inroads in Ukraine (or elsewhere in Europe) is to accelerate the fracking of U.S. shale gas reserves and ship the added output to that continent in the form of liquefied natural gas. This, they are convinced, will break Russia’s hold on the continent’s energy supplies. “The ability to turn the tables and put the Russian leader in check,” House Speaker John Boehner wrote in March, “lies right beneath our feet, in the form of vast supplies of natural energy.”
Central to the political ethos of many Republicans, including the likely candidates for president in 2016, is a belief in the restorative abilities of oil and gas when it comes to waning national power and prestige. Governor Christie, for example, devoted his initial foreign policy speech to a vision of a “North American energy renaissance” based on the accelerated production of hydrocarbons in Canada, Mexico, and the U.S. “The dramatic change in the energy landscape in North America,” he declared, “has made all of us better off and will continue to do so.” (Significantly, Christie unveiled his plan in Mexico, which is expected to open its oil and gas fields to development by U.S. firms for the first time since it expropriated foreign oil assets in 1938.)
In order to claim such benefits from increased fossil-fuel production, the increasingly severe effects of climate change — including on highly vulnerable coastal communities in New Jersey — have to be conveniently left out of the equation. In fact, most top Republicans solve that problem either by denying the very reality of climate change or by viewing it as, at worst, a future minor irritant. In one of the genuinely bizarre outcomes of the recent election, Oklahoma’s James Inhofe is expected to be chosen as the new chairman of the Senate Environment and Public Works Committee. A long-time proponent of the view that human-induced climate change is a giant “hoax,” Inhofe has pledged, among other things, to sabotage the EPA’s drive to restrict carbon emissions from coal.
The Power of the Purse
What accounts for such a messianic belief in the beneficial effects of fossil fuel extraction?
Never underestimate the lure of money — or, to be more precise, campaign contributions. The giant energy firms are among the leading sources of campaign financing. Most of their money has, in recent years, gone to Republicans who espouse a pro-carbon agenda — and with such a crew now ascendant in Congress, staggering sums will undoubtedly continue to pour in.
According to the Center for Responsive Politics (CRP), a nonpartisan group that tracks money in politics, the oil and gas industry was the ninth biggest supplier of campaign funds during the 2013-2014 election cycle, with 87% of the $51 million it spent going to Republicans. The coal industry provided another $10 million in contributions, with 95% going to Republicans. Koch Industries, the energy conglomerate controlled by billionaire brothers Charles and David Koch, was the top oil company provider, accounting for $9.4 million in contributions; Chevron, ExxonMobil, and Occidental Petroleum were also major donors. These figures, it should be noted, only include direct donations to candidates in accordance with federal campaign laws. They exclude funds channeled through secretive super PACS and supposedly “non-profit” organizations that are not bound by such rules. During the 2012 election, the CRP reports, the Koch Brothers helped steer an estimated $407 million to such entities; equally large amounts are thought to have been expended in the 2014 go-around.
To a significant extent, these funds were shuttled to especially industry-friendly and powerful Republicans. Among the leading recipients of oil funding in 2014, according to the CRP, were John Boehner and Mitch McConnell, along with John Cornyn, the particularly enthusiastic pro-energy senator from Texas, and Congressman Cory Gardner of Colorado, who just took a Senate seat from the environmentally conscious Democrat Mark Udall. Not surprisingly, among the top recipients of coal industry funding were Boehner and McConnell, as well as especially coal-friendly congressional representatives like Shelley Moore Capito and David McKinley of West Virginia.
These and other recipients of fossil fuel cash know full well that their future access to such largesse, and so their ability to get reelected, will depend on their success in pushing legislation that facilitates the accelerated extraction of oil, gas, and coal. It doesn’t take too much imagination to calculate the consequences of this conveyor belt of financial support, both for affected communities and for the climate.
Another way to understand the Republican embrace of fossil fuels is to focus on the relative importance of oil, gas, and mining operations to the economies of certain predominantly “red” states with built-in Republican majorities. According to a revealing analysis by John Kemp of Reuters, only 13 U.S. states export more energy than they import (in descending order): Wyoming, West Virginia, Texas, North Dakota, New Mexico, Colorado, Oklahoma, Alaska, Pennsylvania, Montana, Arkansas, Utah, and Kentucky. Fossil fuel extraction helps drive the economies of these states and voters there tend to elect particularly pro-extraction Republicans. When the 114th Congress convenes in January, 19 of the 26 Senate seats from these states will be held by Republicans and only six by Democrats.
