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Energy And The New Global Reality Print Energy And The New Global Reality

Please note: This archive page is related to a former project of the Stanley Foundation. Therefore, some of the material may be outdated and many of the links may no longer work. This page was last updated in late 2009. Information about current Stanley Foundation efforts can be found here.

 

A thorough reordering of global power structures is now in the making. Major powers now compete for exclusive rights to long-term secure energy supplies, including rising powers such as Brazil, Russia, India, and China. The industrial Western countries that belong to the International Energy Agency (IEA) no longer share a common strategic approach. And the free market mechanism of major exploration and production of oil by giant private corporate investors is now falling far short of both short- and long-term demand.

Thus the globalization of the oil market, from exploration to processing to transport and supply, is experiencing new interstate frictions between major and rising powers. The market is also becoming increasingly vulnerable to more nontraditional threats from various nonstate actors and secular economic trends. Increased conflict that involves the supply of oil in some way is possible at both the state and nonstate levels, and these two types of conflict may even coalesce and connect in yet unforeseen ways.

 

The energy sectors of both industrialized and developing countries are now viewed by many as increasingly vulnerable to unpredictable instabilities and disruptions. This is in part due to the September 11 attacks, but also in large part due to a trend of increasing interstate hostilities in the Persian Gulf since the Iranian Revolution of 1979.

Oil, gas, and petrochemical industries face numerous physical security threats from terrorist actors with regional or global motivations, as well as disruptions due to continuing political instabilities within and between oil-producing states in volatile regions. The world’s most significant sites of oil and gas exploration and production are located in increasingly politically unstable locations, such as Algeria ,Indonesia, Iran, Iraq, Libya, Nigeria, Sudan, Venezuela, and the former Soviet countries of Central Asia. As noted by a panel convened by the Woodrow Wilson Center, “The U.S. is forecasted to increase oil imports to 68% of its total supply over the next 25 years. Yet three-fifths of the U.S.’ top ten oil importing countries rank at the bottom two-thirds of the world’s most corrupt countries.” And there is some evidence that Al Qaeda views the oil-dependent transportation sector of the global economy, and the unstable oil-rich countries themselves, as future choice targets for attacks.

To make sense of the seemingly chaotic and dangerous events occurring daily in the Middle East—as well as unprecedented high fuel prices—it helps to look at energy security as one component of a larger regional and global order . And this order involves US leadership and US dominance, since World War II, in the financial, trade, military, and energy realms.

As noted by one recent study of the US Naval Postgraduate School’s Center for Contemporary Conflict, the international energy market has always rested on the possibility that major market participants might be required to use force to defend or manage its operation. This was shown even before the end of World War II, when Franklin Roosevelt took it upon himself to guarantee the territorial integrity of Saudi Arabia, in return securing its cooperation in the orderly production of oil in line with American requirements. As analysts Daniel Moran and James Russell have recently noted in their examination of the militarization of energy supplies, “International markets have always been sustained indirectly by the armed forces of major participants, above all by the great maritime powers (first Britain, now the United States), whose interest in the expansion of global commerce was and is backed by armed forces that secure an essential piece of the system: free transit of goods across the high seas.”

Thus the energy market has never been immune to political and strategic influence. Oil has been used as a “weapon” by oil-producing states in the past, and its price (along with that of natural gas) is reflective of a range of political pressures to which a perfectly efficient, private, agnostic market would be indifferent

But the US-led energy order is unraveling. The traditional US strategy has been one of US reliance on natural friends within the region and Western allies outside the region, US forcible interventions in unfriendly regional countries to ensure control of oil and natural gas by more pro-Western local governments, and reliance on free market corporate actors. But this approach is now increasingly in question.

All strong empires or states have benefited from an “energy order” peculiar to their historical period as a dominant regional or global power. And each such energy order, associated with a particular leading state or bloc of states, has invariably declined and decayed through a combination of physical infeasibility (the natural resource in question runs out) or because of the transformation of economic rationalities via technological change (the status quo order is displaced as technological advances and new natural resource findings create different efficiencies).

