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INTP 589 – EXTENDED RESEARCH PAPER
MASTER OF INTERNATIONAL RELATIONS

by Tane Woodley, 28 February 2007

 


Analyse the potential for conflict over oil reserves to increase during the next 20 years, including discussion of potential flashpoints, likely adversaries and types of conflict.

 

 

Introduction

[P]etroleum is unique among the world’s resources— …it has more potential than any of the others to provoke major crises and conflicts in the years ahead. [1]

Oil is part of [national] security, considered in a broader sense than simply physical security, and a very vital part. [2]

Oil and conflict have a long and robust relationship, stretching back to the eve of the First World War. This relationship has its roots in oil’s vital status as an industrial commodity, based on the fundamental role that oil plays within modern society. With very few exceptions, every person in the world is affected by oil, and usually in a beneficial way. Even the world’s poorest people can benefit from oil-powered agricultural machinery and transport. Human civilisation is now based on a plentiful supply of fossil fuel energy, but especially on that of oil; currently 84 million barrels a day (mbd). Oil’s importance is such that ethnic groups and states are prepared to go to war for it if this is deemed necessary. As long as production continues to meet demand, the possibility of conflict over oil reserves is limited, or at least reduced. But when such a vital commodity begins to run short, a commodity that underpins so many of the social, political and economic systems that make up our civilisation, then that possibility for conflict increases greatly.

The aim of this paper is to assess the potential for conflict over oil reserves to increase during the next 20 years. Historically, oil has consistently served as a source of conflict, but will this continue to be the case? They may begin to separate, if oil’s importance as a strategic commodity wanes, meaning states expend less effort to secure it than they have in the past. Or oil might become even more important, prompting a greater degree of conflict. Studying these issues has merit, as they may give some insight into the conflicts of the future; where they might be, who they might involve, and how they might develop. To achieve this, I will discuss the history of oil and conflict, and demonstrate the link that has existed between the two since 1914. Having established this link, I will then outline the vital importance of oil to the international political economy. The phenomenon of Peak Oil will then be investigated, and its likely effect on petroleum’s price and availability. Following this I will look at who supplies oil, who consumes it, and critical transport chokepoints, demonstrating that most of these suppliers are dangerously unstable, and under increasing political, social and environmental stress. This will also show that the major consumers are completely dependent on imported oil. The potential for conflict arising from this situation will be discussed in the last part of the essay, who might be involved and where, and what potential forms this conflict may take. As a whole, this will paint a grim picture of what might happen when oil begins to run short. This paper will not attempt to provide answers to the issues raised, partly for reasons of space, but also because not all problems have answers. The problems that a shortfall in global oil supply will pose may fall into this category.

This paper is based primarily on an environmentalist perspective. Of the various perspectives in international relations, environmentalism focuses most on the effects of resource depletion and how endless economic growth is impossible in a finite system (such as the Earth). A key assumption examined in this paper is whether the global oil supply will fail to keep up with rising demand and peak in production. The effects of any shortages are analysed from a neo-realist perspective. Critical shortages of vital commodities will often lead to conflicts, as each group seeks to gain sufficient access to secure their own futures, often at the expense of other groups. Neo-realism, with its wider interpretation of the sources of power, is more appropriate than classical realism. The neo-liberal and socialist perspectives, with their assumptions of unlimited economic and social growth, are not considered in this paper, as both perspectives discount the possibility of resource constraints inhibiting human progress.

This paper will look at examples of the potential for conflict at the international and national levels. My aim is to link these together to give a comprehensive analysis of the effect oil-based conflict will have. When a fundamental and vital commodity causes conflict, it does not do so in a narrow and sector-specific way; its effects spill over into all parts of society. Therefore this paper may sacrifice depth of analysis in order to achieve the necessary breadth of scope.

This paper is looking at events over the next 20 years for three reasons. The first is that there are a number of authoritative predictions that the global production of oil will peak within the next 5-15 years, and then inexorably decline. A key assertion in this paper is that the conflict for oil will increase as it becomes increasingly scarce, and so a peak in global production is relevant. Secondly, a 20 year timeframe sets limits on the scope of this paper. Finally, forecasting future events is always difficult at best. Events over the next 20 years can be broadly extrapolated, using current data on energy consumption and supply trends, but becomes increasingly tenuous after that.

 

The History of Oil and Conflict

Conflict is commonly conflated with military action and war. Yet it transcends more than just the military dimension of human relations. “Conflict encompasses not only warfare, but also activities that do not necessarily involve physical violence, e.g., litigation.” [3] The New Zealand Defence Force defines conflict as;

The essence of conflict is a violent clash between opposing human wills, each trying to impose its own will on the other. In interstate and even intrastate conflict, the means to impose will on an adversary may include diplomatic, economic and political mechanisms, as well as the application or threat of violence by military force. [4]

The military definition of conflict is well understood, but economic conflict- whether between states, corporations or social groups- also has a profound impact on human affairs. Differences in energy policy between the US and the EU have affected relations, and may be a factor in an economic conflict between them. [5] Conflict between different groups within a society is also worthy of examination, especially during a time of increased tension brought on by a lowering of living standards and economic recession. [6]

The literature on the subject of resource conflict is increasing, particularly as it has become obvious that certain critical resources, such as water and oil, are under increasing strain. Michael Klare’s books, Resource Wars and Blood and Oil are key sources for this paper. His conclusion, that resources (particularly oil) will be a key factor in conflicts of the future, appears to be supported by recent events. Literature addressing the issue of Peak Oil, by writers such as Colin Campbell, Richard Heinberg, Howard Kunstler, Kenneth Deffeyes and Matthew Simmons, is also relevant to the subject. These authors deal with the issues that come from a shortfall in the oil supply; increased conflict, economic recession and depression, falling food production and increased mortality. This is a very dark issue, but a necessary one to address, and the Peak Oil literature does that.

Oil became a focus of conflict and a significant contributor to wartime victory on the eve of the First World War. Britain had begun to convert its warships from coal to oil, which gave the Royal Navy an important operational advantage, but meant that Britain was now reliant on foreign energy sources to maintain her maritime supremacy. Britain’s supplies came from the Persian Gulf, but these fields were threatened by the Ottoman Empire. The first military campaign to protect oil supplies was launched in November 1914, when Indian and British troops landed in Basra to seize the Mesopotamian oilfields. [7] The First World War was the first to see widespread mechanisation. While horses were vitally important throughout the war, the use of aircraft, tanks, trucks and oil-powered warships increased exponentially as the war progressed. The British began the war with 50 aircraft; by June 1918 they had over 2,600. [8] The British Army’s truck fleet went from 10,000 to 60,000 over the same period. [9] This was made possible by the huge production advantage the Allies had; at the time, the US was the world’s main producer and exporter of oil. During the war, the Allies produced approximately 151 million tonnes, while the Central Powers produced less than 10 percent of this. [10] After the war, Lord Curzon of Britain declared that the Allies had “…floated to victory upon a wave of oil.” [11]

The Second World War reinforced oil’s importance as a strategic resource. Japan launched the attack on Pearl Harbour and its invasion of Southeast Asia largely in response to a US oil embargo. One of Japan’s main strategic objectives was the capture of the Indonesian oilfields. [12] Germany’s war aims included seizing the oilfields of the Caucasus, a campaign that led to the disaster at Stalingrad. [13] Allied oil production was just as dominant in the Second World War as it had been in the First; total production topped a billion tonnes, compared to Axis production of some 67 million tonnes. [14] By 1945 the German and Japanese militaries had become almost immobilised as their supply sources- inadequate to begin with- were cut off. German and Japanese attempts to secure sufficient oil reserves for themselves failed disastrously, and were major contributors to their defeat.

Oil and conflict remained linked after 1945. Iran’s democratically elected government was overthrown and replaced by the Shah in a CIA-backed coup when it threatened to nationalise Western oil assets in 1953. In 1961, Iraq threatened to annex Kuwait, but was blocked by British intervention. [15] Then in 1973 the Arab members of OPEC embargoed the West, following western support for Israel in the Yom Kippur War. This was the first successful use of the ‘oil weapon’ by OPEC, following two abortive attempts in 1956 and 1967. [16] Those attempts had been defeated by US surplus production, but this had gone by 1973, and the way was open for OPEC to impose its embargo. This created an artificial oil shortage that sent the price of oil from US$2.48 per barrel in 1972 to US$11.58 in 1974. [17] This price rise wreaked havoc on the world economy, raising unemployment and inflation and plunging the world into recession. [18] In 1979 a second oil shock followed the overthrow of Iran’s Shah, and in the subsequent turmoil, Iran’s production (8 percent of the world’s total) was temporarily cut off. The price again skyrocketed, from US$13.68 in 1978 to US$35.69 in 1980, [19] causing further economic and social disruption around the globe. The Iranian Revolution, combined with the concurrent Soviet invasion of Afghanistan, led President Carter to declare that Washington would use- “…any means necessary, including military force…”- to ensure access to Middle Eastern oil. [20] This declaration (known as the Carter Doctrine) led to the formation of the US military’s Central Command, tasked with controlling US units in the Middle East and Central Asia. It currently controls operations in Iraq, Afghanistan and the Persian Gulf. [21]

The Iran-Iraq War of 1980-88 was caused by an Iraqi attempt to seize Iranian oilfields and transport routes. As the longest conventional war of the 20th century, it cost a million lives and spilled over into the rest of the Gulf, leading to attacks on oil tankers. The newly formed US Central Command intervened, escorting tankers through the Straits of Hormuz, in accordance with the Carter Doctrine. When the war ended, Iraq again attempted to annex Kuwait, invading in late 1990. A US-led international coalition pushed the Iraqis out, ensuring that Iraq (and Saddam Hussein) did not gain the 9 percent of the world’s oil held by Kuwait. While the coalition stopped short of toppling Saddam, sanctions were imposed that severely weakened Iraq. The result was that when the US and its allies invaded Iraq in 2003, the Iraqis were unable to mount an effective conventional defence. While the US government has consistently denied that oil was a major factor in the campaign, Dick Cheney himself has linked the two. [22] Oil forms 95 percent of Iraq’s exports, and its reserves are the third largest in the world. [23] Coalition forces especially targeted oil infrastructure during their advance. [24] One example that stood out was the immediate seizure of the Iraqi Oil Ministry, which was then heavily guarded, while other essential administrative buildings were looted and destroyed. [25]

Outside of the Middle East oil has also had a hand in the development of conflict at all levels. Nigeria in particular is beset by struggles over control of its oil revenues, [26] while oil plays a major part in the civil wars and political unrest in the Caspian region, Venezuela, Columbia, Angola and the Sudan. [27] At the other end of the conflict spectrum was the unrest caused in Europe in 2000 by widespread protests over the price of fuel. [28] Protestors brought traffic to a halt throughout Britain, France and Spain, as they agitated for lower fuel taxes. While these conflicts did not result in the use of force, the protestors were clearly seeking to impose their will on their governments, and they used a wide variety of means to accomplish this, the blockading of oil installations being the most effective.

While oil has only been used by humans for a relatively short period of time, it has sparked a large number of conflicts. These have ranged from peaceful demonstrations through guerrilla insurgencies to full-scale conventional wars. Oil has become so important to human civilisation that conflict is often considered necessary to gain access and control over it. That critical importance continues to this day, and is likely to increase if current trends continue.


 

The Importance of Oil

Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world's economy… It is the basic, fundamental building block of the world's economy. It is unlike any other commodity. [29]

Oil is vital to the functioning of the world economy, and this section will analyse the essential role it plays in transport, agriculture, chemicals and the military.

Oil completely dominates the world’s transport systems. It provides 97 percent of the US’ transport fuel; in 2003 this was 14.1 million barrels a day, 66 percent of total US oil consumption, powering some 200 million vehicles. [30] Oil provides 98 percent of Europe’s transport energy, [31] and in New Zealand 85 percent of oil use is in the transport sector. [32] Worldwide there are an estimated 800 million cars, with this number expected to quadruple by 2050. [33] Every commercial plane in the world uses petroleum-derived fuel. The bulk of the world’s trade move on oil-powered ships, trucks and trains. Without oil these vehicles would be idle, and the world’s trade system would be impossible. Even simple domestic life as it is currently lived in the West would be impossible. The development of suburbs has resulted in a low-density sprawl around cities that is difficult to service with public transport. The only effective way for most people to socialise, shop or work is by car. Globally, commuting times are rising, as people live further away from their workplaces. [34] The way modern societies and economies are arranged makes oil’s role in transport essential.

The second vital use for petroleum is in food production, which has allowed the human population to increase almost three-fold since 1950. The mechanisation of farming during the 20th century resulted in a dramatic increase in crop yields. Since 1940, the productivity of US farmland has grown by approximately 2 percent a year, in line with increasing fuel consumption. [35] In addition to oil-powered machinery, this increase in food production has been based on fertilisers created with natural-gas, oil-based pesticides and diesel-powered irrigation pumps. The result is that modern food production is heavily reliant on oil, and that the energy put into food is much greater than the energy within that food. Every calorie of food produced has used 15-70 calories of fossil fuel energy. [36] In the US, it takes 3/4 of a gallon of oil to make a pound of steak. [37] This situation is also true of fishing, which is even more energy intensive than farming; fuel makes up to 30 percent of the operating costs for New Zealand fishing companies. [38] Without plentiful and cheap fuel, the world’s farmers and fishers will be unable to feed a growing population. This food production system is also reliant on a huge and comprehensive transport system to move produce from the farm to the shops, and from there to people’s homes. To feed over six billion people, oil is essential.

A third use for oil is as a feedstock in the chemical industry. Literally hundreds of thousands of products are made using petroleum; most plastics are oil-based, as are paints, inks, synthetic fibres, medicines, cosmetics, shoes, hearing aids, contact lenses… the list is seemingly endless. [39] Some products can’t be made without oil. [40] Oil is all around us, even when it isn’t being burnt in vehicle engines.

Militaries around the world depend heavily on oil, especially those in the developed world. The US in particular relies heavily on petroleum; the machines at the core of US combat power are all oil-powered. [41] A US armoured division will use up to 1,900 tons of fuel a day. [42] A single US aircraft carrier can use 6,500 barrels of jet fuel in a day. [43] In Iraq, the US military alone uses over four million gallons of fuel a day. [44] One analyst noted that “[o]il fuels more than automobiles and aeroplanes. Oil fuels military power, national treasuries and international politics. … [Oil] is a determinant of well being, national security and international security for those that possess this vital resource, and the converse for those that do not.” [45] Without large quantities of fuel, the superiority that modern armies have over their real or potential enemies is negated. Germany found this out to its cost in two World Wars, and the same situation applies today. Oil is a vital component of military power, and therefore a vital component of national power. [46]

Some analysts maintain that in the Information Age commodities are of less importance than they have been previously, or suggest that less oil is used per unit of GDP or mile driven than it was in the 1970s. [47] There has been an improvement in vehicle efficiency, but there has also been a reduction in fleet efficiency, as consumers moved from cars to four-wheel drives. US drivers are also driving further, from 1.5 trillion vehicles miles in 1982, to 2.5 trillion miles in 1995 (a trend that continues to rise). [48] ‘Energy efficiency’ means that economies are increasingly vulnerable to oil shortages than previously, as the loss of a given quantity of oil means the loss of even more GDP than would have been the case in the 1970s. [49] The ‘new economy’, based on finance, information technology and telecommunications is also heavily reliant on oil. The world’s trade flows now include information, software and media packages that can be sent electronically, but the vast bulk of the world’s goods are still physical, and these still require oil-powered transport. The telecommunications networks that underpin this ‘new economy’ are themselves reliant on oil-powered machines for construction and maintenance of lines. Finally, the components used to establish these networks are often made from petrochemicals. Without oil, these systems couldn’t operate at the same level and speed as they currently do.