Note that these states played a particularly pivotal role in the 2014 midterms, with the Republican leadership making an all-out drive to score major victories in them. Ten of these states had Senate races this year and the Republicans succeeded in ousting Democrats in five of them: Wyoming, Colorado, Montana, and Alaska. Needless to say, the giant oil and coal companies poured vast amounts of money into these campaigns. Koch Industries, for example, made substantial contributions to the Senate campaigns of Tom Cotton in Arkansas, Steve Daines in Montana, and Cory Gardner in Colorado.
In many respects, energy-surplus states have different interests than other states, which must import the preponderance of their energy supplies. These energy-importing states, including Democratic bastions like Illinois, New York, California, and Massachusetts, often seek strict federal regulation of things like hydro-fracking and power-plant emissions. Surplus states like Texas and Pennsylvania, on the other hand, largely prefer state-level oversight rather than the generally stronger federal version of the same.
The major fossil fuel companies also favor state-level oversight of energy affairs, which regularly results into drilling-friendly legislation. When it comes to hydraulic fracking, here’s how ExxonMobil CEO Rex Tillerson politely puts the matter: “[W]e believe that is best left to the state, [to] state regulatory bodies,” as they are more attuned to conditions on the ground. “[W]riting a federal standard to apply across a whole range of these conditions we don't think is the most efficient way to go about it.”
In this and other ways, energy-surplus states often resemble oil-rich countries like Russia, Nigeria, Angola, and Kazakhstan, where energy companies enjoy a cozy, often venal, relationship with top leaders. Scholars in the field speak of an “oil curse” that bedevils such countries, in which the best interests of ordinary citizens — not to mention the environment — are regularly sacrificed in efforts to boost output and line the pockets of ruling elites.
Oil, Gas, and National Security
A third reason why the Grand Oil Party tends to favor fossil fuel extraction is that its representatives view such production as a vital pillar of national security — another Republican priority. Increased oil, gas, and coal extraction is said to enhance U.S. security in two ways: by invigorating the economy and so strengthening America’s competitive advantage vis-à-vis rival powers and by bolstering Washington's capacity to confront hostile petro-states like Iran, Russia, and Venezuela.
The recent upsurge in oil and natural gas production in what’s being called “Saudi America” is especially beneficial, Republicans claim, because it lowers the cost of energy for American manufacturers and attracts fresh investment in energy-intensive activities by companies that might otherwise locate their factories in China, Taiwan, or elsewhere. “The production boom in gas and associated lower costs,” Governor Christie argues, “have contributed to ‘re-shoring,’ a return of manufacturing jobs that had been migrating to Asia before.”
Equally important, it is a Republican conviction that an upsurge in domestic oil and gas production will give Washington a stronger hand in its dealings with Iran and Russia, in particular. For one thing, by becoming less dependent on imported energy, the U.S. is making itself ever less vulnerable to the blandishments of major suppliers in the Middle East. In addition, by driving down international prices, American oil and gas output is also curtailing the energy revenues of Iran and Russia, making their leaders more susceptible to U.S. pressure.
Given this, the Republican leadership is especially focused on eliminating existing obstacles to selling crude oil and natural gas abroad. At the moment, the exporting of crude is prohibited, thanks to a 40-year-old ban adopted in the wake of the Arab oil embargo of 1973-1974. Natural gas exports are hindered by the lack of LNG facilities in this country and by regulatory barriers to their rapid construction. Constraints on such construction, according to Boehner (who, of course, wants to lift them), constitute a “de-facto ban on American natural-gas exports — a situation that [Russian President Vladimir] Putin happily exploited to finance his geopolitical goals.”
Not surprisingly, the major oil and gas companies are also strongly in favor of such steps, which would allow them to sell cheap oil and gas to Europe and Asia, where prices are substantially higher. Building more gas-export facilities, says Erik Milito, an official of the pro-industry American Petroleum Institute, would mean that “our LNG exports could significantly strengthen the global energy market against crisis and manipulation… a win-win for our economy and our friends.”
The oil companies are also pushing for intensified efforts to integrate the U.S., Mexican, and Canadian oil systems which, Christie and others claim, would enhance U.S. security by diminishing reliance on Middle Eastern and other extra-hemispheric suppliers. At the same time, such integration would help American companies acquire greater control over production in Mexico and Canada. Mexico’s new energy legislation, which opens the way for foreign investment in its oil and gas fields, was heavily pushed by U.S. oil firms and prominent Republicans.