Large-scale, systemic energy transitions involve more “bang for the buck” per unit of processed natural resource. And as the newer energy order evolves, the major power that is most associated with this evolving form of energy technology in political and social terms becomes the emergent dominant leader on the world stage. So, when energy orders decline due to economic inefficiencies and natural depletion, they reshuffle wealth and power around the world.

This centuries-long dynamic is succinctly described by environmental security professor J. R. McNeill of George Washington University’s Elliott School of International Affairs:

 

The seventeenth century Dutch were the first to depend heavily on fossil fuels, in this case peat, which provided perhaps 40 percent of their total energy expenditure. This allowed the Dutch to build a precocious modern economy with energy-intensive industries (e.g., brewing, sugar-refining, and salt-making).... It also helped underpin the geopolitical assertion of the Dutch on the world stage [as a sea and financial power]. After 1800 Great Britain turned to coal with which it achieved similar results on a larger scale, as did the United States after 1900 with oil.

 

Today, the complex connections between the global energy order, US dominance in trade and financial institutions, and the US military machine are rarely made. But though complex, these linkages are very real. As described by two analysts at the US Naval Postgraduate School’s Center for Contemporary Conflict, “Nothing of strategic significance that happens in the world of energy can realistically be considered without simultaneous reference to the workings of global financial markets, a realm in which the United States occupies a position comparable to that of the Middle East with respect to oil. States need energy not for its own sake, but in order to be able to make things to consume and to sell. This means they also need customers, investors, and creditors.…” And this, in turn, points to the central role of the US-dominated World Bank, the International Monetary Fund, and the World Trade Organization.

The energy security policy of the United States includes a huge and growing military and intelligence budget.

The most recent evolution of energy security policy is based on two Democratic US Presidents: Jimmy Carter and William Jefferson Clinton. In his 1980 State of the Union address, President Carter stated what came to be known as the “Carter Doctrine”: “Any attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

At the time, there was some thought that Iran’s internal Islamic Revolution had Soviet support and involvement. Thus, it was not an especially large logical jump to apply this notion, in the 1990s, to situations where a strongly anti-US or antiglobalization government may gain control of their own substantial national oil resources in states such as Iraq, Iran, or Saudi Arabia. The Carter Doctrine also has been implicitly and steadily expanded to include attempts by regional powers to gain control of the region through local hegemony. As the 1996 Clinton National Security Strategy stated:

 

There are three basic categories of national interests that can merit the use of our armed forces. The first involves America’s vital interests, that is, interests that are of broad, overriding importance to the survival, security and vitality of our national entity—the defense of U.S. territory, citizens, allies and our economic well-being. We will do whatever it takes to defend these interests, including—when necessary—the unilateral and decisive use of military power.

 

In sum: The global energy system and the US pursuit of “Full Spectrum Dominance” in military capabilities are deeply intertwined.

As argued in a Stanley Foundation policy analysis brief by global security and technology expert Clifford Singer, a policy of being prepared to intervene unilaterally in the large oil-producing states to influence who has control of production dictates that the United States maintain sufficient conventional military forces to attack, occupy, and then stabilize the succeeding government. Moreover, those military forces must conduct such operations in a country whose population may harbor violent opposition to outside forces bent on determining who controls the country’s oil. An operation on this scale requires forward basing of air power and heavily armored ground force divisions, as well as the naval and air transport support and protection needed to supply these forces deep in enemy territory. It also requires substantial occupation forces trained in the local languages and customs, and suitable intelligence and reconstruction support capable of succeeding while pursuing an intensive counterinsurgency campaign.

In short: It is only the US military machine that can, if needed, conceivably occupy and invade an oil-rich country such as Saudi Arabia in the case of negative internal developments such as a coup by Salafi, Sunni fundamentalists. Other rising power nations, even large ones such as India and China that are contemplating a growth in blue water naval capabilities, still do not have the internal wealth or political will to turn themselves into the Persian Gulf regional policemen.

The United States executive branch upholds the existing US-dominant energy order in part via strategic military dominance and superior war-fighting and occupation capabilities, and in part via punitive financial and trade sanctions toward unfriendly regional powers. Other major powers are pressured to comply with these measures. This pressure is often still quite effective because of the size of the US consumer market in the global economy—that is, a situation where rising Asian powers such as China, India, and Japan are more dependent on trade with the US economy for their well-being than they are on a regional oil supplier such as Iran.