 

A Shortfall In Supply

Oil’s status as a vital commodity and its historical link with conflict mean that the supply situation over the next 20 years is of some importance. If supply increases relative with demand, then oil is unlikely to be a leading cause of conflict, as consumers can simply purchase their requirements. But if supply fails to meet demand, then the reverse is likely to be true. The price will rise sharply, and some importers will be caught short, as the Japanese were in 1941. Importers might adapt successfully to their reduced access to oil, as Cuba did in the 1990s; others might fare as badly as North Korea has. [50] But some importers might seek to ‘impose their will’ on the situation, through economic, diplomatic and military means. A prolonged shortfall in the supply of oil will almost certainly increase the potential for conflict.

Unfortunately, the outlook for a balanced supply-demand situation is not good. Demand is increasing by approximately 2 percent a year, and this is expected to continue for the next two decades. [51] The Energy Information Agency (EIA), part of the US Department of Energy, stated in a case study that “… world oil demand grows from 80 million barrels per day in 2003 to 98 million barrels per day in 2015 and 118 million barrels per day in 2030.” [52] (my emphasis) The supply situation is not so promising. The EIA and the International Energy Agency (IEA), among others, imply that supply will rise to meet demand, but they do not specify how this will be done; it is always assumed. [53] It seems incredible that the future supply of this vital commodity is based on unsubstantiated assumptions, but that is the case.

In the last five years there has been a steady decrease in the amount of spare production capacity, which acts as a buffer against market disruptions. States with spare production capacity are referred to as ‘swing producers’, who can swing this spare capacity back online. The current assumption is that Saudi Arabia is the ‘swing producer of last resort’, with massive capacity available to supply the market. But this may not be the case. Energy expert Matthew Simmons, who methodically analysed Saudi production history, cast strong doubts on its ability to keep this role. [54] If Saudi Arabia cannot act as the swing producer, no-one can. Without spare capacity to make up for any production shortfall, the oil market becomes very volatile, as it has over the last three years. A hurricane in one region, internal conflict in another or terrorist attacks on a third can all lead to price spikes. This volatility also increases the influence and power of all producers, as can be seen with Russia’s energy dealings or Iranian and Venezuelan defiance of the US.

In recent years there has been an increasingly vigorous debate over the issue of ‘Peak Oil’. This refers to when global production of ‘conventional’ oil will reach the point where it can no longer increase, and begins to decline. It will not run out, but the amount able to be produced will inexorably lessen every year. Conventional oil is that which is readily accessible, easy to produce and of sufficient quality that it is easy to refine into products such as petrol, kerosene and diesel. [55] It is sometimes called ‘cheap oil’, because compared to other forms of oil it is much cheaper to produce. ‘Unconventional oil’, such as those formed from very deep water, oil sands or coal, are much more difficult and expensive to produce and cannot be produced in the same volumes.

‘Peak Oil’ was first developed as a theory in the 1950s, by a Shell geologist, M. King Hubbert. He noticed that an oilfield’s production would increase, often for decades, but eventually production would level off, and then begin to decline. This was usually at the point where the field had produced about half the oil that would be extracted. Technical improvements might delay this peak, but couldn’t prevent it. Noting that discovery in the continental US had peaked in the 1930s, in 1957 Hubbert estimated that continental US production would peak in the early 1970s. [56] At the time, the US was the world’s biggest producer, with production rising every year, and his prediction was ridiculed. However, Hubbert was validated in 1970, when US production did indeed peak. [57]

Peak Oil theory is based on the assumption that infinite growth is not possible in a finite system. It is an example of the environmentalist perspective applied to a specific subject. The arguments applied by Peak Oil proponents draw heavily on environmentalist concepts about the global economy and its long term sustainability. Their solutions, based on a planned decline in fossil fuel use, conservation and localisation of societies, are environmentalist in origin. Peak Oil is now a common cause among environmentalist groups around the world.

Subsequent analysts, such as Colin Campbell, have built on Hubbert’s work, and now seek to determine when global production will peak. [58] As Figure 3 shows, global discovery peaked in the 1960s, and despite forty years of technological advances and hundreds of billions of dollars in investment, humanity is finding less oil each year. Based on this discovery peak, analysts then estimated how much oil will actually be recovered. Campbell estimates a total recovery of 1.9 trillion barrels of conventional oil, plus 600 billion barrels of other fluids. [59] Humanity has used about 970 billion of these barrels already, meaning a peak in conventional oil production is imminent, if it has not happened already.

Figure 3: Global Discovery and Production (Source: ASPO)

In addition, the half that has been used is the ‘better half’; the oil that is of higher quality, easily accessible and found in stable polities. That which is remaining is of lower quality, in more difficult locations (such as the Arctic or deep underwater) and in regions of high political instability. In 2006, the EIA estimated that there were another 938 billion barrels yet to be discovered, but this is not being borne out by the discovery trend, which continues to fall. [60] The production of unconventional oil will blur the moment of peak, but won’t prevent it. Very few analysts, even critics, deny that Peak Oil will occur. The debate is now over when production will peak and whether there are adequate alternatives capable of replacing oil. Table 1 lists predictions from a number of sources. [61] Those predicting early dates for global peak tend to be independent geologists and energy investors. Those predicting later dates, past 2020, tend to be economists or oil companies. [62] Current oil fields are depleting at a rate of about 4-5 percent a year, which requires an equal amount of discovery just to maintain current production. Additional production is needed to meet new demand. One analyst, looking at the development of ‘mega fields’ has assessed that the supply situation is covered up until 2007, but from that point, and especially from 2010, the situation becomes ‘rather problematic’. [63] One thing is certain; according to the EIA, world production was largely stagnant in 2006, averaging 84.59 mbd for the first 10 months, versus 84.56 mbd for 2005. [64] This flattening of the production profile is consistent with Peak Oil theory, and the world may presently be at or about peak production.

Table 1: Projections of Peaking of World Oil Production
 
Projected Date Source of Projection Background & Reference
2006-2007 Bakhitari, A.M.S. Iranian Oil Executive
2007-2009 Simmons, M.R. Investment banker
After 2007 Skrebowsky, C. Petroleum Journal Editor
Before 2009 Deffeyes, K.S. Oil company geologist (ret.)
Before 2010 Goodstein, D. Vice Provost, Cal Tech
Around 2010 Campbell, C.J. Oil ompany geologist (ret.)

After 2010 World Energy Council Non-Government Org.
2010-2020 Laherrere, J. Oil company geologist (ret.)
2016 EIA nominal case DOE analysis/information

After 2020 CERA Energy consultants
2025 or later Shell Major oil company
No visible peak Lynch, M.C. Energy economist
(Source: Hirsch Report, 2005)

There are a number of arguments against Peak Oil. Some critics argue that technology or the free market will increase oil supply, or find alternatives. Critics point to previous incorrect predictions that oil was running short; the US Bureau of Mines predicted in 1914 that supplies would last only ten more years. [65] A report released in November 2006 stated that global oil production will increase until 2030, to be followed by an ‘undulating plateau’ rather than a peak. [66] This view is countered by a discovery trend that fails to match production. With declining production from existing fields and rising demand, oil explorers need to find up to 7 percent every year, something they have been failing to do for years. If oil production did increase, it must match the rise in demand if it is to prevent recession. An ‘undulating plateau’ would simply be Peak by another name.

The market is unlikely to respond to Peak Oil in a smooth manner. It is extremely volatile when supply is cut off or threatened, as the sudden price rises in 1973 and 1979 show. A rise in the price of oil may lead to more investment in exploration, but if there is not enough oil to be discovered (as the global trend suggests), this won’t increase production. One report has estimated that it will take 25-30 years for the world to transition to a post-petroleum footing. [67] However the market will not take action to transform until oil prices rise high enough to make this worthwhile. This creates a dilemma, because as the price rises, so does the cost of transition, as the new infrastructure will have to be made with oil-powered machinery. The market’s signals are too short-term to complete a decades-long project. Table 2 shows that the major oil companies are finding it very difficult to replace reserves despite their huge exploration budgets. [68] These companies have also failed to build new refineries in the United States since the mid-1970s, despite increasing demand in the world’s single biggest market. [69] The clear market signal given by historically high prices is being ignored.

Table 2: Major Oil Company Reported Reserves 2004-5
 
Reported Reserves Mb 2004 2005
Exxon-Mobil 11651 11229
BP 9934 9565
Shell 4888 4636
Total 7003 6592
Chevron-Texaco 7973 8000
Total 41449 40798
(Source: ASPO, 2006)

Technical advances in oil exploration and production are unlikely to raise production further. After 150 years, humans are now extremely proficient at finding and producing oil: “…[P]rogress has been going on for a long time, and there is little expectation that something dramatic will come riding to the rescue as world oil production starts to decline.” [70] This is hard for Westerners to comprehend, as 500 years of technological advancement has left us with a deep conviction that all problems have a technical solution. Yet, the US, the richest and most advanced of the oil producers, has experienced continually declining production following its 1970 peak, despite higher prices and improving technology, as shown on Figure 4. [71] Many of the technical developments of the last 40 years are already in use; pumping water or gas into the oil reservoir to raise the field pressure is in widespread use around the world. [72] Advances in seismic imaging and other exploration techniques have failed to lift the discovery rate since its peak in the 1960s. The world has now been extensively mapped, and geologists can be certain whether an area may or may not contain oil. Much effort is being expended on Arctic and deepwater explorations, but the technical and logistic obstacles facing these developments are such that they are not considered to be ‘conventional oil’; they are certainly not cheap oil.

Figure 4: Continental US Production and Prices
(Source: The Hirsch Report, 2005)

Alternative fuels are often mentioned as a replacement for oil. Oil is not important in itself, but for its characteristics; as a liquid fuel for machinery, available in massive quantities, affordable, with a high energy-density and tolerance for normal atmospheric conditions. It also has an established infrastructure to refine, transport and use it. It has taken decades to establish this infrastructure, costing a vast sum of money. If these qualities could be reproduced with alternative sources, such as hydrogen or biofuel, then oil’s importance as an energy source would fade, as would its potential for conflict. Unfortunately the alternatives to oil are unsatisfactory, either individually or collectively; technical solutions will not ‘save the day’.

In the past humanity has transitioned from one energy source to another, but always from a poorer source to a richer one. [73] A key concept when considering energy sources is that of Energy Returned On Energy Invested (EROEI). [74] In 1916, 28 barrels were produced in the US for every barrel expended. By 2004 that ratio was 2:1. [75] When it takes a barrel of oil to extract a barrel, oil will become useless as an energy source, no matter what the price is in dollar terms. This is a key question for every alternative energy source; will more energy be gained than it took to produce it? The case for oil alternatives has been assessed and dismantled by a number of writers. [76] While it is technically possible to use algae to produce biodiesel, or to extract synthetic oil from coal, whether this is logistically and economically feasible is another matter entirely. We are unlikely to turn algae, coal or every other alternative source into enough energy to make up for falling oil production. Alternative energy sources will be useful, and will help to mitigate the impact of a permanent oil shortage, but even together these energy sources cannot replace oil in a seamless transition.

Governments will undoubtedly take action to meet a shortfall in oil production. After the 1973 oil shock, the OECD nations formed the IEA to manage further crises. The New Zealand government pursued the ‘Think Big’ programme, which proved to be an expensive failure when oil prices slumped in the 1980s. The problem with such programmes was the timing. Governments mistook politically motivated embargoes to mean permanent shortages were immediate. When prices dropped, governments were caught out. The effect 30 years later is that many politicians are reluctant to invest large sums to prepare for impending oil shortages. But unlike the 1970s, future shortages are likely to be imposed by geology, not by reversible political actions. Some states are aware of this, and are purchasing oil interests and increasing emergency reserve holdings. Most others, including New Zealand, seem oblivious.

Figure 5: Oil Prices and US Recessions: 1969-2003
(Source: The Hirsch Report)

The effect of a peak in global oil production will be negative. If there is less oil available every year, the global economy will not be able to grow, unless massive and ongoing efficiency gains are made. Oil is so vital that even a 2-5 percent shortfall is enough to produce a price spike, which in turn usually leads to a recession, as Figure 5 shows. [77] The price shocks of 1973 and 1979 contributed to the recession and inflation of the 1970s and early 1980s. Each US$10-increase in the price of oil “[w]ill knock 0.5 percent from world growth, 0.5 percent from New Zealand growth and add 0.8 percent or so to inflation within a year.” [78] As production and transport costs go up, so do costs for consumers, who therefore consume less. This affects every sector; agriculture, [79] manufacturing [80] and especially those relying on discretionary income (such as tourism). Once global oil production peaks, the general trend will be a long and steady increase in the price of oil, unless this is matched by reduction in demand and/or production of alternatives. Unfortunately, any reduction in demand will be made by reducing energy for transport, agriculture and petrochemicals. This will lead to a steadily falling standard of living, and a reduction in global food production, with the prospect of increasingly severe famines.

Peak Oil will have a profound effect as the shortfalls in supply it will create will result in ever-increasing economic disruption. The effects are further highlighted by the role that resource shortages play in creating conflict. “Competition for resources typically lies at the heart of ethnic conflict… Periods of declining growth…, can exacerbate and heighten inter-group tensions”. [81] As oil becomes more expensive and scarce, it can be expected that ‘inter-group tensions will be exacerbated and heightened’ at all levels, from the international stage down into cities and neighbourhoods.

 

Oil and Geopolitics

Whatever a given nation’s official take on the crisis may be…all will be players in the ensuing contest for the remaining supplies of oil. [82]

The result of a shortfall in global oil supply will be an increase in geopolitics, “political and economic rivalry among the great powers”. [83] Conflicts over oil will take all forms. Importing states will compete for diminishing supplies, or seek to control reserves in exporting countries. Nations dependent on long supply lines will be drawn into any conflict that threatens those supply lines, whether this is oil related or not. Intrastate conflicts can be expected to increase in exporting nations as internal tensions increase, exacerbated by outside involvement. Conflict will occur even in the developed world, as some social groups bear a disproportionate part of the economic costs. Unless there is a unified international response to this situation, such as that outlined in the Uppsala Protocol, [84] the next two decades can be expected to consist of steadily increasing international, regional and national conflict.

This section will assess the supply, consumption and transport of petroleum as potential causal factors in conflict. As global oil production reaches a peak, those regions that can still export sizable quantities will gain ever greater strategic importance. This importance will result in increasing attention, and with it, a greater potential for conflict between importing nations. Four factors are important in any analysis of future oil suppliers. These are the location of global reserves, the size of a country’s reserves, the country’s production rate and ability to increase this, and the country’s domestic consumption, and capacity to export.