There is little question that increased exports would benefit American energy firms and their customers abroad. Any easing of export constraints would, however, induce U.S. producers to divert output from domestic markets to more lucrative markets abroad, potentially harming American consumers. While prices might fall in Europe, they could rise in the United States, removing the current economic stimulus that relatively low-cost oil and gas provide. Increased exports would also mean that the recent slowdown in U.S. carbon emissions — a product of economic hard times and a switch from coal to gas in electricity generation — would be rendered meaningless by increased greenhouse gas emissions from the combustion of U.S. fossil fuels in other countries.
Fossil Fuels Forever
At a time when more and more people around the world are coming to recognize the need for tough restraints on fossil fuel combustion, the Republicans are about to march forcefully in the opposite direction. Theirs will be a powerful vote for a fossil-fuels-forever planet.
The consequences of such a commitment are chilling. While virtually all scientists and many world leaders have concluded that the heating of the planet must be kept to an average increase of 2 degrees Celsius (3.6 degrees Fahrenheit), the pro-carbon agenda being pursued by the Republicans would guarantee a planet heated by four to six or more degrees Celsius or six to 10 degrees Fahrenheit. That large an increase is almost certain to render significant portions of the planet virtually uninhabitable, and so threaten human civilization as we know it. As the U.N.’s prestigious Intergovernmental Panel on Climate Change (IPCC) noted in its recent summary report, “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.”
With Republicans now in control, pro-carbon initiatives will be the order of the day in Congress. President Obama has veto power over most such measures and is reportedly planning various executive actions on climate issues — some intended to clinch a recent climate deal with China. In the long run, however, his need to secure Republican support for key legislative endeavors and his own “all of the above” energy policy may mean that he will give ground in this area to win votes for what he may view as more actionable steps on free trade pacts and other issues. In other words, for each modest step forward on climate stabilization, the latest election ensures that Americans are destined to march several steps backward when it comes to reliance on climate-altering fossil fuels. It’s a recipe for good times for Big Energy and its congressional supporters and bad times for the rest of us.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.
Copyright 2014 Michael T. Klare
It was heinous. It was underhanded. It was beyond the bounds of international morality. It was an attack on the American way of life. It was what you might expect from unscrupulous Arabs. It was “the oil weapon” — and back in 1973, it was directed at the United States. Skip ahead four decades and it’s smart, it’s effective, and it’s the American way. The Obama administration has appropriated it as a major tool of foreign policy, a new way to go to war with nations it considers hostile without relying on planes, missiles, and troops. It is, of course, that very same oil weapon.
Until recently, the use of the term “the oil weapon” has largely been identified with the efforts of Arab producers to dissuade the United States from supporting Israel by cutting off the flow of petroleum. The most memorable example of its use was the embargo imposed by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) on oil exports to the United States during the Arab-Israeli war of 1973, causing scarcity in the U.S., long lines at American filling stations, and a global economic recession.
After suffering enormously from that embargo, Washington took a number of steps to disarm the oil weapon and prevent its reuse. These included an increased emphasis on domestic oil production and the establishment of a mutual aid arrangement overseen by the International Energy Agency (IEA) that obliged participating nations to share their oil with any member state subjected to an embargo.
So consider it a surprising reversal that, having tested out the oil weapon against Saddam Hussein’s Iraq with devastating effect back in the 1990s, Washington is now the key country brandishing that same weapon, using trade sanctions and other means to curb the exports of energy-producing states it categorizes as hostile. The Obama administration has taken this aggressive path even at the risk of curtailing global energy supplies.
When first employed, the oil weapon was intended to exploit the industrial world’s heavy dependence on petroleum imports from the Middle East. Over time, however, those producing countries became ever more dependent on oil revenues to finance their governments and enrich their citizens. Washington now seeks to exploit this by selectively denying access to world oil markets, whether through sanctions or the use of force, and so depriving hostile producing powers of operating revenues.
The most dramatic instance of this came on September 23rd, when American aircraft bombed refineries and other oil installations in areas of Syria controlled by the Islamic State of Iraq and Syria (ISIS, also known as ISIL or IS). An extremist insurgent movement that has declared a new “caliphate,” ISIS is not, of course, a major oil producer, but it has taken control of oil fields and refineries that once were operated by the regime of Bashar al-Assad in eastern Syria. The revenue generated by these fields, reportedly $1 to $2 million daily, is being used by ISIS to generate a significant share of its operating expenses. This has given that movement the wherewithal to finance the further recruitment and support of thousands of foreign fighters, even as it sustains a high tempo of combat operations.