But the economic and political costs of this theoretical “veto power” are quite high. Despite US pressures, financial and trade deals are still going forward between other major powers and Gulf States, as reported by the US Government Accountability Office. And militarily, even a relatively isolated state such as Iran can use arms supplied by other rising powers such as China and Russia to respond to potential US preemptive strikes by targeting the urban centers and military bases of nearby Arab nations that have bilateral defense pacts with the United States (even if Iran could not physically injure the US homeland itself). And through both missiles and its navy, Iran could conceivably shut down or at least severely hamper shipping of oil through the Strait of Hormuz. Overall, this sort of conflict and instability would make oil prices skyrocket well beyond the $100-per-barrel prices now seen today.

US strikes against unfriendly regimes to ensure the supply of oil at free market prices would also be interpreted by Arab publics throughout the Middle East—and many Muslims throughout the world—as further aggression (beyond Iraq) against the Islamic community of nations, driving US legitimacy further downwards in not only the Persian Gulf, but also other oil-producing countries in Africa, Central Asia, and Southeast Asia with substantial Muslim populations.

Moreover, there are definite limits to the use of force in backing up, or defending, a system that is supposed to be based on uncoerced, free market interactions. The United States is facing a conundrum: if military force must constantly be used to ensure that globalization-friendly governments oversee the exploration, processing, transport, and selling of oil on a global free market, then is the global oil system in fact a nonviolent model of normal free market interactions? Or has it become something else? If some key actors in the oil market are unwilling to act on market incentives alone, but also act upon growing nationalist impulses , what does this mean for US leadership?

Ultimately, it is questionable whether an energy order based on one power’s ability to incessantly intervene militarily in a highly volatile region is budgetarily, diplomatically, or politically sustainable, the environmental trend of global warming aside. And the onset of climate change only makes a seismic shift in energy practices that much more necessary—indeed, inevitable.

Regional Gulf Arab governments continue to rely on military contributions from outside nations, especially the United States, to ensure a rough balance of power to protect their sovereignty, domestic identity, and regime security. But while political and security elites in Gulf countries are pursuing the perfection of an international power balance in the region, the entire Middle East region is undergoing a social transformation. Amid the hyperbole regarding Iran’s nuclear program and Iraq’s continuing chaos, a much larger and potentially more explosive phenomenon has been steadily developing throughout the Middle East region, from Northern Africa to the Persian Gulf: the transition from authoritarian, controlled states to more open societies. The rough nature of this unfinished transition, alongside a cross-country boom in population, is already leading to high rates of unemployment throughout the region.

In the Persian Gulf today, transitioning societies in the earliest stages of nation-state development are facing the challenges of an increasingly transnational world. Central state leaders throughout the Middle East are trying to build up state power, governmental prerogatives, and national sovereignty in a regional security environment characterized by news, information, and cultural norms that are inherently transnational and uncontrollable in nature. Middle East states are quickly becoming interdependent through the flow of political arguments, information, and ideologies, even as they stay purposefully apart in terms of elite-level foreign policies, military policies, and diplomacy.

And the primary guarantor of the stable flow of oil for the global economy (the United States) is now almost universally mistrusted, misperceived, and even feared by the Middle East citizenry themselves—including business, academic, and media elites, as well as average citizens.

Given the explosive growth of manufactured goods and trade throughout parts of the globalizing world, the growing appetite for ever more energy eventually will have to go beyond materials dug up from the bowels of the earth. Technology and renewable resources will have to be combined in yet unseen ways to make up for the fact that the earth’s natural resources are naturally finite.

Long before natural gas and oil are depleted or become economically inefficient to mine and process, the centuries-long pattern of state dominance through the exploitation of fossil fuels has rapidly become dangerous for the entire global order through the environmental effects of global warming.

Eventually, the centuries-long pattern of national dominance wedded to energy orders will cease: the way human societies fuel their societies’ growth will no longer be tied to a dominant empire, state, or bloc of states, as in previous cases of the Dutch, British, and today’s case of the United States, and various rising powers.