States with large reserves, low domestic consumption and the ability to increase exports will be the focus of interest for future consumers. Production, and the ability to increase it, depends on the internal stability of the nation and its external threats. These factors will be used to assess the world’s main oil producers. Table 3 lists the top 15 producers and exporters in 2004. While China, the US and the UK are major producers, their consumption exceeds production, making them net importers.

Table 3: Top 15 Reserves, Producers and Exporters, 2005 [85]
 
Reserves (billion barrels)   Producers (mbd)   Exporters (mbd)
Saudi Arabia 264.2   Saudi Arabia 11.04   Saudi Arabia 8.86
Iran 137.5   Russia 9.55   Russia 6.71
Iraq 115.0   USA 6.83   Norway 2.98
Kuwait 101.5   Iran 4.05   Iran 2.53
UAE 97.8   Mexico 3.76   Venezuela 2.40
Venezuela 79.7   China 3.63   UAE 2.36
Russia 74.4   Canada 3.05   Nigeria 2.20
Kazakhstan 39.6   Venezuela 3.01   Kuwait 2.16
Libya 39.1   Norway 2.97   Mexico 1.93
Nigeria 35.9   UAE 2.75   Algeria 1.69
USA 29.3   Kuwait 2.64   Iraq 1.40
Canada 16.5   Nigeria 2.58   Libya 1.37
China 16.0   Algeria 2.01   Kazakhstan 1.10
Qatar 15.2   Iraq 1.82   Angola 0.95
Mexico 13.7   UK 1.81   Canada 0.88

As shown on Map 1, oil has a very uneven distribution. The greatest proportion is concentrated in the Middle East, with smaller (though still significant) concentrations in Russia, the Caspian, the North Sea, Venezuela/Columbia, Mexico, Canada, and West Africa.

Map 1: Location of the World’s Oil Reserves
(Source: Public Broadcastig Service)

The Middle East, containing 66 percent of the world’s reserves and 30 percent of its production is the focus point for any geopolitical discussion concerning oil. Saudi Arabia in particular dominates the table and any discussion about oil. Significantly, the Middle East has the theoretical capacity to greatly increase production, based on its large reserves. The Gulf States’ share of world production is expected to rise from 27 percent in 2000, to 36 percent in 2025 and 43 percent in 2030. [86] Most of this oil is available for export due to low domestic consumption.

However, even in the Middle East there are major problems with increasing oil production. It is estimated that the Gulf States will have to spend some $523 billion dollars by 2030 in order to meet rising demand and make up for falling production elsewhere; from 24 mbd in 1999, to 44.5 mbd in 2020. [87] Even for the Middle East, this is a prodigious sum. Allowing foreign investment, an option advocated by the Bush Administration, is strongly resisted. [88] Oil is the only real asset most of these countries have, and they are not prepared to share their wealth with foreign companies as they did (or were forced to do) in the past. It may also be physically impossible for them to substantially increase production. [89] Some of the largest fields, such as Burgan in Kuwait and the Iranian giants, have already passed peak production. The Saudis may also be struggling to simply maintain current production, let alone to increase it. [90] Iran’s production is in decline, possibly 10 percent a year, partly because of sanctions and partly because of a lack of investment. [91] Iraq’s oil production has collapsed since 1989, following three wars and more than a decade of sanctions. Iraq produced 3.5 mbd in 1979, but only 2.6 mbd in 2000, [92] and has since dropped to between 2.1 and 2.47 mbd. [93] A primary aim of the Iraqi government and its US supporters is to raise production to 6 mbd by 2012. [94] Given Iraq’s current chaos, it is difficult to see how this can be achieved.

In addition, the oil reserves in the Gulf may not be as large as reported. As Figure 6 shows, in the mid-1980s, there were a number of jumps in the levels of reported reserves, at a time when oil prices were low and OPEC quotas were based on reserves figures. [95] No major discoveries were announced to explain the 300 billion-barrel-increase, and these numbers have been accepted by analysts ever since.


Suspicious jump in reserves reported by six OPEC members added 300 billion barrels of oil to official reserve tallies yet followed no major discovery of new fields.
Figure 6: OPEC Oil Reserves 1980-97
(Source: Colin J. Campbell and Jean H. Laherrer, 1998)

It may be that the Gulf states simply raised their reserves figures in a bid to increase their quotas.

Despite the huge arms purchases of the 1990s, the region is militarily weak, at least in a conventional sense and are vulnerable to external threat. [96] Middle Eastern states continue to rely for support and protection on outside powers, especially the US, Russia and China. A final point to note is that the bulk of the Middle East’s oil is located in a relatively small area. The Kuwaiti, Saudi and Qatari fields all fit into a “…mostly shallow coastal strip less than 400 miles in length”. [97] Iran’s main fields, those in southern Iraq and the UAE all adjoin this ‘strip’, making it the most concentrated energy reserve on Earth. [98] The size of its reserves and production, low domestic consumption and the potential to increase exports are what makes the Middle East stand out as the main arena for any potential conflict concerning oil.

Unfortunately, the Middle East is highly unstable, along a number of fault-lines. The major oil producers are authoritarian regimes with very uneven distributions of wealth and high birth rates, leading to a large pool of underemployed young men. Saudi Arabia is the single most critical state, and also one of the most unstable. Its population has risen from six million people in 1970 to 22 million in 2000. It is forecast to rise to 50 million by 2030. The bulk of the population is under the age of 30, and the pressure placed on the Saudi government to care for this burgeoning population is increasing every year. The income per capita, once one of the highest in the world, is falling, even as oil prices rise. [99] This has created a fertile breeding ground for Islamic fundamentalists. The Saudi royal family has long financed clergy of the Wahhabi sect, a particularly fundamentalist Islamic movement, in return for their support, which is becoming ever more uncertain. Groups such as Al Qaeda have gained a great deal of their finance, recruits and support from Saudi Arabia. Claims that the Saudi military and security forces are infiltrated by Al Qaeda and its allies are of concern. The Saudi royal family, dominated by some 7,000 princes, is itself factionalised, with no clear successors to the current King (Abdullah, 82) and Crown Prince (Sultan, 78). Who will replace Sultan, and how, is far from clear.

Saudi Arabia also holds Mecca and Medina, Islam’s two holiest sites. When US forces were based there following the First Gulf War, one of Al Qaeda’s key demands was for their withdrawal from such holy ground. This ‘occupation’ prompted a series of attacks throughout the 1990s, leading to those on 11th September 2001. [100] The US has maintained a very close relationship with Saudi Arabia since at least 1945. [101] This is based on US protection against internal and external enemies, in return for a steady flow of Saudi oil onto the world market. This situation has been greatly beneficial to the Saudi royal family, the US and the world in general, allowing the former to rule Saudi Arabia, and the latter to gain access to cheap oil. This relationship means that those groups targeting the Saudi royal family, such as Al Qaeda, have also come to target the US too. Any internal conflict within Saudi Arabia is certain to involve the US, and most likely other Western nations, as they seek to protect their access to Saudi oil. With 25 percent of the world’s reserves, and 12 percent of production, Saudi Arabia is too rich a prize to let go, either to native Saudis (who are likely to be Islamic fundamentalists) or to foreign powers, such as Iran, Iraq or China. This willingness to become involved in Saudi affairs has been expressed on many occasions by the US government. In 1981 President Reagan stated “There is no way that we could stand by and see [Saudi Arabia] taken over by anyone who would shut off the oil”. [102] In 1990, following the Iraqi invasion of Kuwait, President H.W. Bush declared that “…the sovereign independence of Saudi Arabia is of vital interest to the United States”. [103] This interest of the US in Saudi Arabia’s oil continues to this day.

The other Gulf producers (Kuwait, Qatar, the UAE and Oman) are in a similar situation to Saudi Arabia. Islamic fundamentalists also target these states, accusing them of the same complicity with the West as they do the Saudis. The Shiite sect of Islam, a minority in most Arab nations, is largely concentrated around the Gulf. In the West, Shiites are (rightly or wrongly) associated with Islamic fundamentalism and an anti-Western bias. This is of concern for Western nations, because the distribution of Shiites matches that of oil, as Map 2 shows.

Map 2: Shi’a Distribution Throughout The Middle East
(Source: peoplesandcultures.blogspot.com)

In most Arab Gulf states, including Saudi Arabia, the Shiites are repressed. This means that any revolt against the government is likely to include Shiite militants who, by virtue of their location, may control some or all of the oil.

The chaos in Iraq is already well documented. What is happening there could be repeated elsewhere in the Gulf, which is the chief fear of the pro-Western regimes in the region, especially those with sizable Shia populations. Iran is more stable than most of the Gulf states, but it too has a young, underemployed population facing worsening economic conditions. The mullahs are not universally popular, and while a civil war there is unlikely, internal conflict could increase, especially with US involvement.

In summary, the Middle East is vital for world oil production, and will gain even more importance in the future. But this rests on an increasingly unstable base of uneven wealth, increasing population, political instability, religious fundamentalism and uncertainty about the true state of the region’s oil reserves.

The situation is not much better in other oil-producing regions. The Caspian basin oil reserves, initially announced at 200 billion barrels in the 1990s, have been amended to 48 billion barrels in 2004. [104] The interest in the Caspian region comes from its ability to expand production, from 1.1 mbd in 1997 to a projected 6 mbd by 2020. [105] Internal consumption is low and, theoretically, exports will increase. However, the region is riven with ethnic conflicts, including those in Chechnya, Abkhazia, Georgia and Nagorno-Karabakh. Kazakhstan, Azerbaijan and Uzbekistan are dictatorships, with an undercurrent of dissent met by harsh repression. There is also economic and diplomatic conflict, as the US, Russia and China vie for influence. All three are arming the region, sending in weapons and advisors. As an oil producer for the future, the Caspian region has the potential to increase production, but this will depend on how stable the region can remain.

A recent Reuters article noted: “The Gulf of Guinea, which includes oil producers like Angola, Nigeria, Equatorial Guinea, Congo Republic, Gabon and Cameroon, supplies around 15 percent of U.S. crude oil consumption”. [106] US oil imports from the region are expected “…to rise to 25 percent by 2015, as the US tries to reduce its reliance on Middle Eastern exporters.” The Gulf of Guinea is a rich oil region, with about 50 billion barrels in reserves. [107] Production is around 3.2 mbd but projected to rise to 7.2 mbd by 2025. [108] This region has a rapidly growing population, but poverty, debt and conflict means that internal demand will not rise by the same margin. [109] The result could be an increase in export capacity, making the region attractive to oil companies and governments alike. In 2004, West Africa supplied China with 17 percent of its imports. [110] India is also interested in the region, as it too seeks to secure its oil supplies and diversify away from the Middle East, resulting in economic clashes with China. [111]

All of this interest is threatened however by the region’s political and ecological instability. West Africa has a very high birth rate, and the increasing population puts huge stress on the local environment, economies and governments. Corruption, bureaucratic mismanagement and ethnic conflicts reduce the ability of governments to care for their people or to allocate oil revenues. Robert Kaplan, in The Coming Anarchy, describes a West Africa falling into chaos; “…the withering away of central governments, the rise of tribal and regional domains, the unchecked spread of disease and the growing pervasiveness of war.” [112] The chronic instability is endangering attempts to increase regional oil production to 7.2 mbd by 2025. Nigerian production has suffered over the past two years due to attacks by bandits, strikes and resistance by disenfranchised locals. This has lowered oil production by 10-25 percent on occasion, and the situation is worsening. [113] Angola is still recovering from a 27-year civil war, and is plagued by corruption in its oil industry. [114] Across the continent, Sudan is currently in the throes of a vicious civil war in Darfur. Here, the outside involvement is likely to be Chinese and Indian, as these states back the Sudanese government. This civil war, which has been going on for decades, shows no signs of ending, but this is no concern of the Chinese. [115] Like the western oil companies in Nigeria, their sole focus is the acquisition of oil, which takes priority over everything, including matters such as human rights violations. Like the Caspian basin, Africa has the potential to increase exports, but this potential may not be realised.

Venezuela and Columbia have 80 billion barrels in reserves, in addition to Venezuela’s huge heavy oil deposits. [116] Their current production is around 3.4 mbd, which the EIA projects to grow to 6 mbd by 2025. However, along with the rest of South America, their consumption is expected to rise even faster, reducing their export potential. [117] In addition, both countries are wracked with political instability. Columbia is suffering from a civil war between government forces and Marxist rebels, exacerbated by the narcotics trade, which funds criminal cartels, right-wing death squads and the rebels themselves. The guerrillas target oil infrastructure, which funds the government. The fighting also reduces Columbia’s exploration efforts. With likely oil prospects lying in rebel-held territory, exploration costs are likely to be prohibitive. The US has long supported the Columbian government, giving military aid, advisors and training in order for it to reduce the flow of drugs and increase the flow of oil. [118]

In Venezuela, the populist regime of Hugo Chavez has taken a strong anti-US line, whilst resisting a number of attempts to topple it. Demonstrations, an attempted coup and continual political turmoil mean that Venezuela is not entirely stable. This instability has reduced Venezuelan production, as the oil industry’s technicians and managers are drawn from the richer part of Venezuelan society which opposes Chavez; many have been replaced by less competent, but politically reliable staff. [119] China has taken advantage of this situation to secure Venezuelan oil. [120] However, Venezuela may not be able to export oil in the same quantities for long. It recently purchased oil from Russia to meet contractual obligations, mainly as a result of “declining domestic output”. [121] Chavez’s legitimacy is based on reforms aimed at improving the living standards of Venezuela’s poorer classes. With Venezuelan production declining, and the revenues from its oil industry being used on a number of foreign policy projects, [122] it is not certain if this reform programme will meet expectations. Declining production, increasing domestic demand, political turmoil and a civil war in Columbia combine to make this region’s capacity to expand exports over the next 20 years highly unlikely.

Russia has emerged since 2000 as a major factor on the international energy market. Production in Russia peaked in 1986 at 11.5 mbd, and slumped during the 1990s to 6.1 mbd. [123] Investment and government support revived the industry, and by 2004 it had risen to 9.5 mbd. However, this is merely an approach to a second peak in Russian production. Russia’s giant fields are all aging, and most have already peaked. Discovery rates are low, and the increase in production has been attributed to replacement of obsolete equipment and better oilfield management. In 2005, the Energy Minister stated that Russian oil production could peak at 510 million tonnes a year by 2010, a 10 percent increase on current levels. [124] Even the optimistic EIA projects Russian production to increase up to 11.6 mbd by 2025, an increase of 2.1 mbd, or enough to meet one year’s increase in global demand. [125] In addition, Russia’s economy is recovering from the turmoil of the 1990s, and its oil consumption may rise sharply. [126] With production that is unlikely to increase past 2010 and consumption that may increase, Russian ability to fulfil the shortfall in oil supply is limited.

Unlike other major exporters, Russia is invulnerable to any military threat, even from a coalition of other great powers. Its nuclear arsenal, huge conventional forces and immense size mean that an attempt to seize Russia’s oil is highly improbable. Conflict over Russia’s oil reserves will largely be economic and diplomatic in nature. Due to its central position, Russia can play China, Japan and Europe against each other, to ensure that it receives the best possible price for its oil. [127] The issue for these importers is that Russia’s government has begun to use energy as a foreign policy tool. It suspended gas exports to the Ukraine in 2006, [128] and recently cut oil exports to Belarus, affecting other customers in Europe. [129] These are signs that Russia will make use of its energy reserves to achieve its foreign policy objectives. Russia is one of the few states with substantial, exportable quantities, and though the EU, Japan and China seek to diversify their energy sources, they are likely to find themselves increasingly dependent on Russia. This will almost certainly carry an increasing economic and diplomatic cost.