Black-market dealers in Iran, Iraq, Syria, and Turkey have evidently been assisting ISIS in this effort, purchasing the crude at a discount and selling at global market rates, now hovering at about $90 per barrel. Ironically, this clandestine export network was initially established in the 1990s by Saddam Hussein’s regime to evade U.S. sanctions on Iraq.
The Islamic State has proven adept indeed at exploiting the fields under its control, even selling the oil to agents of opposing forces, including the Assad regime. To stop this flow, Washington launched what is planned to be a long-term air campaign against those fields and their associated infrastructure. By bombing them, President Obama evidently hopes to curtail the movement’s export earnings and thereby diminish its combat capabilities. These strikes, he declared in announcing the bombing campaign, are intended to “take out terrorist targets” and “cut off ISIL’s financing.”
It is too early to assess the impact of the air strikes on ISIS’s capacity to pump and sell oil. However, since the movement has been producing only about 80,000 barrels per day (roughly 1/1,000th of worldwide oil consumption), the attacks, if successful, are not expected to have any significant impact on a global market already increasingly glutted, in part because of an explosion of drilling in that “new Saudi Arabia,” the United States.
As it happens, though, the Obama administration is also wielding the oil weapon against two of the world’s leading producers, Iran and Russia. These efforts, which include embargoes and trade sanctions, are likely to have a far greater impact on world output, reflecting White House confidence that, in the pursuit of U.S. strategic interests, anything goes.
Fighting the Iranians
In the case of Iran, Washington has moved aggressively to curtail Tehran’s ability to finance its extensive nuclear program both by blocking its access to Western oil-drilling technology and by curbing its export sales. Under the Iran Sanctions Act, foreign firms that invest in the Iranian oil industry are barred from access to U.S. financial markets and subject to other penalties. In addition, the Obama administration has put immense pressure on major oil-importing countries, including China, India, South Korea, and the European powers, to reduce or eliminate their purchases from Iran.
These measures, which involve tough restrictions on financial transactions related to Iranian oil exports, have had a significant impact on that country’s oil output. By some estimates, those exports have fallen by one million barrels per day, which also represents a significant contraction in global supplies. As a result, Iran’s income from oil exports is estimated to have fallen from $118 billion in 2011-2012 to $56 billion in 2013-2014, while pinching ordinary Iranians in a multitude of ways.
In earlier times, when global oil supplies were tight, a daily loss of one million barrels would have meant widespread scarcity and a possible global recession. The Obama administration, however, assumes that only Iran is likely to suffer in the present situation. Credit this mainly to the recent upsurge in North American energy production (largely achieved through the use of hydro-fracking to extract oil and natural gas from buried shale deposits) and the increased availability of crude from other non-OPEC sources. According to the most recent data from the Department of Energy (DoE), U.S. crude output rose from 5.7 million barrels per day in 2011 to 8.4 million barrels in the second quarter of 2014, a remarkable 47% gain. And this is to be no flash in the pan. The DoE predicts that domestic output will rise to some 9.6 million barrels per day in 2020, putting the U.S. back in the top league of global producers.
For the Obama administration, the results of this are clear. Not only will American reliance on imported oil be significantly reduced, but with the U.S. absorbing ever less of the non-domestic supply, import-dependent countries like India, Japan, China, and South Korea should be able to satisfy their needs even if Iranian energy production keeps falling. As a result, Washington has been able to secure greater cooperation from such countries in observing the Iranian sanctions — something they would no doubt have been reluctant to do if global supplies were less abundant.
There is another factor, no less crucial, in the aggressive use of the oil weapon as an essential element of foreign policy. The increase in domestic crude output has imbued American leaders with a new sense of energy omnipotence, allowing them to contemplate the decline in Iranian exports without trepidation. In an April 2013 speech at Columbia University, Tom Donilon, then Obama’s national security adviser, publicly expressed this outlook with particular force. “America’s new energy posture allows us to engage from a position of greater strength,” he avowed. “Increasing U.S. energy supplies act as a cushion that helps reduce our vulnerability to global supply disruptions and price shocks. It also affords us a stronger hand in pursuing and implementing our international security goals.”
This “stronger hand,” he made clear, was reflected in U.S. dealings with Iran. To put pressure on Tehran, he noted, “The United States engaged in tireless diplomacy to persuade consuming nations to end or significantly reduce their consumption of Iranian oil.” At the same time, “the substantial increase in oil production in the United States and elsewhere meant that international sanctions and U.S. and allied efforts could remove over 1 million barrels per day of Iranian oil while minimizing the burdens on the rest of the world.” It was this happy circumstance, he suggested, that had forced Iran to the negotiating table.
Fighting Vladimir Putin
The same outlook apparently governs U.S. policy toward Russia.
