| I am considerably less
qualified than Einstein to predict the weapons to be
used in WWIII, but I am pretty sure of what it will
be about, and who we will be fighting against. In fact,
the war has already begun. The war is about oil, and
our dance partner is China.
Wars over oil are nothing new, of course. Oil played
a significant part in both World Wars – indeed,
Iraq is an artificial
state created by a young Winston Churchill in the
aftermath of World War I exactly because of the growing
importance of oil to the ebbing British Empire. The
Allies occupied it during WWII for the same reason.
Oil is a strategic asset, as military types would say.
What makes a resource strategic is the likelihood that
demand will exceed supply – that is, that it may
become scarce.
And make no mistake, oil is about to be come very scarce
indeed. As many others
have noted, the endless “up” escalator
of increasing oil reserves and production is about to
become a slow but painful trip down. An increasing number
of experts are voicing the heretical notion that world
oil reserves are on the downside
of the bell curve. Some experts think the peak is
as much as a decade off; others think we are there right
about now.
If world demand for oil could be throttled back, the
impact of this trend could be relatively mild. But there
are a number of reasons why that is simply not in the
cards. One is of course our nation’s profligate
consumption: Americans consume nearly three
times as much energy per capita as Europeans do,
and nearly six times the world average. But even if
Americans were to suddenly abandon their dreadnought
SUVs en masse, world consumption would likely continue
to increase. And one of the primary reasons is China.
We all know that China's economy is growing like bamboo
(a mind-boggling 9%
annual rate for the 25-year period from 1978 to
2003), and that it is increasingly willing to flex its
muscles in politics and international finance. Less
well-known is the fact that China is already the
2nd largest consumer of energy in the world.
We tend to think of China as a backward country unused
to casting a global shadow. But as The Economist has
pointed out “China was the largest economy for
much of recorded history. Until the 15th century, China
had the highest income per head and was the technological
leader.” Perhaps in part because of its long history,
China tends to take a long view of events. While American
businesses worry about next quarter, China is making
decisions that will bear fruit a generation from now.
And so it invests in education and manufacturing while
we file dutifully into Walmart to buy their $30 DVD
players.
As China has become the world’s factory, it has
also become the leading consumer of many industrial
commodities including steel, coal and cement. And as
prosperity turns Chinese workers into acquisitive consumers,
their demand for the high-energy badges of modernity
like automobiles is exploding. Volkswagen
now sells more cars in China than in Germany.
How will China fuel its increasingly affluent economy?
It will have to secure access to a truly staggering
amount of oil – oil that would otherwise be targeted
for our Hummers and Suburbans. And China may well get
it without firing a shot.
A couple of months ago ChevronTexaco (remember when
anti-trust laws broke up what has again been joined
together?) announced that it was to acquire fellow big
oil player (and former
Taliban coddler) Unocal for $16.4 billion. But such
announcements do not always lead to the desired results;
in one of the essential rituals of American big business,
Unocal is “in play.” In other words, its
management, duty-bound to get the highest possible price
for its shareholders, must consider other offers. China
National Offshore Oil Corp. (CNOOC), the number three
oil company in China, is publicly contemplating putting
in a higher bid. The blogosphere yawns, but a bid from
CNOOC could be the Pearl Harbor of the next great war.
America's economy, foreign policy, internal future,
and wet dreams of another century of hegemony are all
tied to cheap oil. And the way we have kept oil cheap
is by being the 800-pound gorilla (also guerilla) of
the world energy market. OPEC controls some of the supply,
but make no mistake that Big Oil – American Big
Oil – calls the shots for the world energy market.
But Big Oil cannot change the decline in basic supply.
And even if they could change the effect that will follow
from that cause, they would have absolutely no incentive
to do so, because the immediate and primary effect of
even minor shortfalls in supply will be huge increases
in the price of a barrel of oil. In past disruptions,
note that
shortages of only 5% in supply caused 400% increases
in its price. But the oil crises of the 1970s were
short-term, artificial phenomena. The coming crisis
is real, systemic and terminal.
Put together the contraction in supply and the growing
ability of China to control some of that supply, and
you get a taste of the cataclysm that will follow when
China's growing productivity and affluence really go
toe-to-toe with our oil addiction. China, which may
be less than a true free market at home, has no problem
bitch-slapping us with Adam Smith's invisible hand at
the most macro level. So it seems rather obvious that
China will flex its growing muscles and buy its own
secure supply by bidding on bigger and bigger helpings
of Big Oil.
In most ways, the Bush Administration is simply the
policy arm of Big Oil. Who will man the marionettes
if the Chinese take control of Big Oil? Will the champions
of the free market stand by if the Chinese outbid us
fair and square for the energy (and control of that
energy) we have taken for granted?
One of the inherent flaws in the free market system
is that, left unchecked, it usually results in the accretion
of a great deal of power in the hands of one or a few.
The winners are known as monopolists to economists,
or bullies to the rest of us. Republicans have always
defended the system, and thus the bullies, but of course
they have coincidentally always been the biggest kids
in the sandbox. Last week, CNOOC in fact bid $18.5 billion
for Unocal. Numerous voices in the Administration
and Congress
(on both sides of the aisle) are already squealing.
Bullies tend to become crybabies when their reign ends
due to the arrival of a bigger bully. Time will tell
how our oil bullies will react, but I predict they will
squeal like stuck pigs when China assumes its inevitable
role as the bigger bully.
Whether the war this crisis triggers will be fought
with guns and bombs or money and lawyers, I do not know.
But war it will be.
Due
to technical problems, this column was delayed nearly
two weeks. The CNOOC bid was actually made after the
first draft was submitted. John Steinberg bloviates
regularly @ www.bluememe.blogspot.com.
He is sometimes, but not always, this prescient..
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