Other exporters, such as Algeria, Libya and Mexico will have problems making even minimal production increases. The EIA estimates that combined Libyan and Algerian production will rise by 700,000 barrels to around 3.7 mbd by 2025. Most of this extra production will be lost to domestic consumption, as their combined population increases from 38 to 50 million. [130] While the government in Libya is stable, once Muammar Gaddafi dies, this may not continue. Algeria is currently under military rule, and recovering from a bitter civil war against Islamist guerrillas. The root causes of this conflict have not been addressed, and may flare up again.

The EIA predicts that Mexico’s production will rise by 1 mbd by 2025, but 900,000 barrels will be needed to meet increased domestic demand. Mexico’s largest field, Cantarell, provides 60 percent of Mexico’s production, and has now peaked. PEMEX, the Mexican state oil company is increasing its exploration effort, but “…the smaller fields PEMEX is tapping may not be enough to make up for the output reduction in Cantarell, which is forecast to decline at rates of more than 10 percent in later years.” [131] Foreign investment in Mexico is forbidden by the constitution, and PEMEX is unlikely to raise the funds to do so alone. Mexico’s ability to increase future exports is limited.

Oil does not always cause political instability, as shown by the major exporters in the developed world. However, both Canada and Norway will struggle to increase production. Norway is about to follow the same path as the UK, with whom it shares the North Sea. [132] British production is declining rapidly, down from 137 million tonnes in 1999 to 84 million tonnes in 2005. [133] Canada has the oil sands in Alberta, but this is extremely energy intensive, and will not be able to increase production enough to compensate for increasing demand. The EIA projects Canadian production to rise by 1.6 mbd, but increased Canadian consumption will take a quarter of this. The resulting 1.2 mbd increase is equal to nine month’s increase in global demand. While both states lack the corruption, conflict and wealth disparities that plague the other major exporters, neither will be able to contribute much to fill the developing supply/demand gap.

Geopolitical conflict is also possible over the distribution of oil. If important transit routes are blocked for extended periods, the level of production becomes irrelevant as supply is cut off. Currently there are a number of routes through which large volumes of oil moves on a daily basis. The most critical of these is the Straits of Hormuz, at the mouth of the Persian Gulf, which are only 34 miles wide at their narrowest point. Figure 7 shows that 80 percent of Persian Gulf oil is exported via these straits; [134] about 15 percent of total world production. “Closure of the Strait of Hormuz would require use of longer alternate routes (if available) at increased transportation costs.” [135] The keywords here are “if available”. The other routes from the Persian Gulf are unlikely to handle the increase in volume. [136] A closure of the Straits of Hormuz would reduce the amount of oil on world markets, and send the price soaring. There are a number of territorial disputes over the Straits; the most notable being a dispute between Iran and the UAE over islands in the Straits’ shipping channels. [137]

Figure 7: Persian Gulf Oil Exports by Route, 2001
(Million Barrels per day) (Source: EIA)

Other routes stand out as potential chokepoints. The Suez Canal and the Bab al-Mandab strait control the sealane from the Indian Ocean to the Mediterranean. If either were closed, tankers would be forced to sail around Africa, adding to transit time and cost. The shipping routes through the South China Sea are vital for the nations of East Asia. “[These] nations are heavily dependent upon energy shipments through the South China Sea. More than 80 percent of the crude oil supplies for Japan, South Korea, and Taiwan flow through the Sea from the Middle East, Africa, and… nations such as Indonesia and Malaysia.” [138] China’s imports from Africa and the Middle East travel the same route. A regional conflict might close this route completely. Any event that threatened access through the South China Sea would immediately draw Japanese and South Korean attention, as well as that of the US. While the effect of these closures would be less than that of the Straits of Hormuz, a spike in oil prices could be expected if any were to happen.

A key difficulty with Caspian oil is its transport to consumers. Russia wants the Caspian nations to use the (Russian controlled) ex-Soviet pipeline system. Iran also wants the Caspian nations to use its pipes for export. To evade these controls, the US government supported the building of the Baku-Tbilisi-Ceyhan pipeline (BTC) to carry oil from the Caspian via Georgia to Turkey’s Mediterranean coast. The pipeline passes through or near disputed territories and is a potential target for factions seeking to undermine local governments. Attacks on the BTC pipeline are quite possible, and is the reason why defending it is a high priority for regional militaries. A proposed pipeline through Afghanistan was the subject of negotiations between Unocal and the Taliban in the 1990s, but has since become implausible, due to the ongoing fighting. [139]

After assessing each region of the world, it is clear that the Middle East will be the prize, and the likely main arena, for any conflict over oil reserves during the next 20 years. The sheer size of its resources means that as supply outside the Middle East peaks and then begins to decline, consumer nations will look there to make up for their growing demand. Other regions will still have importance, especially as global production peaks, because even a declining producer can still meet some demand. The EIA optimistically predicts that the greatest export growth will come from the Middle East (9.8 mbd), Caspian basin (5.6 mbd) and West Africa (4 mbd). These regions, plagued by weak and unpopular governments, religious and ethnic conflict, corruption and poverty, are highly unstable and are not likely to make the prodigious increases in production required to meet world demand. They are also highly susceptible to great power interference. Regions that don’t produce oil, but through which it transits, will also be affected as rebels target oil transit revenues paid to governments. In summary, it appears that the world’s producers will be hard-pressed to meet the demand growth forecast over the next 20 years. Analysis of the major consumer nations will show where that demand is coming from, and how they might ensure security of supply.


 

Consumption

The problems posed by increasing demand cannot be underestimated. The demands of millions of people in China, India and Latin America will lead to either a serious energy shortage or energy wars that may well have a profound effect on the world. [140] The bulk of the increase in demand comes from North America and Asia, as Figure 8 shows. [141] These two regions are net importers, as are Europe and OECD Asia, the third and fourth largest consuming regions. The EIA projects that the US will require an extra 4.4 mbd by 2025, the EU an extra 2.1 mbd; India will need 1.2 mbd, while China will require an enormous 7 mbd. [142] Of the major consumers, only Japan is predicted to remain flat. The US, the EU, China, Japan and India, are the biggest consumers, the biggest importers, and with Russia, the most powerful players on the international scene. They have the diplomatic, economic and military means to influence international affairs, as they seek to gain some security of supply. While other states require oil as well, they do not have the equivalent ability to ensure this.

Figure 8: World Oil Consumption
by Region, 2003 and 2030

(Source: EIA)

North America will continue to dominate world demand. US production will continue to decline, [143] while Canadian and Mexican exports won’t keep pace with rising US demand. The US will use 26.1 mbd of the 31.5 mbd projected to be consumed in North America in 2025. Currently the US imports the bulk of its oil from Mexico and Canada (26 percent), Venezuela (11 percent), Nigeria (8 percent), and the Middle East (20 percent), as Figure 9 shows. [144]

Figure 9: U.S. Crude Oil Imports by Source
(Million Barrels per Day) (Source: EIA)

Over time the US will rely more on the Middle East to supply its increasing needs. The Bush Administration, with its extensive energy industry background, is aware of the dangers of relying too heavily on Middle Eastern oil. [145]

The National Energy Policy (NEP) released in May 2001, shortly after President Bush’s inauguration, attempts to address this danger through a strategy of ‘import diversification’. The NEP discusses renewable energy and conservation, but these have been sidelined since the reports release. In April 2001, Vice-President Cheney stated: “Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy”. [146] Chapter Eight, “Strengthening Global Alliances”, is in many ways the most important part of the Policy document, containing 35 of the 105 recommendations in the report. It recommends that the US encourage increased production, particularly from non-OPEC exporters, and that the US lobby all oil producers to allow foreign investment in their oil industries. [147] It also recommends that energy security becomes a priority for trade and foreign policy. The US government has put these recommendations into action, particularly persuading oil producers to increase their production and accept foreign investment. Efforts along these lines have been made in Iraq, and were a key recommendation of the Iraq Study Group report published in December 2006. [148]

The US cannot become energy independent, at least in the timeframe covered by this paper. The US way of life is too heavily reliant on imported oil for this to be changed. [149] It has also been declared to be “non-negotiable”, [150] and while political rhetoric discusses conservation and alternate energy, the basic living arrangements (suburbia, car-centred cities, and high personal consumption) are never subject to debate. The underlying assumption is that these will remain as they are. However, this way of life relies to an ever greater degree on imported oil. With most of the world’s oil exporters unstable to a varying degree, the US response has been to “securitise” its energy policy, making it a matter of national security and a key objective of defence and foreign policy. Michael Klare’s book Blood and Oil specifically addresses this phenomenon, from the start of US-Saudi relations, through to the invasion of Iraq in 2003. The US has long supported friendly governments, regardless of their legitimacy or human rights records, in order to gain access to cheap and plentiful energy. Huge arms shipments have been made to oil producers, especially those in the Persian Gulf, usually accompanied by US military advisers. [151] US leaders and officials since 1945 have stated on many occasions that the nation’s oil supply is a matter of national security. It means, quite simply, that the US can and will fight for oil if deemed necessary.

In summary, the US will continue to demand more oil, while its own production declines. The US way of life is “non-negotiable”, but is dependent on imported energy. This energy is vital, and its security is a national security matter. The US military remains the most powerful in the world, and whether it will be used to secure America’s oil supply depends largely on whether the US decides this is necessary. International opinion may not sway the US government, because as Colin Powell stated in 2003, prior to the invasion of Iraq, “[w]e will act even if others are not prepared to join us.” [152]

Like the US, Europe cannot become self-sufficient in energy, especially oil. The European Commission’s Green Paper on Energy states: “… current trends would indicate that consumption in Europe will increase appreciably… The exhaustion of internal resources will also heighten dependence on outside oil.” [153] The EIA predicts European imports to rise by 2.7 mbd by 2025. [154] The EU imports most of its oil from OPEC, Norway and Russia; imports making up about 57 percent of consumption. [155] This is expected to rise to around 80 percent by 2025, mostly from the Middle East. European consumption is more efficient than that of the US, but though Europeans might need less oil than their US counterparts, they still need some 17 mbd to function. Europe is dependent on Russia and Algeria for much of its energy, and this dependence on two potentially unreliable suppliers has led the EU to adopt two “risk reduction’ strategies”. [156] One is to lock-in supply through the use of treaties and partnership arrangements. The second is to prepare reserve stocks and measures to cope with a supply crisis, such as the oil shocks of the 1970s. The first strategy is of limited effect, as laws and treaties can be flouted. Russia has not even ratified the Energy Charter Treaty guaranteeing energy investments and allowing transit of oil and gas across its territory. [157] The second strategy is a stopgap measure that might manage a crisis, but does not address the long-term issue of increasing European reliance on foreign energy.

Figure 10: Origin of European Oil Imports, 1999
(Source: European Commission, 2000)

A third response discussed by Susanne Peters is a “geopolitics of energy”. This uses Western diplomatic, economic and military power to ensure that the West has energy. Europe currently does not have the military strength to follow this strategy. It lacks ‘power projection’, the ability to move and supply military forces over inter-continental distances. Europe’s military weakness has resulted in a need to use ‘soft power’ to accomplish its aims, hence its use of treaties and agreements to guarantee energy supplies. [158] However, Europe may develop its military in the future, or ally itself more closely with the US in order to project power. If the strategies of crisis management and international law prove to be inadequate, then Europe will find itself in a similar situation to the US. Reliant on foreign energy for its prosperity, or even for its very survival, Europe may develop the capability to ‘acquire’ energy. The beginnings of this can be seen as European troops currently serve in Afghanistan under NATO control, and forces are earmarked for possible intervention. [159]

Japan has always relied on foreign oil, possessing almost no domestic oil reserves. [160] As Figure 10 shows, Japan consumes some 5.3 mbd, over 99 percent of which is imported. [161] This has resulted in a very efficient use of energy in Japan, as the Japanese have sought to reduce this reliance. Japan’s imports come mainly from the Middle East. Japan is therefore deeply interested in anything that might threaten this supply, whether at the production source, or along the transport routes. In recent years Japan has sought to diversify its supply sources, seeking contracts with Russia, Azerbaijan and Kazakhstan. Japan is in many ways similar to Europe; lacking the military ‘hard power’ to back up its negotiations, it relies on international law, contracts and its considerable economic strength to secure energy.

Figure 11: Japan’s Oil Production and Consumption,
1986-2006
(2006 is forecast) (Source: EIA, November 2006)

Japan does have a strong military, but this is limited by law to self-defence only. The result is that the logistical infrastructure needed to project this strength has been purposely undeveloped. However, just as Europe could develop this capability if the need arose, so can Japan. Over the next 20 years, the Japanese may find that contracts and treaties will not be enough to guarantee supply. While the Japanese have made huge efficiency gains in their use of oil, they need a certain quantity for prosperity and survival. A reinvigorated Japanese military, backed up by one of the world’s strongest economic and industrial bases, could be used to ensure access to oil.

China and India are often mentioned together as the main drivers for increasing oil demand. As Figure 12 shows, energy demand in these two nations is set to rise greatly over coming years, especially in China. The EIA estimated that China’s oil consumption increased by almost 500,000 barrels per day in 2006, or 38 percent of the total growth in world oil demand. [162] Chinese imports are now behind only the US and Japan’s; if current trends continue, Chinese imports will exceed the US by 2030. [163] By some measures, China now has the second largest economy in the world, fuelled by almost unprecedented growth. It needs oil to improve its standard of living of its people, and like the US, this is “non-negotiable”. The government’s legitimacy is based on economic growth, and improvements are needed to avert social unrest. This raises the possibility of a competition between China and the US as new sources become ever fewer.

Figure 12: Energy Consuption, China and India (1970-2020)
(Source: U.S. Department of Energy, EIA)

Energy is a major factor in Chinese strategy. Thomas Friedman noted that, “China’s foreign policy today consists of two things: preventing Taiwan from becoming independent and searching for oil.” [164] With a positive trade balance worth hundreds of billions of dollars, China has used its new wealth to aggressively secure energy contracts in all corners of the world, especially from Russia. [165] “Chinese state-owned companies have signed a multibillion-dollar string of deals in recent months to develop oil and gas fields and buy fuel supplies from countries as far-flung as Sudan, Venezuela and Australia.” [166] China has gained deals with Iran and Venezuela, as well as buying shares in the companies working the Canadian oil-sands. [167] Chinese companies have invested heavily in the Sudan, Angola and the Caspian. To secure Kazakhstan’s oil, China is financing the construction of a 3,000km pipeline, from the Caspian basin to western China. [168] China has also been strengthening ties with countries controlling vital transit routes, such as the Malacca Straits. China’s big oil firms are all state-owned; their purchase of foreign companies is almost certainly part of China’s policy to secure energy supplies for its expanding economy.