Prior to Russia’s seizure of Crimea and its covert intervention in eastern Ukraine, major Western oil companies, including BP, Chevron, ExxonMobil, and Total of France, were pursuing elaborate plans to begin production in Russian-controlled sectors of the Black Sea and the Arctic Ocean, mainly in collaboration with state-owned or state-controlled firms like Gazprom and Rosneft. There were, for instance, a number of expansive joint ventures between Exxon and Rosneft to drill in those energy-rich waters.
“These agreements,” Rex Tillerson, the CEO of Exxon, said proudly in 2012 on inking the deal, “are important milestones in this strategic relationship… Our focus now will move to technical planning and execution of safe and environmentally responsible exploration activities with the goal of developing significant new energy supplies to meet growing global demand.” Seen as a boon for American energy corporations and the oil-dependent global economy, these and similar endeavors were largely welcomed by U.S. officials.
Such collaborations between U.S. companies and Russian state enterprises were then viewed as conferring significant benefits on both sides. Exxon and other Western companies were being given access to vast new reserves — a powerful lure at a time when many of their existing fields in other parts of the world were in decline. For the Russians, who were also facing significant declines in their existing fields, access to advanced Western drilling technology offered the promise of exploiting otherwise difficult-to-reach areas in the Arctic and “tough” drilling environments elsewhere.
Not surprisingly, key figures on both sides have sought to insulate these arrangements from the new sanctions being imposed on Russia in response to its incursions in Ukraine. Tillerson, in particular, has sought to persuade U.S. leaders to exempt its deals with Rosneft from any such measures. “Our views are being heard at the highest levels,” he indicated in June.
As a result of such pressures, Russian energy companies were not covered in the first round of U.S. sanctions imposed on various firms and individuals. After Russia intervened in eastern Ukraine, however, the White House moved on to tougher sanctions, including measures aimed at the energy sector. On September 12th, the Treasury Department announced that it was imposing strict constraints on the transfer of U.S. technology to Rosneft, Gazprom, and other Russian firms for the purpose of drilling in the Arctic. These measures, the department noted, “will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology.”
The impact of these new measures cannot yet be assessed. Russian officials scoffed at them, insisting that their companies will proceed in the Arctic anyway. Nevertheless, Obama’s decision to target their drilling efforts represents a dramatic turn in U.S. policy, risking a future contraction in global oil supplies if Russian companies prove unable to offset declines at their existing fields.
The New Weapon of Choice
As these recent developments indicate, the Obama administration has come to view the oil weapon as a valuable tool of power and influence. It appears, in fact, that Washington may be in the process of replacing the threat of invasion or, as with the Soviet Union in the Cold War era, nuclear attack, as its favored response to what it views as overseas provocation. (Not surprisingly, the Russians look on the Ukrainian crisis, which is taking place on their border, in quite a different light.) Whereas full-scale U.S. military action — that is, anything beyond air strikes, drone attacks, and the sending in of special ops forces — seems unlikely in the current political environment, top officials in the Obama administration clearly believe that oil combat is an effective and acceptable means of coercion — so long, of course, as it remains in American hands.
That Washington is prepared to move in this direction reflects not only the recent surge in U.S. crude oil output, but also a sense that energy, in this time of globalization, constitutes a strategic asset of unparalleled importance. To control oil flows across the planet and deny market access to recalcitrant producers is increasingly a major objective of American foreign policy.
Yet, given Washington’s lack of success when using direct military force in these last years, it remains an open question whether the oil weapon will, in the end, prove any more satisfactory in offering strategic advantage to the United States. The Iranians, for instance, have indeed come to the negotiating table, but a favorable outcome on the nuclear talks there appears increasingly remote; with or without oil, ISIS continues to score battlefield victories; and Moscow displays no inclination to end its involvement in Ukraine. Nonetheless, in the absence of other credible options, President Obama and his key officials seem determined to wield the oil weapon.
As with any application of force, however, use of the oil weapon entails substantial risk. For one thing, despite the rise in domestic crude production, the U.S. will remain dependent on oil imports for the foreseeable future and so could still suffer if other countries were to deny it exports. More significant is the possibility that this new version of the oil wars Washington has been fighting since the 1990s could someday result in a genuine contraction in global supplies, driving prices skyward and so threatening the health of the U.S. economy. And who’s to say that, seeing Washington’s growing reliance on aggressive oil tactics to impose its sway, other countries won’t find their own innovative ways to wield the oil weapon to their advantage and to Washington’s ultimate detriment?