The question is: Will political ideas and leadership catch up with these secular trends? Progress is possible, especially if the major powers of the world learn to closely cooperate on a more purposefully engineered, collective transition from the old energy order to the new. Indeed, even the current major power competition over gas and oil can be minimized in the near- and medium-term through closer strategic cooperation between the United States and China, particularly in regard to the Persian Gulf and especially difficulties surrounding Iran.

The natural US response thus far to major power interests in the Persian Gulf is one of defensiveness: How are these competing powers threatening regional stability and the oil supply? But Chinese author Dr. Xuecheng Liu has argued in a Stanley Foundation brief entitled "China’s Energy Security and Its Grand Strategy" that the growing Chinese interests in the Persian Gulf represents less of a challenge to US hegemony than a natural, organic result of China becoming the dominant, cooperative trading partner of the United States in the expanding global economy.

As of the end of 2005, Saudi Arabia accounted for about 17 percent of China’s imported oil (and this figure continues to grow), and total trade between the two countries grew by a substantial 59 percent in 2005 to $14 billion. Saudi Arabia is China’s largest trading partner in the region from West Asia to North Africa. Today, China is Saudi Arabia’s fourth-largest importer and fifth-largest exporter, while Saudi Arabia is China’s tenth-largest importer and biggest oil supplier. Overall, Saudi Arabia, as the world’s largest oil exporter, wants to nurture China as a customer, especially because Asian markets are closer to the Persian Gulf than Europe and the United States.

Iran has also figured strongly in this oil equation. With its unique geostrategic location linking two main energy hubs—the Caspian Sea and the Persian Gulf—and as OPEC's second-largest oil exporter, Iran has become an energy partner of China. Chinese oil companies have signed long-term contracts valued at $200 billion, making China Iran’s biggest oil and gas customer.

As of the end of 2005, Iranian oil supplies accounted for about 14 percent of China’s oil imports, and this figure is (as with Saudi Arabia) expected to grow with time. Currently more than 100 Chinese companies are operating in Iran—developing ports, airports, and oil and natural gas. China is also in the process of importing Iranian natural gas. China hopes to become a comprehensive participant in exploration, drilling, petrochemicals, pipelines, and other upstream and downstream services related to Iran’s oil and gas industries.

Despite these close Chinese-Saudi and Chinese-Iranian ties, however, many analysts still emphasize the close congruence of US and Chinese interests in the Persian Gulf.

India is a textbook case of the pragmatic, opportunistic approach to national security, including acquisition of energy supplies in the 21st century, which puts it on ambivalent footing with the United States in some areas. India is now potentially financing and lending technological and material support to numerous Iranian industrial projects related to the supply of oil and natural gas to the global economy, as well as stepping up defense and even nuclear cooperation. As India’s blue water naval capabilities have expanded, India has stepped up bilateral naval cooperation with both Iran and Arab states in the Persian Gulf, including recent highly publicized naval patrols in the region.

Overall, India is keen—as with other major powers such as China, the EU, and Japan—to be seen as an overall friendly or neutral power that shares trading, financial, military, and political interests with all Gulf players, whether they are Persian and Shiite Muslim (Iran) or Arab and Sunni Muslim. In particular, India is not interested in stoking the Shia-Sunni or Arab-Persian divide. As with other cases, this strongly runs against the grain of the current dominant US approach.

One troubling development is the growth of major arms exports by the world’s major powers to the Gulf subregion of the Middle East. The Western powers generally supply the six Gulf Cooperation Council or GCC states (Arab Monarchies) with the best defensive and offensive conventional weapons in their arsenals, while China and Russia have supplied relatively less (but still strategically important) “niche” conventional arms to Iran, including short- and medium-range missiles.

US sales to the GCC states have been particularly high. GCC demand for such weapons is due in part to rising tensions between the Sunni Arab Monarchies and Shiite Iran, connected in part to violence between the two religious branches within conflict-ridden Iraq. China has also supplied Iran with defense technologies.