China has primarily used economic and diplomatic means to gain access to oil, but is also modernising its military. While China’s military budget is a fraction of that of the US, [169] it has spent billions on new warships, aircraft, missiles and submarines. “Evidence suggests that China is investing in maritime…weapons systems that could serve as the basis for a force capable of power projection to secure vital sea lines of communication and/or key geostrategic terrain.” [170] The same report outlines China’s increasing expeditionary forces, as well as the development of asymmetric capabilities such as targeting foreign computer networks. [171] China has disputed claims to potential oil producing areas in the South China Sea, and with Japan in the East China Sea. [172] Its modernised air and naval forces are capable of backing these claims, but further afield, China’s military influence becomes more limited; like Europe and Japan, China lacks true global military reach. The formation of the ‘Shanghai Cooperation Organisation’ in 2001 has led to an increasingly close relationship with Russia, Kazakhstan, Uzbekistan and Kirghizstan. The organisation seeks to improve security and economic ties amongst its members, with particular emphasis on energy. Iran, India and Pakistan have joined as observer members; Iran in particular wishes to join as a full member. [173] China is not interested in direct conflict with the US at present, due to the latter’s military strength, the strong economic ties between them and the fact that a peaceful international situation allows the Chinese to simply purchase their energy needs. But as global supply does begin to diminish, China will be competing with the US for a greater share of a decreasing resource.

India’s energy needs are also increasing. Indian demand is expected to rise from 2.3 mbd in 2003 to 4.1 mbd by 2025. [174] Like China, India needs foreign energy to grow its economy and lift its standard of living before rising income disparities create even greater social problems. India’s economy has undergone considerable growth in the last 10 years, but per-capita income is still far below that of the other major importing nations. [175] India’s growing need for oil is great, and it too has been scouring the world looking for suppliers. This has created a competition with China, as both seek to gain supply contracts from the same sources. With a stronger economy and more wealth, Chinese companies have consistently outbid their Indian rivals. [176] Both nations’ oil companies have competed so aggressively with each other in Central Asia, Africa and Latin America that, “…the two governments have proposed an MOU to co-ordinate efforts so as not to bid up [prices]”. [177] India’s military has been undergoing a similar modernization programme as China’s, with the procurement of new warships and combat aircraft, increasing India’s ability to project power. India’s proximity to the Persian Gulf is an advantage, given the increasingly important role this already vital region will play. However, India’s power, while increasing, is still insufficient to guarantee access to oil should global production peak. With less wealth and military power than the other major consumers, India will be hard-pressed to ensure it has the 4.1 mbd it might need in 2025.

The major consuming states, all dependent on foreign oil for their economic and military strength, will find it increasingly difficult over the next 20 years to secure the petroleum they need to maintain their position. Smaller states will be in the same position, but will lack the means to “impose their will” on the situation. Those with the means, such as the US, EU, China and India, may become increasingly tempted to use them, as a declining global economy puts ever greater stress on their social and political systems. Lacking alternative energy sources, and determined to maintain their relative positions, it is likely that the major consumers will find themselves increasingly in conflict with each other and with the exporting states.

 

Oil and Conflict

In the 19th Century, the maneouvres of Britain and Russia in Central Asia were called “The Great Game”. Expanded to include the Middle East and North Africa, the 21st Century will see a revival of this ‘game’, with the US, Russia, the EU, Japan, China and India as participants. The fact that all of these states are nuclear powers may serve to limit the potential and scope for direct conflict, but this will still leave other forms open to them. [178] The aim of these states will be to ensure that they have access to sufficient oil to power their societies and economies. While conservation programmes and alternative energy sources will reduce oil demand, these states require a certain quantity to maintain their standard of living at an acceptable level, and to ensure that their economic and military power does not suffer. This is already affecting policy in some of the Great powers, as they make energy a matter of national security.

Importing states currently secure their supplies through the international market, as supply can still meet demand. Even the US invasion of Iraq, though it is profoundly linked to oil, is not a direct attempt to ‘steal’ it; the US pays for what Iraqi oil it imports. However, this situation will change when the oil exporting nations are no longer able to meet all demand. If an exporter cannot meet all of its contracts, the real problem lies with the importer, especially if there are no alternative supply sources. When demand exceeds supply, contracts begin to lose validity, and some exporters may cancel them in order to sell at a higher price elsewhere. When this situation eventuates in the international markets, importers will initially be forced to bid up the price, even while falling back on their crisis management programmes. Strategic reserves and conservation programmes will have a short-term effect, but cannot solve a long-term supply shortfall. This can only be resolved through ‘demand destruction’, as users are forced to make do with less.

However, another option exists for the great powers; the use of diplomatic and military power to secure their oil supplies. Military intervention is a common tactic; according to Michael Klare

[M]ilitary intervention typically occurs along a spectrum, beginning with the transfer of arms, followed by the deployment of military instructors and advisers, then the use of special forces attached to local irregular forces…and only then, in the final stages, regular combat troops. [179]

The provision of military equipment involves the deployment of advisors, which increases the risks of any action against the exporting state; US or Israeli plans to bomb Iran’s nuclear facilities might hit Russian personnel at the new missile sites that will be protecting those facilities. [180] Russia, China and the US have been steadily supplying weapons and equipment to the Middle Eastern and Caspian states in a bid to gain influence. [181] One threat to exporting states is revolution or ‘regime change’, which may be supported by foreign powers. Foreign powers might undermine the government of a hostile nation, and ensure the establishment of a friendly one. The final stage is the outright seizure of energy reserves, something that was contemplated in 1975 by leading US thinkers. [182] The Middle East is the main prize, and if any area suffers an attempted seizure it will be Saudi Arabia. Unlike Iraq, the oil-rich Eastern Province of Saudi Arabia is thinly populated, separated by easily-patrolled desert from the main population centres to the west. The use of force was considered in 1975, with Henry Kissinger stating that this was possible if the US faced “strangulation”. [183] This did not happen then, but what if the US or other importers were to face ‘strangulation’ over the next 20 years? With a geologically driven production decline and a lack of suitable alternatives, what other options might consumer nations have?

The US military emerged from the Cold War trained and equipped to fight the Soviets in a conventional war,. It performed superbly in defeating Iraq in 1991, and is in many ways without peer. [184] As a result, enemies of the US don’t try to match its conventional strength, but adopt ‘asymmetric’ methods; those that are termed guerrilla or terrorist tactics. The threat to the US now is not from conventional militaries, but from guerrilla groups, often based in loosely governed regions. The US military has responded, by creating ‘expeditionary’ forces. These are built on the US’ force-projection capabilities; strategic airlifters and fast cargo ships designed to move US forces quickly around the globe. [185] The Army has begun creating ‘medium’ brigades equipped with light armoured vehicles rather than 70-ton tanks. This allows much quicker deployment from the US to trouble spots, as well as much lower support requirements. [186] The US is also exploring the role of its special forces as foreign policy tools, including their use within states without local government permission. This is seen as necessary for the “War On Terror”, but involves dangerous breaches of sovereignty. [187] In short, the US wants a military that can move quickly and effectively into an area and establish control. The initial invasions of Iraq and Afghanistan served as proving grounds for this concept. Other major consumers, such as China, are also developing their force-projection capabilities.

The establishment of ‘permanent bases’ in Iraq, vehemently denied by the US government, is another indicator of the potential use of US force. [188] These are perfectly situated for a thrust south into Kuwait and Saudi Arabia, east into the Iranian oilfields or north into the Caspian. It would enable the US to store heavy weapons and equipment, maintained and guarded by a skeleton crew. [189] In an emergency, such as the fall of the Saudi government, the US would be able to rapidly form a powerful army, with naval and air support, to intervene and ‘protect’ vital oil infrastructure. Similarly, these forces could be used to prevent another state gaining access to the region’s resources, or to ‘persuade’ Middle Eastern governments to adhere to US foreign policy. The establishment of permanent bases in Iraq may be part of a strategy to make the US the dominant power in the Middle East, secure its oil supply, and give it a degree of control over other importing nations. [190] “In a world that is growing increasingly energy hungry but where energy resources are diminishing, whoever controls the Middle East controls the world.” [191]

Conflicts between exporters and importers will not be completely one-sided. Exporting states have weapons of their own, primarily economic ones. Embargoes and production cuts were very effective in the 1970s, and given the lack of a real swing producer in recent times, will most likely be just as effective again. Iran’s position astride the Straits of Hormuz gives it a strong economic weapon. A US attack on Iran would almost certainly result in Iran blocking the Straits. The effect of this on the short-term price of oil would be enormous. [192] In addition, as the Iraqi and Afghan insurgent movements are proving, taking a country is a different thing to controlling it. Others may turn this into a cause for action, as Al Qaeda has. “Terrorism” is viewed as a legitimate weapon by populations who see themselves as oppressed. Any occupation of the major oil producers would be certain to see an increase in the scale and scope of these operations.

Where might any conflicts between exporters and importers occur? Arguably they are occurring already, the best example being the US ‘War on Terror’, which some commentators allege is a thinly-veiled grab for energy resources, especially oil. [193] The invasions of Iraq, with its vast reserves, and of Afghanistan, which has a potential pipeline route from the Caspian basin, support this theory. Al Qaeda and its allies, largely funded by oil revenues, are seeking to eliminate Western interference in their energy-rich homes and are faced with an enemy- the US and the rest of the developed world- that cannot leave the Middle East. It is possible that the Bush Administration, with its wealth of oil industry experience, is convinced of an impending global shortfall, and is moving to secure the Middle East while it has the historic and strategic opportunity. The ‘War on Terror’ helps position the US in the Middle East, just as it appears that the world may be entering a global energy crisis. Whether this is conspiracy or coincidence remains to be seen.

Outside of the Middle East, other regions may face intervention by outside forces. US intervention in Nigeria or Chinese involvement in Sudan would occur because of the importance of these states as oil exporters. US interference in Venezuela may take the form of support to domestic enemies of Hugo Chavez, military and diplomatic support for a coup or even armed intervention in an extreme case. Finally, the Caspian basin may experience even greater interference from consumers seeking to secure the regions energy supplies.

In a world of declining energy supplies, conflicts between importing nations, especially the great powers, can also be expected. These conflicts are unlikely to be direct, at least initially. They may take the form of economic conflicts; this has already started with clashes over Unocal in the US, and between Chinese and Indian companies in Africa. Other forms of economic conflict include trade wars and finance market manipulations; China for instance has a trillion dollars in reserves, most of it in US-dollar form. [194] The Chinese have been key players in supporting the US government’s deficit by purchasing US Treasury notes. Simply by ceasing or reducing their purchases, the US government will be threatened with a cash-flow crisis. If the Chinese were to ‘dump’ their reserves, they might spark a run on the dollar, further weakening the US (though at some cost to themselves).

Conflicts between the major importers might take the form of proxy wars, as in Vietnam, or against the Soviets in Afghanistan in the 1980s. While this strains relationships between states, it rarely leads to open and direct war. In a bid to retain control of a region or to deny it to a rival, states might support local insurgent groups, who would attack hostile governments. The danger of proxy conflicts is their potential to escalate. While none of the main importing states wants an open war, intervention by Great powers runs the risk of a clash, which might destabilise the situation. States don’t have to want a war to find themselves in one, as the events of July 1914 proved.

The chances of a great power clash will be greatly increased during the next 20 years. The period since 1945 has been remarkable for the lack of great power military conflict. Possibly by coincidence, the postwar period has also been one of ample oil production and growing prosperity. Any direct clash between great powers would have to be fought under the threat of nuclear weapons, which may serve to limit the scope and severity of the conflict. It will almost certainly reduce the oil export capacity of the region contested, as the complex production infrastructure would be damaged. A losing combatant might deliberately target such infrastructure, believing it to be better that no-one controls it if they themselves cannot. Again, the Middle East is the most likely theatre for such a struggle, though Africa and the Caspian may also see direct great power conflict.

Potential conflicts are not only limited to the international arena. It is likely that a number of oil exporting states will suffer from prolonged internal strife, some leading to civil war, over the next 20 years. In most of the oil exporting states, oil provides the bulk of government revenues, and as has been noted, many of these governments have little or no legitimacy, are oppressive and corrupt and govern fast-growing, discontented populations. Social tensions may be exacerbated by outside powers anxious to gain access to oil reserves, with other powers supporting the incumbent regime. An example of this might be US and EU support for anti-government groups in Iran, which may include arms and training, while the Iranian government receives support from Russia, China and India, the latter two heavily reliant on Iranian energy. With the exception of Canada and Norway, all of the major exporters suffer from pronounced political, social and/or economic strife.

The Middle East once again is of concern, both for its continual instability and its importance to the world economy. An increase in internal conflict in the Gulf would increase the involvement of the major importers, as they seek to safeguard their existing oil supplies. This involvement could be expected to run all the way up to large-scale military intervention, as President Carter declared in 1980. [195] The African exporters are in a similar situation, and would be prime candidates for intervention if the central governments prove unable to provide the security needed by the oil companies.

The states of the Caspian basin are uniformly authoritarian and autocratic. Anti-government groups are driven underground, but still agitate. All of these states are alarmed at the rise of Islamic fundamentalism, which is becoming increasingly attractive to populations whose social and economic conditions are worsening. The region’s proximity to the Middle East means that conflicts there may spill over. The US is already in the region due to the war in Afghanistan, with bases in Uzbekistan and Kirghizstan, as well as advisors training the Azeri and Georgian militaries to guard the BTC pipeline. Russia and China are also deeply involved in this area, through the Shanghai Cooperation Organisation (SCO). [196] This region will maintain its importance over the next 20 years, and this importance will increase the chances of conflict there.

Oil’s central importance to modern economies means that any shortfall will directly lead to a decline in the standard of living. [197] In many parts of the developing world, the gap between the current situation and outright starvation is very narrow, and a reduction in the amount of oil-grown and transported food will lead to ever larger and more frequent famines. In the developed world the impact will be felt as the economy shrinks, jobs are lost and families struggle to make ends meet. While the problems faced by the middle and working classes in the developed world will be minor compared to those of the developing world, this will not stop a tide of resentment, bewilderment, frustration and anger. The European Commission described petrol as “…vital for the functioning of the economy, like bread. Any disruption of supply is likely to lead to social demands, if not social conflict.” [198] Charles Maxwell, an eminent energy analyst stated last year that:

“[w]e could also be in deep trouble as a social system. How do we achieve fairness [in rationing scarce energy supplies] when the gridlock between rich and poor already stops us from having an energy policy in this country? We could see democracy entering its death throes.” [199]

Maxwell’s hypothesis about an end to democracy might again seem far-fetched, but if the social disorder resulting from a shortfall of oil is great enough, western governments might have no choice but to use emergency powers to restore a measure of order. Whether this happens will depend on the extent of the strife, which in turn will depend on the speed and extent of the economic damage caused by the shortage of oil. A recession is a certain response to a spike in oil prices. If the price rise is sustained, then the economic damage can only be greater, the social conflict more pronounced and the government response more harsh.

Initial social responses could be expected along the lines of the European fuel protests of 2001. Governments may subsidise fuel, but this will not be a permanent solution, and in time any effects will be overwhelmed by the rising production price. As the oil shortages deepen, possibly exacerbated by conflicts that damage the production infrastructure, the economic effect is likely to be similar to that of the Great Depression. In such times of hardship, extremists and demagogues of all types emerge and can find it disturbingly easy to gain a following. States in the developed world may find worsening social conditions leading to extremism in national politics, influenced by class-envy, transferral of blame onto foreigners and immigrants, and an acceptance of harsher social measures.