As with the introduction of drones, the United States now enjoys a temporary advantage in energy warfare. By unleashing such weapons on the world, however, it only ensures that others will seek to match our advantage and turn it against us.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.
Copyright 2014 Michael T. Klare
Obama’s New Oil Wars
Considering all the talk about global warming, peak oil, carbon divestment, and renewable energy, you’d think that oil consumption in the United States would be on a downward path. By now, we should certainly be witnessing real progress toward a post-petroleum economy. As it happens, the opposite is occurring. U.S. oil consumption is on an upward trajectory, climbing by 400,000 barrels per day in 2013 alone — and, if current trends persist, it should rise again both this year and next.
In other words, oil is back. Big time. Signs of its resurgence abound. Despite what you may think, Americans, on average, are driving more miles every day, not fewer, filling ever more fuel tanks with ever more gasoline, and evidently feeling ever less bad about it. The stigma of buying new gas-guzzling SUVs, for instance, seems to have vanished; according to CNN Money, nearly one out of three vehicles sold today is an SUV. As a result of all this, America’s demand for oil grew more than China’s in 2013, the first time that’s happened since 1999.
Accompanying all this is a little noticed but crucial shift in White House rhetoric. While President Obama once spoke of the necessity of eliminating our reliance on petroleum as a major source of energy, he now brags about rising U.S. oil output and touts his efforts to further boost production.
Just five years ago, few would have foreseen such a dramatic oil rebound. Many energy experts were then predicting an imminent “peak” in global oil production, followed by an irreversible decline in output. With supplies constantly shrinking, it was said, oil prices would skyrocket and consumers would turn to hybrid vehicles, electric cars, biofuels, and various transportation alternatives. New government policies would be devised to facilitate this shift, providing tax breaks and other incentives for making the switch to renewables.
At that time, a growing concern over climate change and the prospect of further warming due to increased emissions of carbon dioxide from the burning of fossil fuels seemed to dim the long-term prospects for petroleum. After all, oil combustion is this country’s single largest source of carbon emissions. This, in turn, clearly meant that any significant attempt to reduce emissions — whether through a carbon tax, a carbon cap-and-trade program, or other such measures — would naturally have to incorporate significant impediments to oil use. President Obama entered the White House promising to enact such a measure, and the House of Representatives passed a modified cap-and-trade bill in 2009. (It failed in the Senate and so never became law.)
The 2008 financial crisis and global economic meltdown only put oil’s future in further doubt. Suddenly cash-conscious Americans began trading in their gas-guzzlers for smaller, more fuel-efficient cars, with the Obama administration adding its encouragement. When agreeing to the bailout of General Motors, for instance, the White House insisted that the reorganized company focus on the production of such vehicles. In a similar spirit, the administration’s $787 billion stimulus package favored investment in electric cars, biofuels, high-speed rail, and other petroleum alternatives.
The president’s comments at the time clearly reflected a belief that oil was an “old” form of energy facing inevitable decline. “The United States of America cannot afford to bet our long-term prosperity, our long-term security on a resource that will eventually run out, and even before it runs out will get more expensive to extract from the ground,” he declared in 2011. “We can’t afford it when the costs to our economy, our country, and our planet are so high.” Not only did the country need to lessen its dangerous reliance on imported oil, he insisted, but on oil altogether. “The only way for America’s energy supply to be truly secure is by permanently reducing our dependence on oil.”
Obama’s Turnaround on Oil
That was then and this is now, and Obama ain’t talking that way no more. Instead, he regularly boasts of America’s soaring oil output and points to all he’s done and is still doing to further increase domestic production. Thanks to the sort of heightened investment in domestic output his administration has sponsored, he told a cheering Congress in January, “more oil [was] produced at home than we buy from the rest of the world — the first time that’s happened in nearly twenty years.” Although still offering his usual bow to the dangers of climate change, Obama did not hesitate to promise to facilitate further gains in domestic output.
In accord with his wishes, the Bureau of Ocean Energy Management (BOEM) announced on July 18th that it would reopen a large portion of the waters off the Eastern seaboard, an area stretching all the way from Florida to Delaware, to new oil and natural gas exploration. Under the BOEM plan, energy companies will be allowed to employ advanced seismic technology to locate promising reserves beneath the seabed in preparation for a round of offshore licensing scheduled for 2018. At that point, the companies can bid for and acquire actual drilling leases. Environmental organizations have condemned the plan, claiming the seismic tests often involve the use of sonic blasts that could prove harmful to endangered sea animals, including whales. The truth is, however, that those seismic tests, by opening future fossil fuel deposits to development and exploitation, are likely, in the long run, to hurt human beings at least as much.