Despite these Chinese-Iranian defense ties, however, many analysts emphasize the increasingly close congruence of US and Chinese interests in the Persian Gulf, as well as congruence with the interests of all rising powers in the expanding global economy.

In a Stanley Foundation brief entitled "Oil and Security," physicist and foreign policy expert Clifford Singer argues that globalization has become stable enough in its parameters, overall, and that major powers (including the United States) do not have to worry that oil price hikes caused by regional instabilities will upset global economic growth and prosperity. Based on a thorough look at economic statistics of the last several decades, he concludes that the United States should forswear extremely costly military interventions in Middle East states to ensure “friendly” control of oil supplies, favoring instead more concerted political and diplomatic cooperation with other major powers to wrest concessions from OPEC on the predictability and stability of oil prices.

In turn, this strategic policy shift would enable the United States to spend much less on conventional invasion and occupation forces for the remainder of the “Age of Oil,” instead building up reconstruction, stabilization, and counterinsurgency capabilities for dealing with urgent nontraditional threats in other parts of the globe, including the threats of nonstate terrorism and failing states.

And there are additional immediate policy steps that may be taken, even without the large strategic policy shift recommended by Singer. Chinese author Dr. Xuecheng Liu has argued in another Stanley Foundation brief entitled "China’s Energy Security and Its Grand Strategy" that energy security and energy cooperation should become a major theme within the United Nations, G-8, and regional organizations, and it should also be put on the agenda of the US-China Strategic Dialogue. In particular, the IEA should be broadened by admitting all major energy-consuming countries such as China and India and seek to avoid energy-supply disruptions among the member states by coordinating energy policies.

In general, argues Dr. Xiu, China and the United States should not see each other as competitors but rather as partners in the international energy market, because the two countries have shared strategic interests and practical opportunities for cooperation in joint exploration, production and shipping safety, development of new and renewable energies, and environmental protection.

Former advisers of both the Clinton and George W. Bush administrations believe that global cooperation between major powers is feasible and necessary—with energy security being an obvious area for further exploration of common interests. For instance, former Clinton national security advisers Nina Hachigian and Mona Sutphen have argued that differences between major powers in approaches to key issues should not be mistaken for differences in the overall international policy goal of stabilizing the expanding system of globalization.

And as similarly noted by a former senior Middle East adviser in the Bush administration’s National Security Council, in a 2006 Washington Quarterly article:

 

Washington should initiate active cooperation with Beijing to help it implement policies and programs that would reduce China’s demand for hydrocarbons. The more that China is able to use alternative sources of energy to generate power, such as nuclear energy and ‘clean’ coal, in which U.S. companies enjoy a technological edge, the less it will need imported petroleum. In particular, the United States should modify its export control and related policies to facilitate the transfer of nuclear technology to China. China is seeking to construct up to 40 nuclear power plants by 2020…. Helping China increase its nuclear energy supply would not only provide commercial benefits to U.S. suppliers but would also decrease, at least on the margins, China’s demand for oil imports. Helping China use its abundant coal resources more efficiently through the provision of clean coal technology would also decrease the portion of the country’s petroleum imports going toward power generation and improve China’s air quality.

 

Of course, all of this depends on a basic change in the US approach to, and role in, the larger world: one that focuses on cooperation in provision of “global public goods” via cooperation with major powers rather than based purely on strategic dominance, the winning of wars or competitions with absolute sovereign state enemies , or a selectively multilateral toolkit that relies on a partial bloc of friends and allies.

Please send us your thoughts on the changing global order and the materials offered here. All comments may be reprinted on this Web site and in related materials.

This page is part of Rising Powers: The New Global Reality, a project from the Stanley Foundation.

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The global order is changing. The 21st Century will be marked by many competing sources of global power. Across politics, economics, culture, military strength and more, a new group of countries have growing influence over the future of the world:

Brazil

Russia
China

South Africa
European Union

South Korea
India

Turkey
Japan

Other Countries

Big issues are also playing a cross-cutting role in this changing global order:

Energy

Nuclear Nonproliferation
Nonstate Actors

Global/Regional Systems

And this changing global order has implications for the United States.

 
 
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