It is in this environment that governments will need to exert greater control, but they may also turn to foreign adventures to shift the public’s focus away from domestic problems- a common political tactic. Germany’s experiences in the 1920s and 1930s showed how massive unemployment could lead to aggressive foreign policies, while Japan’s response to trade barriers and an oil embargo had the same result. [200] This provides a push factor for importing nations considering direct involvement in oil-producing states, in addition to the pull factor of increasing their oil supplies. With conflict and dissent on the domestic front, governments may be pushed into foreign adventures by populations desperate to improve their standard of living. This would not be the first time this has happened, and might be a feature of the international scene over the next 20 years.

While the potential and scope for conflict will increase over the next two decades, there are countervailing trends that will work to reduce it. These trends may not be enough to balance forces increasing this potential, but they may have some effect. The first is outlined by Barnes and Jaffe, who contend that rivalry between the importing nations, particularly the US and China, is misplaced, as none of them “…may be able to attain secure oil supplies from the Persian Gulf in the coming years”. [201] If anything, this will increase the potential for conflict, as importing nations that are at the “strangulation” point use any means possible to gain desperately needed supplies. However, Barnes and Jaffe argue that importers will be interested in the stability of the oil exporting states in order to maximize oil production. The US Navy has the capability to cut off shipments from the Middle East to any importing nation. [202] This implied threat (never openly presented) is a key factor in China’s plans to build a pipeline from Kazakhstan, and to import oil overland from Russia. China, and the other major importers, need secure and stable sealanes, and this is currently provided by the US Navy. This mutual interest in the stability and security of production and transport may encourage states to co-operate rather than confront. Whether this interest is sufficient to outweigh the temptation for interference is another matter.

Of more import is the integrated nature of the world economy. The globalisation of the world that has taken place since 1945 has linked states together as supply, manufacturing and retail chains have expanded across borders and continents. The theory, predominantly from the liberal perspective, is that this makes conflict less likely as states stand to lose more than they gain, particularly those with large investments in ‘enemy’ hands. The reliance of the US on US$2 billion of foreign capital a day is one example, as is the reliance of Asian manufacturers on the US as a market for their products. [203] This theory has not always worked; the First World War being the best example of how even a thoroughly integrated world economy cannot prevent geopolitical actions spiraling out of control. [204] Despite this, the state of their national economies, and the effects their actions have on them, will be a planning consideration for governments as they ponder their options, and may help to reduce conflict over resources.

A more prosaic factor is the future food supply to Asia, particularly China. Faced with steadily falling grain harvests, China may, for the first time in its history, be forced to import tens of millions of tons of grain. [205] The only supplier for this quantity is the US, which means that China, may be relying on its main ‘rival’ for a significant fraction of its food supply. The key question is whether these mutual interests will override geopolitical rivalries that will only become sharper when the price of oil increases and its availability decreases.

Another countervailing trend is conservation, a conscious effort by governments and societies to reduce their oil consumption. This was used in response to the oil shocks of the 1970s, and had some effect, but conservation will not be sufficient to deal with a long-term supply crisis like that facing the world. The world economy relies heavily on oil for its energy, and a reduction in its supply will lead directly to a reduction in the economy and the world’s wealth. Alternative energy sources will be useful in mitigating an oil shortfall, but they cannot make up for the decline in energy supply over the next 20 years. Finally, a united international response, such as that envisioned by the Uppsala Protocol, requires states to deal fairly, equitably and openly with each other, including the members of OPEC who treat oil reserves and production figures as state secrets. This is unlikely to happen, as efforts to forge an international front run aground on the rocks of realpolitik. The major importing states appear to be positioning themselves for a competition for oil, which can only increase the chances of conflict.

The picture these trends paint is a rather bleak one. A world where the most important industrial commodity is decreasing in availability will see increased social and economic tensions in both exporting and importing states. The stability needed to maintain production, or even to limit the annual decrease is lacking from the most important producers, particularly in the Middle East, Africa and Latin America, and is likely to lessen over time. With importing states becoming increasingly desperate for energy, the incentive will become ever greater for them to meddle in the affairs of exporting states in a bid to secure oil. The geopolitical focus of the world will be on the Middle East, and this focus will bring with it increased strife and conflict: “Competition for resources means that the regions which possess them — particularly the Middle East — will remain the focus of conflict.” [206] With oil becoming even more important than it is now, major powers will compete for control of this region with each other and with regional powers such as Iran. While there are countervailing trends to reduce conflict between importers, these may not hold up under the increasing strains of a long-term energy crisis. Conflict on the international stage would be matched by conflict at the national level. This may in turn exacerbate international conflicts as hard-pressed governments turn to adventurism to focus internal discontent on external issues.

 

Conclusion

The aim of this paper has been to assess petroleum’s potential to act as a cause of conflict over the next two decades. On the surface, this connection might be self-evident; of course oil will cause conflict. Certainly the history of petroleum has been one of constant, never-ending turmoil, strife and warfare. Since the First World War, it has been central to the strategic calculations of every great power. The pursuit of it initiated some of the Second World War’s bloodiest campaigns. Since 1945 the battles for oil have been less bloody, but they have been intense in their own way, as nations used diplomatic, economic and military means to ensure that they had access, denied it to rivals or tried to escape the attentions of those seeking to dominate their domestic reserves. Oil and conflict have been inextricably linked for a century now. Using that history as a starting point, this paper has assessed that oil will become ever more contentious over the next two decades.

A study of oil’s role in modern affairs showed how it is an essential component of modern societies and economies; without it, or even without enough of it, these societies and economies cannot function as they currently do. The result of this shortfall is a rapid increase in price and a steady decrease in social and economic activity. This decrease affects all facets of modern societies, from personal lives to big corporations, from farms and factories to ships and aircraft. This leads to a steadily declining standard of living, and a decrease in the amount of food produced globally. The latter will have grim consequences for many, especially in the developing world. Transport fleets on the seas, in the air and on the roads rely on it utterly; without it the world’s trade system would rapidly degrade, possibly collapse. From a geopolitical viewpoint, oil is vital for military power, and therefore for national power. The developed world’s armies, fleets and air forces must have oil to maintain their technological edge over potential adversaries. These uses, central to modern social, economic and geopolitical arrangements, underline oil’s importance as a strategic commodity. It means that states will endeavour to ensure they have a secure supply. This means contemplating, threatening and initiating conflicts if this is deemed to be necessary. As the history of oil and conflict showed, this ‘necessity’ has often happened in the past.

If petroleum is in plentiful supply, or if there is a sufficient quantity of an alternative energy source, then the potential for conflict over oil is limited. Unfortunately, it appears that the world’s oil producers will not be able to meet the world’s demand. They may in fact be about to peak in production, which means that they will face an inexorable yearly decline, even though the demand for oil will steadily increase. Oil exploration reached a discovery peak in the 1960s; the result is a declining amount of oil discovered every year. Peak Oil is an accepted fact amongst most energy analysts. The only dispute is over timing. Looking at the discovery peak, most analysts believe that the world will peak before 2025, or even sooner, well within this paper’s period of study.

Unfortunately, the potential alternatives to oil that are likely to be available over the next two decades are universally inadequate, and even in conjunction will at best mitigate the effects of a shortfall. The inescapable fact is that oil’s potential for conflict will increase. It has a proven link with conflict; its vital role in modern civilisation remains true; it is about to run short of demand and it cannot be replaced. These simple facts link together seamlessly to form a dark picture of the next 20 years.

The situation worsens when a study is made of the major oil exporting states. With few exceptions these states are unstable politically, socially, economically and demographically. The Middle East in particular, the central focus of any study concerning petroleum, is in an almost constant state of turmoil that threatens to worsen at any time. Saudi Arabia, the linchpin of the international oil system appears to be the most vulnerable of all. The other main exporting regions such as West Africa, the Caspian Basin and Latin America also suffer from continual inner conflicts. These are exacerbated by interference by the major importing states, which are becoming increasingly anxious to ensure a secure oil supply. In addition, few of these producers seem capable of increasing production to make up for declining production from existing wells, in a further proof of the Peak Oil theory. Those that can do so are mostly located in the Middle East, further highlighting the importance of this region.

The major importing states’ response to an impending shortage is varied. China, and to a degree India, is trying to secure supply sources economically, but is also investing in its military and working diplomatically to back up this strategy. Europe and Japan are attempting a similar strategy, especially with regard to Russia, but neither has openly begun to upgrade its military capabilities as yet, relying instead on the US to ‘provide the muscle’. The US, the world’s biggest energy user and main oil importer, has been guaranteeing the flow of Middle Eastern oil for decades. The cost of this is rising, as the war in Iraq grinds on. It is entirely possible that the Bush Administration is conversant with the facts of Peak Oil, and is seeking to guarantee US access to oil once the global production peak occurs. As non-OPEC sources of oil peak and begin to decline over the next 20 years, whoever controls the Middle East will control the oil market. The US may be positioning itself to gain that control, though the operation to secure it is not going as well as anticipated. The peoples of the Middle East are proving that overwhelming conventional military strength is not enough to hold a country; that even the militarily weak have effective weapons. These weapons have ensured that Iraq remains in a state of chaos, and that its oil production has not increased since the invasion.

The instability of the exporters, when combined with the dire needs of the importers, means that oil will act as the initiator of more conflict over the next twenty years. An exporting state might suffer a serious rebellion or coup, resulting in a sharp drop in exports. With the international market already stretched and with no spare production capacity, this internal strife will lead to a rapid price rise. Importers, eager to restore the production flows, may supply arms and military personnel, who will in time become involved in the fighting. Importers might support dissidents in exporting states that supply their geopolitical rivals, in a bid to weaken them. If the supply fall is rapid enough, or deep enough, desperate importing nations might use the ‘expeditionary force’ militaries they have been developing, and seek to seize certain oilfields themselves. There is a long history of such actions from the 19th and early 20th centuries, and it was contemplated during the 1970s oil shocks. While such gains might be hard to hold, the risks and costs might be outweighed by the benefits. A seizure might be sparked by internal revolution that installs a regime hostile to the importers; Saudi Arabia is an obvious candidate for this possibility. While the major importers will all benefit from a stable and secure export market, if this market collapses, or is unable to supply sufficient oil to keep importers from ‘energy starvation’, then such desperate measures as outright seizure will be contemplated.

Conflict will not be felt solely at the international level, and even in the developed world there will be discord and strife. This internal conflict will feed the conflict at the international level, as populations suffering from sharp drops in living standards use any means to restore them, possibly including direct military action. Differences such as religion, ethnicity or levels of consumption could be used to justify action against foreigners, in a bid to ensure adequate energy supplies at home. Similarly, a sustained energy shortage would lead to a sharper division between social classes. A slower, contracting world economy will be forced to transition to more local and regional economies, as nations make their essential needs at home rather than import them. But not all essential needs can be met domestically, or even through trade with neighbours; food is the best example of this, and disturbing thoughts arise when the question is asked, who will feed Egypt or Ethiopia or Iraq when they are no longer able to import the grain they need? Even if nations can produce their essential needs, it will take time to adapt economies and societies from their present arrangements to low-energy ones. This will create turmoil and unrest which, at its root, will come from the shortage of oil.

The final conclusion of this paper is that the world system, as it currently stands, may be about to undergo a profound change, as one of its most important commodities goes into decline with no easy replacement. The changes that could result from this will reverberate for centuries, but they will begin over the next 20 years. To quote Robert Tucker, the current course of the world “…is likely to result first in chaos and then in an international system far harsher than today’s, or even yesterday’s system.” [207] In a perfect world, humanity would be able to change this course, overcome this future and develop a new one. But it appears that we are 30 years too late, as the Hirsch report has confirmed. We are stuck on this course. Our future may look much like the environmentalist movement describes; slower, localized, and less intense. It will also be poorer, more physical and less populous. The picture is a grim one to many Westerners, but if it is going to happen, and I think it will, it can only make sense to confront this truth and try to arrange our personal lives, our immediate surroundings and our own nations to confront this future, to cope with it, and to live within it.

 

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WEBSITES

 

NOTES

  1. Klare, Michael, ‘Blood and Oil: How America’s Thirst For Petrol Is Killing Us’, Penguin, London, 2004, p. xi.

  2. Tucker, Robert W., ‘Oil: The Issue of American Intervention’, ‘Commentary’, Volume 59, No.1, January 1975, p. 28.

  3. Hirshleifer, Jack, ‘Theorizing About Conflict’, ‘UCLA Department of Economics: Working Paper #727’, February 1995, p. 1.

  4. New Zealand Defence Force, ‘NZDDP-D 2004: Foundations of New Zealand Military Doctrine’, 2004, p. 5-10.

  5. Bergsten, C. Fred, ‘America's Two-Front Economic Conflict’, ‘Foreign Affairs’, New York: Mar/Apr 2001, Vol.80, Issue 2, p. 16.

  6. As a theoretical approach, Marxism is likely to be of use in studying the social effects of oil depletion, particularly within the richer, developed nations, where the proletariat have become used to plentiful and cheap fuel. If fuel is no longer plentiful and cheap, the tensions between the richer and poorer (or even middle-class) members of society can only increase.

  7. Wilson, Trevor, ‘The Myriad Faces Of War: Great Britain and the Great War,1914-1918’, Polity Press, Cambridge, 1988, pp. 99-100.

  8. Ellis, John and Cox, Michael, ‘The World War I Databook’, Aurum Press, London 1993, p. 261 (figures combined from France/Flanders and Different Fronts tables).

  9. Klare, Michael, ‘Resource Wars: The New Landscape Of Global Conflict’, Henry Holt & Co, New York, 2001, p. 30.

  10. Ellis, John and Cox, Michael, ‘The World War I Databook’, Table 7.2, p. 285. Even with the Rumanian figure added, the Central Powers’ production was an order of magnitude less than that of the Allies.

  11. Quoted in Klare, Michael, ‘Resource Wars’, p, 30.

  12. Ellis, John, ‘Brute Force: Allied Strategy and Tactics in the Second World War’, Andre Deutsch Ltd, London, 1990, pp. 443-6.

  13. Ellis, John, ‘Brute Force’, p. 86. See also Klare, Michael, ‘Blood and Oil’, p. 149.

  14. Ellis, John, ‘The World War II Databook’, Aurum Press, London, 1995, Table 81, p. 275.

  15. Nye, Joseph S. Junior, ‘Understanding International Conflicts: An Introduction to Theory and History’, 4th Edition, Longman, New York, 2003, p. 207. While this had been a long held aim of Iraq, going back to Ottoman times, the fact that Kuwait was rich in oil is unlikely to have been co-incidental to the Iraqi decision to annex.

  16. Nye, Joseph S. Junior, ‘Understanding International Conflicts’, p. 207.

  17. British Petroleum, ‘BP Statistical Review of World Energy’, 2006, p. ‘Oil - crude prices since 1861’.

  18. Heinberg, Richard, ‘The Party’s Over: Oil, War and the Fate of Industrial Societies’, New Society Publishers, Gabriola Island (British Columbia), 2003, pp. 71-3 .

  19. The 1980 price was equivalent to US$82.15 in 2004 dollars. British Petroleum, ‘Statistical Review of World Energy’, p. ‘Oil - crude prices since 1861’.