Here are some of the other measures recently taken by the administration to boost domestic oil production, according to a recent White House factsheet:
* An increase in the sales of leases for oil and gas drilling on federal lands. In 2013, the Bureau of Land Management held 30 such sales — the most in a decade — offering 5.7 million acres for lease by industry.
* An increase in the speed with which permits are being issued for actual drilling on federal lands. What’s called “processing time” has, the White House boasts, been cut from 228 days in 2012 to 194 days in 2013.
* The opening up of an additional 59 million acres for oil and gas drilling in the Gulf of Mexico, the site of a disastrous BP oil spill in April 2010.
In other words, global warming be damned!
In a turnaround that has gotten next to no attention and remarkably little criticism, President Obama is now making a legacy record for himself that will put the “permanent reduction of our dependence on oil” in its grave. His administration is instead on a drill-baby-drill course to increase production in every way imaginable on U.S. territory, including offshore areas that were long closed to drilling due to environmental concerns.
What explains this dramatic turnaround?
The Rekindled Allure of Oil
The most significant factor behind the renewed popularity of oil has been a revolution in drilling technology. In particular, this involves the use of horizontal drilling and hydraulic fracturing (“fracking”) to extract oil and natural gas from previously inaccessible shale formations. These techniques include the use of drills that can turn sideways after penetrating thin underground shale layers, along with high-pressure water cannons to fracture the surrounding rock and liberate pockets of oil and gas. Until the introduction of these techniques, the hydrocarbons trapped in the shale were prohibitively expensive to produce and so ignored both by industry and the many experts predicting that “peak oil” was in sight.
Most domestic shale “plays” (as they are called in the industry) contain both oil and natural gas. They were first exploited for their gas content because of the greater ease in extracting commercial volumes of that fossil fuel. But when the price of gas collapsed — in part because of a glut of shale gas — many drillers found that they could make more money by redeploying their rigs in oil-rich shales like the Bakken formation in North Dakota and Eagle Ford in West Texas. The result has been a sudden torrent of domestic crude that has brought gasoline prices down (with a resulting increase in gasoline consumption) and created boom-like conditions in several parts of the country.
Prior to the utilization of horizontal drilling and fracking technology, U.S. crude production was indeed facing long-term decline. According to the Energy Information Administration (EIA) of the Department of Energy, domestic crude output fell from a peak of 9.6 million barrels per day in 1970 to a low of 5 million barrels in 2008. With the introduction of fracking, however, the numbers started to soar. Total U.S. crude output jumped from 5.7 million barrels per day in 2011 to 7.5 million in 2013. Output in 2014 is projected to be 8.5 million barrels per day, which would represent a remarkable increase of 2.8 million barrels per day in just three years.
The increase is, by the way, the largest posted by any of the world’s oil producers from 2011-2013 and has generated multiple economic benefits for the country, along with significant environmental consequences. For one thing, it has kept gas prices relatively low. They are now averaging about $3.50 per gallon — a lot more than Americans were paying in the 1990s, but a lot less than most experts assumed would be the case in a post-peak-oil economy. This has, of course, spurred both those SUV sales and an increase in recreational driving. (“We were able to take a day-cation because of the lower gas prices,” said Beth Hughes, of a four-hour roundtrip drive with her husband to San Antonio, to visit the Alamo and do some shopping.)
The increased availability of relatively affordable oil has also spurred investment in ancillary industries like petrochemicals and plastics. Petroleum is the basic raw material, or “feedstock,” for a wide variety of subsidiary materials, including ethylene, propylene, and benzene, which in turn are used to make polyesters, plastics, and numerous consumer products. Many chemical firms have built new facilities to convert shale oil and shale gas into these commodities, a spur both to new jobs and greater tax revenues. In addition, with crude oil selling at around $100 per barrel, those extra 2.8 million barrels produced daily will add about $100 billion to the U.S. economy in 2014, a substantial contribution to an otherwise tepid recovery.
Of course, the environmental downside to all this, already significant, could be staggering for the future. The use of hydro-fracking to release all that shale oil has resulted in the diversion of vast quantities of water to energy production, in the process regularly posing a threat to local water supplies. In some drought-affected areas, oil drilling is now competing with farming for access to ever-diminishing supplies of fresh water. The growing use of railroads to carry shale oil — an especially volatile hydrocarbon substance — has also led to several lethal explosions, triggered by accidents involving old and inadequately reinforced tank cars.