  20. Klare, Michael, ‘Blood and Oil’, p. 4.

  21. The US has four other commands, which divide the globe into Areas of Responsibility. They are European, Pacific, Southern (South America) and Northern (North America). Klare, Michael, ‘Blood and Oil’, pp. 1-7 .

  22. Cheney, Dick, ‘Remarks By The Vice President To The Veterans Of Foreign Wars 103rd National Convention’, US Department of State, 26th August 2002

  23. United States Central Intelligence Agency, ‘The CIA World Factbook’, p. ‘Iraq’ and British Petroleum, ‘Statistical Review of World Energy’, p. ‘Oil — Proved reserves’.

  24. Klare, Michael, ‘Blood and Oil’, p. 100-1.

  25. Agence France-Presse (AFP), ‘Oil Ministry An Untouched Building In Ravaged Baghdad’, ‘Sydney Morning Herald’, 16th April 2003.

  26. BBC, ‘Nigerian Oil Fuels Delta Conflict’, ‘BBC News’, 25th January 2006.

  27. Klare, Michael, ‘Blood and Oil’, p. 125-145.

  28. BBC, ‘France fuel blockade to ease’, ‘BBC News’, 8th September 2000, BBC, ‘UK fuel protesters go back home’ ‘BBC News’, 15th September 2000 and BBC, ‘Spain fuel protests bite’, ‘BBC News’, 3rd October 2000.

  29. Cheney, Dick, ‘Speech at the Institute of Petroleum Autumn Lunch, 1999’, ‘The Institute of Petroleum’, published 8th June 2004.

  30. Klare, Michael, ‘Blood and Oil’, p. 7, and Hirsch, Bezdek, and Wendling, “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management, Science Applications International Corporation, March 2005, aka ‘The Hirsch Report’, p. 21. US consumption was in turn 25 percent of the world total.

  31. European Commission, ‘Green Paper: Towards a European Strategy for the Security of Energy Supply’, 2000, p. 16.

  32. New Zealand Ministry of Economic Development, ‘New Zealand Energy Data File: January 2005’, p. 42.

  33. Koerner, Brendan I., ‘Rise of the Green Machine’, ‘Wired Magazine’, Issue 13.04 - April 2005.

  34. Conlin, Michelle, ‘Extreme Commuting’, ‘Business Week Online’, 21st February 2005.

  35. Heinberg, Richard, ‘The Party’s Over’, p. 175.

  36. The lower figure is for grains and vegetables, the higher figure is for meat, which consumes more energy to produce. Quoted in Kunstler, James Howard, ‘The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century’, Atlantic Monthly Press, New York, 2005, p. 241.

  37. Appenzeller, Tim, ‘The End of Cheap Oil’, ‘National Geographic’, June 2004, p. 98.

  38. Churchouse, Nick, ‘Stormy year ahead for fisheries’, ‘Dominion Post’, 11th January 2007.

  39. Lane, Megan, “I don’t drive; why should I care about oil prices?” BBC News Magazine, 10th August 2005.

  40. Regarding oil-based polymers, Mark Foster, a polymer science professor at the University of Akron stated “Without them I can’t think of a good way to make bike helmets”. Appenzeller, Tim, ‘The End of Cheap Oil’, p. 83.

  41. Klare, Michael, ‘Blood and Oil’, p. 9.

  42. Dunnigan, James F., ‘How To Make War: A Comprehensive Guide To Warfare In The 21st Century’, 4th Edition, Quill, New York, 2003, p. 513.

  43. Boot, Max, ‘The Paradox of Military Technology’, ‘The New Atlantis’, Fall 2006, pp. 17-18.

  44. Nygren, Colonel K.P., Lt Colonel Massie D.D., and General (retd) Kern, P.J., ‘Army Energy Strategy For The End Of Cheap Oil’, ‘25th Army Science Conference’, Orlando, Florida, November 27-30, 2006, p. 4.

  45. Robert Ebel, quoted in Klare, Michael, ‘Blood and Oil’, p. 9.

  46. The New Zealand Defence Force lists four ‘instruments’ of national power; economic, political, psychosocial and military. Each contribute to a nation’s power. New Zealand Defence Force, ‘Foundations of New Zealand Military Doctrine’, p. 2-5.

  47. United States National Energy Policy Development Group (NEPDG), ‘National Energy Policy: A Report of the NEPDG’, May 2001, p4-3. The group was headed by Vice-President Dick Cheney, and met as soon as the Bush Administration took office.

  48. Quoted in Klare, Michael, ‘Resource Wars’, p. 17.

  49. If we are getting more GDP out of each barrel, then more GDP will be lost per barrel that is no longer available. A taxi in 1970 might use as much petrol as two hybrid-engine taxis in 2006; all else being equal, in 2006 twice as much GDP is being generated. If that quantity of petrol is unavailable in 2006, now two cabs will be idle, not one, two drivers will be unemployed, not one.

  50. For an analysis of the Cuban and North Korean response to oil shortages, see Heinberg, Richard, ‘Powerdown: Options and Actions For A Post-Carbon World’, New Society Publishers, Gabriola Island (British Columbia), 2004, pp. 105-108 and pp. 112-113.

  51. National Energy Policy Development Group , ‘National Energy Policy’, p. 8-16.

  52. United States Energy Information Agency, ‘International Energy Outlook 2006’, June 2006, p25

  53. Barnes, J., and Jaffe, A.M., ‘The Persian Gulf and the Geopolitics of Oil’, ‘Survival’, vol. 48, no 1, Spring 2006, pp. 146-7.

  54. Simmons, Matthew R., ‘Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy’, John Wiley and Sons, Hoboken NJ, 2005. Simmons analyses Saudi Arabia’s historic and current discovery and production trends. He questions the Saudi’s ability to raise production significantly

  55. Campbell Colin J., and Laherrer, Jean H., ‘The End of Cheap Oil’, ‘Scientific American’, Volume 278(3), March 1998, p. 78.

  56. Deffeyes, Kenneth S., ‘Hubbert’s Peak, The Impending World Oil Shortage’, Princeton University Press, Princeton, 2001, p. 1.

  57. Heinberg, Richard, ‘The Party’s Over’, pp. 88-90 and Deffeyes, Kenneth S., ‘Hubbert’s Peak’, pp. 3-5.

  58. Colin Campbell worked as an exploration geologist with the Texaco and Amoco oil companies before he retired, and is a founder of the Association for the Study of Peak Oil and Gas (ASPO).

  59. This includes natural gas liquids, unconventional oil and synthetic oil. Association for the Study of Peak Oil and Gas (ASPO), ‘Newsletter No 18’, June 2002, p. 1.

  60. Energy Information Agency, ‘International Energy Outlook 2006’, Table 4, ‘Estimated World Oil Resources 1995-2025, p. 29.

  61. Hirsch, Bezdek and Wendling, “Peaking of World Oil Production’, p. 19.

  62. A notable exception is Chevron, with its ‘Will you join us?’ campaign. While this may or may not be an example of corporate greenwash, it is unusual and refreshing to have a major oil company open a website with the words “One thing is clear; the era of easy oil is over”. See http://www.willyoujoinus.com/ .

  63. This is based on the fact that ‘mega fields’, those with over 500 million barrels, and the capacity to produce in excess of 100,000 bpd, produce a disproportionately large percentage of the world’s oil. The number of ‘mega fields’ due to come online from 2007 is low, and from 2010 is uncertain. Skrebowski, Chris, ‘Oil Fields Mega Projects 2004’, ‘Petroleum Review’, January 2004.

  64. United States Energy Information Agency, ‘International Petroleum Monthly’, 3rd January 2007, ‘Table 1.4 World Oil Supply, 1997-Present’.

  65. Lomborg, Bjorn, ‘The Sceptical Environmentalist: Measuring the Real State of the World’, Cambridge University Press, Cambridge, 2001, pp. 121-2.

  66. The actual report costs US$1,000 and is not yet in the public domain. A summary is available at Cambridge Energy Research Associates, ‘Press Release: Peak Oil Theory — “World Running Out of Oil Soon” — Is Faulty; Could Distort Policy & Energy Debate’, 14th November 2006.

  67. Hirsch, Bezdek and Wendling, “Peaking of World Oil Production’, pp. 20-25.

  68. Association for the Study of Peak Oil and Gas (ASPO), ‘Newsletter No 71’, November 2006.

  69. National Energy Policy Development Group , ‘National Energy Policy’, p. 7-13. While this report was released in 2001, there have still been no new refineries built. All added refinery capacity has come from development of existing plant.

  70. Deffeyes, Kenneth S., ‘Hubbert’s Peak,’, p. 108.

  71. Hirsch, Bezdek and Wendling, “Peaking of World Oil Production’, p. 17

  72. These maintain production rates at higher levels for longer, but bring forward the peak in field production, increase the rate of decline and may even damage the field and lower the overall amount of oil produced. Simmons, Matthew R., ‘Twilight in the Desert’, pp. 39-40, p. 288 and p. 290.

  73. From muscle and wood energy to coal, and then from coal to oil.

  74. Described by Richard Heinberg as “How much energy do we have to expend in order to obtain a given energy resource?” Heinberg, Richard, ‘The Party’s Over’, p. 109.

  75. Kunstler, James Howard, “The Long Emergency’, p. 67.

  76. See Heinberg, Richard, ‘The Party’s Over’, chapter 4, Kunstler, James Howard, “The Long Emergency’, chapter 4 and Hirsch, Bezdek and Wendling, “Peaking of World Oil Production’, pp. 40-48. In summary, hydrogen, bio-fuels, synthetic oil and any other form of energy simply not abundant enough, cost too much energy to produce, cannot use current infrastructure and/or are not powerful enough to replace oil, either singly or in combination. They are certainly not able to maintain the same level of industrial economic activity that we currently have.

  77. Hirsch, Bezdek and Wendling, “Peaking of World Oil Production’, p. 29.

  78. AMP Capital, ‘Surging Oil Prices: Will It Continue And What’s The Impact?’, Investment Insights, 5th September 2005, p. 1.

  79. Kirchhoff, Sue, ‘Fuel Prices May Affect Farmers' Planting Decisions’, ‘USA Today’, 8th May 2006.

  80. Stiff, Peter, ‘Kraft Feels The Pressure Of Rising Energy And Packaging Costs’, Food & Drink Europe.com News, 17 November 2005.

  81. Lake, D., and Rothchild, D., (editors), ‘The International Spread of Ethnic Conflict: Fear, Diffusion and Escalation’, Princeton University Press, Princeton, 1998, pp. 9-10.

  82. Kunstler, James Howard, “The Long Emergency’, p. 68.

  83. Definition of geopolitics taken from Klare, Michael, ‘Blood and Oil’, p. 150.

  84. The Uppsala Protocol, proposed by Colin Campbell and Kyell Aleklett at Uppsala University, seeks to create a peaceful, equitable and just international response to Peak Oil, through international cooperation.

  85. British Petroleum, ‘Statistical Review of World Energy’, 2006, with some of the consumption/export data drawn from the ‘The CIA World Factbook’.

  86. Klare, Michael, ‘Blood and Oil’, p. 75.

  87. Klare, Michael, ‘Blood and Oil’, p. 79.

  88. Klare, Michael, ‘Blood and Oil’, p. 80.

  89. For analysis of the Iranian oilfields, see Matthew R. Simmons, ‘op cit’, pp298-300. Kuwait’s Burgan oilfield, see James Cordahi and Andy Critchlow , ‘Kuwait Oil Field, World's Second Largest, 'Exhausted'’, http://www.bloomberg.com/, 9th November 2005

  90. See Simmons, Matthew R., ‘Twilight in the Desert’.

  91. CNN, ‘Report: Iran Oil Profits Could Dry Up By 2015’, ‘CNN.com’, 26th December 2006.

  92. British Petroleum, ‘Statistical Review of World Energy’, 2006, p.“Oil Production — barrels”.

  93. United States State Department ‘Iraq Weekly Status Reports’, p21.

  94. BBC, ‘Iraq Oil Output Hits A New High’, ‘BBC News’, 26th June 2006.

  95. Proven reserves are those that can reasonably be extracted using current technology. Unproven is oil that is present, but which may or may not be extracted depending on technical obstacles. Campbell Colin J., and Laherrer, Jean H., ‘The End of Cheap Oil’, p. 83. For Kuwait’s situation, see also, Reuters, ‘Kuwait oil reserves only half official estimate-PIW’, ‘Reuters.com’, 20th January 2006.

  96. Emphasis is made here on ‘conventional weakness’. Iraq was easy to take in 2003 for the US and its allies, but is proving much harder to hold against unconventional, ‘asymmetric’ forces.

  97. Tucker, Robert W., ‘Oil: The Issue of American Intervention’, p25.

  98. The region also has extensive natural gas reserves, particularly in Iran.

  99. Simmons, Matthew R., ‘Twilight in the Desert’, pp. 16-19.

  100. Klare, Michael, ‘Blood and Oil’, pp. 54-5

  101. Simmons, Matthew R., ‘Twilight in the Desert’, pp. 11-14.

  102. Quoted in Klare, Michael, ‘Blood and Oil’, pp. 54-5

  103. Klare, Michael, ‘Blood and Oil’, p. 5.

  104. Klare, Michael, ‘Resource Wars’, pp. 84-5, and BP Statistical Review, “Oil — Proved reserves” page

  105. Klare, Michael, ‘Resource Wars’, p. 85.

  106. Reuters, ‘U.S. navy to set up Sao Tome radar for gulf security’, ‘Reuters.com’, 7th December 2006.

  107. British Petroleum, ‘Statistical Review of World Energy’, 2006, p. “Oil — Proved reserves”.

  108. Figures are those for non-OPEC and non-OECD Africa. Energy Information Agency, ‘International Energy Outlook 2006’, Table E1, Appendix E, p. 155.

  109. Some extrapolation from the IEA Reference Case figures show that all of Africa’s oil usage will nearly double by 2025, less than the projected rate of increase in oil production. Energy Information Agency, ‘International Energy Outlook 2006’, Table A2, Appendix A, p. 85.

  110. British Petroleum, ‘Statistical Review of World Energy’, 2006, p. “Oil - Inter-area movements”.

  111. Agence France-Presse (AFP), ‘China, India fight for African oil’, ‘Taipei Times’, 16th October 2004.

  112. Admittedly this quote specifies Sierra Leone, but Kaplan states that the same is happening across all of West Africa, and indeed the developing world. Kaplan, Robert D., ‘The Coming Anarchy: Shattering the Dreams of the Post Cold War’, Vintage Books, New York, 2001, pp. 7-9.

  113. BBC, ‘Nigerian Oil Fuels Delta Conflict’, ‘BBC News’, 25th January 2006, and BBC, ‘More oil kidnappings in Nigeria’, ‘BBC News’, 14th August 2006.

  114. BBC, ‘IMF probes Angola Oil Sales’, ‘BBC News’, 30th April 2003.

  115. Telegraph Group, ‘It’s All About Oil As China Backs Sudan’, ‘The Dominion Post’, 3rd February 2007.

  116. Columbia has between 1.5 and 3 billion barrels, Venezuela has about 77 billion. British Petroleum, ‘Statistical Review of World Energy’, 2006, p. “Oil — Proved reserves”. In addition, Venezuela has about 1.2 trillion barrels of heavy oil/bitumen. This is very difficult to extract and refine, and is not considered a conventional oil. It is uncertain if this will ever be extracted and refined.