Of course, the greatest environmental fallout from the domestic oil boom will be a continuing deluge of carbon dioxide emissions into the atmosphere, further bolstering the greenhouse effect and ensuring higher world temperatures for years to come. While emissions from domestic coal use are likely to decline in the years ahead, in part due to new rules being formulated by the Environmental Protection Agency, the expected rise in emissions from oil and natural gas use will wipe out these gains, and so total U.S. emissions are expected to be higher in 2040 than they are today, according to the EIA. As a result, we can expect little progress in international efforts to slow the advance of climate change and a steady increase in the frequency and intensity of storms, floods, fires, droughts, and heat waves.
As seen from Washington, however, the domestic oil rebound is largely a feel-good story and an essential part of an otherwise anemic economic recovery. Putting people back to work, Obama declared in May, “starts with helping businesses create more good jobs. One of the biggest factors in bringing jobs back to America has been our commitment to American energy over the last five years. When I took office, we set out to break our dependence on foreign oil. Today, America is closer to energy independence than we have been in decades.”
“A Stronger Hand”
For the president and many other politicians, increased oil output, however important as a source of economic vitality and job creation, is far more than that. It is also a source of power and prestige, guaranteed to give the United States greater leverage in international affairs.
As Tom Donilon, then the president’s senior adviser on national security, explained in April 2013, “America’s new energy posture allows us to engage from a position of greater strength. Increasing U.S. energy supplies act as a cushion that helps reduce our vulnerability to global supply disruptions and price shocks. It also affords us a stronger hand in pursuing and implementing our international security goals.”
One area where American energy prowess has given us “a stronger hand,” he suggested, was in negotiations with Tehran over the Iranian nuclear program. Because the U.S. is importing less oil, there is a larger pool of foreign oil on which our allies can draw for their needs, which has made it easier to impose tough sanctions on Iran’s petroleum exports — and so wring concessions from Iran’s leadership circle.
Another area where many Washington pundits and politicians believe increased oil and gas production has strengthened the president’s hand lies in the administration’s efforts to impose multilateral sanctions on Russia’s energy companies as a punishment for the Kremlin’s covert backing of anti-government rebels in eastern Ukraine. Although still dependent on Russia for a large share of their energy intake, America’s European allies are feeling somewhat less deferential to Moscow because of the growth in global supplies.
In other words, the striking spurt in domestic oil production has added a patriotic dimension to its already powerful allure.
As polls show, most Americans acknowledge the reality of climate change and support efforts to reduce carbon emissions in order avert future climate-induced disasters. California and other states have even taken significant steps to reduce energy-related emissions and the Obama administration has, among other things, announced plans to improve the fuel efficiency of American cars and trucks.
In addition, the president and many in his administration clearly grasp the dangers of climate change — the increasing heat, drought, fiercer storms, rising sea levels, and other perils that, without serious curbs on the combustion of fossil fuels, will make the present look like a utopian moment in human history. Nevertheless, the numbers — from production to consumption — are anything but promising. According to the latest EIA projections, U.S. carbon dioxide emissions from petroleum use will increase by eight million metric tons between 2013 and 2015; such emissions are then expected to level off, at about 2.2 billion tons per year, despite substantial increases in average vehicle fuel efficiency.
With emissions from natural gas expected to rise — the inevitable result of the shale gas boom — and coal emissions experiencing only a modest decline (some of which is offset by rising U.S. exports of coal to be burned elsewhere), total domestic carbon emissions from energy use in 2040 are still predicted to be a devastating 6% higher than they are today. Can there be any question at this point of how this will help ensure the sorts of predicted global temperature increases, with all the ensuing side effects, that every expert knows will be devastating to the planet?
At a national level, such a situation — knowing one thing and doing something else — can only be described as some form of mass delusion or a collective version of schizophrenia. In one part of our collective brain, we are aware that petroleum use must decline sharply to prevent the sorts of global catastrophes that we are only used to seeing in science fiction movies; in another, we retain our affection for driving and gasoline use without giving much thought to the consequences. We have a global warming president presiding over a massive expansion of fossil fuel production. Think of this as a form of collective mental compartmentalization that should frighten us all — and yet from the president on down, it’s remarkable how few seem disturbed by it.
Obviously, this is an unsustainable condition. Eventually, excessive petroleum use will produce such frequent and severe climate effects that no president or energy executive would dare boast of increased petroleum output and none of us would even dream of filling up the gas tank to take a “day-cation” at a distant tourist site. Until we identify and begin treating this state of national schizophrenia, however, we will ensure that a time of mutual pain and hardship is ever more likely.
Copyright 2014 Michael T. Klare