  117. Klare, Michael, ‘Blood and Oil’, p. 121.

  118. Klare, Michael, ‘Blood and Oil’, pp. 139-142.

  119. Harman, Danna, ‘Venezuela’s Oil Model: Is Production Rising Or Falling?’, ‘Christian Science Monitor’, 31st May 2006

  120. BBC, ‘Venezuela and China sign oil deal’, ‘BBC News’, 24th December 2004.

  121. Webb-Vidal, Andy, ‘Venezuela Buys Russian Oil To Avoid Defaulting On Deals’, ‘Financial Times’, 28th April 2006.

  122. Including sending cheap heating oil to the US, in order to embarrass the Bush Administration; BBC, ‘Venezuela Gives US Cheap Oil Deal’, ‘BBC News’, 23rd November 2005,

  123. British Petroleum, ‘Statistical Review of World Energy’, 2006, p. “Oil Production — barrels”.

  124. Moscow News, ‘Russia Aims to Produce 510M Tons of Oil Annually by 2010 — Energy Minister’, ‘MosNews.com’, 25th October 2005.

  125. Energy Information Agency, ‘International Energy Outlook 2006’, Table E1, Appendix E, June 2006, p. 155.

  126. Though the EIA believes it will only rise from 2.7 mbd in 2004 to 3.3 mbd in 2025, a 22 percent increase, or an average of only 1 percent a year. Energy Information Agency, ‘International Energy Outlook 2006’, Table A4, Appendix A, p. 87.

  127. Broughton, Philip Delves, ‘Beware Russia, energy superpower’, ‘The First Post’, 12th October 2006, and Peters, Susanne, ‘Courting Future Resource Conflict: The Shortcomings of Western Response Strategies to New Energy Vulnerabilities’, ‘Energy Exploration and Exploitation’, Volume 21, Number 1, 2003, pp. 39-40.

  128. Fairbanks, Joe, ‘Russia’s New Political Weapon: Energy’, ‘The Stanford Review’, 6th February, 2006.

  129. The Times, ‘Russians turn off oil line to Europe’, ‘The Dominion Post’, 10th January 2007 and Associated Press, ‘Russia ‘digs in’ over oil spat’, ‘The Dominion Post’, 11th January 2007.

  130. United Nations Population Division, ‘World Population Prospects: The 2004 Revision Population Database’.

  131. Bloomberg, ‘Pemex Says Cantarell Field to Begin Decline in 2005’, ‘Bloomberg.com’, 1st March 2005.

  132. Association for the Study of Peak Oil and Gas (ASPO), ‘Newsletter No 74’, February 2007, pp. 4-5.

  133. United Kingdom Department of Trade and Industry, ‘Digest of UK Energy Statistics’, 27th July 2006, Table 3.1.1: Crude oil and petroleum products: production, imports and exports 1970 to 2005.

  134. United States Energy Information Agency, ‘Persian Gulf Oil and Gas Exports Fact Sheet’, March 2002.

  135. Energy Information Agency, ‘Persian Gulf Oil and Gas Exports Fact Sheet’, March 2002.

  136. Energy Information Agency, ‘Persian Gulf Oil and Gas Exports Fact Sheet’, March 2002. Yanbu is a Saudi port on the Red Sea, connected by pipeline to its oilfields on the Persian Gulf. Ceyhan is in Turkey, connected to the Persian Gulf by pipelines running through Iraq and Syria.

  137. Energy Information Agency, ‘Persian Gulf Oil and Gas Exports Fact Sheet’, March 2002.

  138. United States Energy Information Agency, ‘South China Sea Region Fact Sheet’, March 2002.

  139. Klare, Michael, ‘Resource Wars’, p. 103.

  140. Friedman, Thomas L., ‘The World Is Flat: A Brief History Of The 21st Century’, Farrar, Straus & Giroux, New York, 2005, p. 407.

  141. Energy Information Agency, ‘International Energy Outlook 2006’, p. 27.

  142. Information on consumption and domestic production taken from Energy Information Agency, ‘International Energy Outlook 2006’, Table A4, Appendix A, p87, and Table E1, Appendix E, p155.

  143. Though not according to the EIA, which forecasts US production to rise again to a second peak of 10.4 mbd, no doubt based on ‘unconventional’ sources, such as ultra-deepwater, coal liquification or shale oil. With conventional production continuing to decline throughout this period, this is a very dubious possibility.

  144. United States Energy Information Agency, ‘Country Analysis Brief: United States’, November 2005.

  145. President Bush reiterated this in his State of the Union address in January 2007, where he also called for a cut to US oil consumption by 20 percent within 10 years.

  146. Benedetto, Richard, ‘Cheney's energy plan focuses on production’, ‘USA Today’, 1st May 2001.

  147. National Energy Policy Development Group, ‘National Energy Policy’, pp. 8-6 — 8-8.

  148. Iraq Study Group, ‘The Iraq Study Group Report’, 6th December 2006, aka ‘The Baker Report’, pp. 56-57, and Deutch, John and Schlesinger, James R., ‘National Security Consequences of U.S. Oil Dependency’, ‘Council On Foreign Relations Independent Task Force Report No. 58’, 2006, pp. 51-2.

  149. Deutch, John and Schlesinger, James R., ‘National Security Consequences of U.S. Oil Dependency’, p14.

  150. Dick Cheney, quoted in Kunstler, James Howard, “The Long Emergency’, p. 68.

  151. For example, US shipments of M60 tanks and F-14 fighters to Iran in the 1970s, or AWACS and F-15 fighters to Saudi Arabia in the 1990s. Klare, Michael, ‘Blood and Oil’, pp. 40-44.

  152. “On occasion, our experiences, our interests, will lead us to see things in a different way. For our part, we will not join a consensus if we believe it compromises our core principles. Nor would we expect any other nation to join in a consensus that would compromise its core principles. When we feel strongly about something, we will lead. We will act even if others are not prepared to join us.” (my emphasis) Powell, Colin, ‘Speech to the World Economic Forum, 26th January 2003’, ‘US Department of State’.

  153. European Commission, ‘Green Paper, 2000’, p. 38.

  154. Information on consumption and domestic production taken from Energy Information Agency, ‘International Energy Outlook 2006’, Table A2, Appendix A, p. 85, and Table E1, Appendix E, p. 155.

  155. European Commission, ‘Green Paper, 2000’, p. 38.

  156. For a fuller analysis, see Peters, Susanne, ‘Courting Future Resource Conflict’.

  157. Peters, Susanne, ‘Courting Future Resource Conflict’, pp. 36-37.

  158. See Kagan, Robert, ‘Power and Weakness’, ‘Policy Review’, June & July 2002, pp. 3-28, for a fuller analysis of European and US perspectives on power, and how Europe’s military weakness affects its policy and outlook.

  159. Peters, Susanne, ‘Courting Future Resource Conflict’, pp48-50.

  160. United States Energy Information Agency, ‘Country Analysis Brief: Japan’, December 2006.

  161. United States Energy Information Agency, ‘Country Analysis Brief: Japan’, December 2006, and Klare, Michael, ‘Resource Wars’, p. 117.

  162. United States Energy Information Agency, ‘Country Analysis Brief: China’, August 2006.

  163. MacCannell, Carol C., ‘Quenching China’s Thirst For Oil’, ‘Defence Intelligence Journal; 14-2’, 2005, pp. 53.

  164. Friedman, Thomas L., ‘The World Is Flat’, p. 409.

  165. Friedman, Thomas L., ‘The World Is Flat’, p. 57.

  166. USA Today, ‘Chinese oil company to buy Canadian firm for $4.2B’, ‘USA Today.com’, 22nd August 2005.

  167. BBC, ‘China To Develop Iran Oilfield’, ‘BBC News’, 1st November 2004; BBC, ‘Venezuela and China sign oil deal’, ‘BBC News’, 24th December 2004; Collier, Robert, ‘China Moves Fast To Claim Oil Sands’, ‘San Francisco Chronicle’, 22nd May 2005.

  168. Klare, Michael, ‘Blood and Oil’, pp. 169-170, and BBC, ‘Kazakhs Agree To China Pipeline’, ‘BBC News’, 18th May 2004.

  169. The US spent approximately $466 billion in 2004, while the rest of the world combined spent approximately $500 billion. China had the second largest budget, at around $65 billion. Figures from the GlobalSecurity.org website.

  170. United States Office of the Secretary of Defence, ‘Annual Report to Congress: Military Power of the People’s Republic of China, 2006’, 23rd May 2006, p1. It must be said that the US Department of Defence is hardly a disinterested observer, and Chinese efforts to modernise are not likely to challenge the US’ current dominance of the world’s oceans.

  171. Office of the Secretary of Defence, ‘Military Power of the People’s Republic of China, 2006’, p. 29 and pp. 35-36.

  172. The dispute in the South China Sea is with Malaysia, Vietnam, The Philippines, Brunei and Taiwan. For a fuller analysis, see Klare, Michael, ‘Resource Wars’, chapter 5. The dispute with Japan is over the uninhabited island of Senkaku-shoto (Diaoyu Tai), where there are potential oil and gas reserves, ‘The CIA World Factbook’, p. ‘China-Transnational Issues’.

  173. Klare, Michael, ‘Blood and Oil’, pp. 172-173. See also Bhadrakumar, M K, ‘China, Russia welcome Iran into the fold’, ‘Asia Times’, 18th April 2006.

  174. Energy Information Agency, ‘International Energy Outlook 2006’, Table A4, Appendix A, p. 87.

  175. In terms of per capita GDP (Purchasing Power Parity) , India is currently at $3,400, compared to China’s $6,800 and Japan’s $31,600. ‘The CIA World Factbook’, p, ‘Rank Order - GDP - per capita (PPP)’.

  176. Business Week, ‘China and India: A Rage For Oil’, ‘Business Week Online’, 5th September 2005.

  177. Srivastava, Anupam, ‘The Strategic Context of India’s Economic Engagement with China’, ‘Indian Journal of Economics and Business, Special Edition: India and China’, 2006, pp209-228, p. 223.

  178. This might seem like a rather hopeful sentence, unsubstantiated by any evidence. All of these states claim that they will not use their nuclear weapons first, but in the world of realpolitik, promises are worth little. I make this assertion based on historical precedents where combatants have declined to use every available weapon. This includes the non-use of chemical weapons during the Second World War, even on the bitterly-fought Eastern Front or in the final assault on Germany. The Cold War, though fought for lesser objectives, did not result in the use of weapons of mass destruction between the superpowers. Finally, after the 30 Years War, faced with the devastation of Central Europe at the hands of marauding armies, all of the European Powers intentionally limited the scope and extent of their wars up until 1792, fearing a return to the depopulation and ruin of that conflict. Japan does not currently possess nuclear weapons, but it has a strong nuclear energy industry and the technical knowledge to quickly manufacture them if needed.

  179. Klare, Michael, ‘Interview’, ‘OilDrum.com’, 27th January 2007.

  180. Regan, Tom, ‘Iran Takes Possession Of Russian Air Defence Missiles’, ‘Christian Science Monitor’, 25th January 2007.

  181. Klare, Michael ‘Blood and Oil’, chapter 6.

  182. See Tucker, Robert W., ‘Oil: The Issue of American Intervention’, and Ignotus, Miles, ‘Seizing Arab Oil’, ‘Harpers Magazine’, March 1975, pp. 45-62. Miles Ignotus was a pseudonym for a key Washington thinker at the time, and the article was seen as indicative of the thinking amongst some foreign-policy circles, at a time when the Arab-led oil price hikes of the 1970s were causing great economic damage.

  183. Nye, Joseph S. Junior, ‘Understanding International Conflicts’, p209.

  184. For example, the US Navy has no competitor on the open seas, and the US Air Force’s lead in stealth technology place it far ahead of any potential rival. Boot, Max, ‘The Paradox of Military Technology’, pp. 16-21.

  185. See Dunnigan, James F., ‘How To Make War’, pp. 584-593 for a discussion of this point.

  186. Nygren, Colonel K.P., Lt Colonel Massie D.D., and General (retd) Kern, P.J., ‘Army Energy Strategy For The End Of Cheap Oil’, pp. 3-4.

  187. Kibbe, Jennifer D., ‘The Rise of the Shadow Warriors’, ‘Foreign Affairs’, Volume 83 No2, March/April 2004, pp. 102-115.

  188. Poole, Oliver, ‘Football and Pizza Point To US Staying For Long Haul, ‘The Telegraph’, 11th February 2006, and Ricks, Thomas E., ‘Biggest Base In Iraq Has Small-Town Feel’, ‘The Washington Post’, 4th February 2006.

  189. Much as the US used to do at Diego Garcia in the Indian Ocean. There, the US kept ships holding equipment, maintained in situ by skeleton staffs. The troops were flown in from the US, married up with the equipment, and units were formed, in theatre, in days rather than months. The same process would work well with permanent bases in Iraq.

  190. Klare, Michael ‘Blood and Oil’, p. 152.

  191. Pfeiffer, Dale Alan, ‘Troop Surge: Why Now George?’, ‘CarolynBaker.org’, 21st January 2007.

  192. Baltimore, Chris, ‘Military Move On Iran Would Triple Oil Price’, Reuters, 20th June 2006, and Klare, Michael, ‘Interview’, ‘OilDrum.com’,

  193. Heinberg, Richard, ‘Powerdown’, p. 65.

  194. “…about 70 per cent of reserves are believed to be held in US dollars…” McGregor, Richard, ‘Beijing To Diversify Investment Strategies’, ‘Financial Times’, 21st January 2007.

  195. Klare, Michael ‘Blood and Oil’, pp. 3-6.

  196. Klare, Michael ‘Blood and Oil’, p. 72 and pp. 173-177.

  197. Tucker, Robert W., ‘Oil: The Issue of American Intervention’, p. 25.

  198. European Commission, ‘Green Paper, 2000’, p. 66.

  199. Natural Resources Defence Council, ‘Interview with Charles Maxwell’, ‘OnEarth magazine’, Winter 2007.

  200. Burton, John, ‘Global Conflict: The Domestic Sources of International Crisis’, Wheatsheaf, Brighton, 1984, pp. 7-8

  201. Barnes, J., and Jaffe, A.M., ‘The Persian Gulf and the Geopolitics of Oil’, ‘Survival’, vol. 48, no 1, Spring 2006, p. 146

  202. Barnes, J., and Jaffe, A.M., ‘The Persian Gulf and the Geopolitics of Oil’, p. 155.

  203. The US relies on Asian capital to support its economy and consumption, while the Asians rely on the US market to absorb their production. In effect, Asia sends money to the US, which uses it to buy Asian goods, the profits of which are then re-lent to the US. How long this cycle of lending and borrowing can continue is uncertain, as are the probable outcomes.

  204. Saul, John Ralston, ‘The Collapse of Globalism and the Reinvention of the World’, Penguin, London, 2005, pp. 6-10 and p. 20.

  205. Brown, Lester R., ‘Plan B: Rescuing a Planet under Stress and a Civilisation in Trouble’, Norton, New York, 2003, pp. 11-18.

  206. Monbiot, George, ‘Only Paranoia Can Justify The World’s Second Biggest Military Budget’, ‘The Guardian’, 28th November 2006.

  207. Tucker, Robert W., ‘Oil: The Issue of American Intervention’, p31.