Oil Consumption and Geopolitics 1

Oil Consumption and Geopolitics

Dr. Manish Kr. Semwal

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Oil Consumption and Geopolitics 2

Historical and Projected Global Population & Energy Consumption

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The relationships between oil supply and demand

– A spatial differentiation of supply and demand.– This can only be overcome by oil transportation. – 42% of the oil production was controlled by OPEC in

1997.– Countries not being OPEC members contributed to

58% of the production. – A spatial differentiation of oil reserves is also

observed, the bulk of them, 64%, are located in the Middle East

– Estimates in reserves range from 50 to 100 years

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Changes in Global Energy Consumption by Region

Energy consumption in Asia and Latin America is projected to more than double in the next 20 years!

Energy consumption in Africa and the Middle East should not lag far behind

Even technologically advanced nations are expected to increase energy consumption by up to 40% in the next 2 decades

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Oil Consumption and Geopolitics 5

World Energy Consumption

0

50

100

150

200

250

300

1990 1995 2000 2005 2010 2015 2020

Quad

rillio

n Bt

u

DevelopedDeveloping

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6

World Crude Oil Production, 1980-1998 (in 1,000 barrels per day)

Oil Consumption and Geopolitics 7

Global CO2 Emissions

Projections suggest rapid rise in CO2 emissions from Developing Nations, surpassing the emissions from Developed Nations by 2020.

CO2 emissions from oil are projected to dominate the anthropogenic contributions over the next 20 years

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Global Energy Consumption by Region

Industrialized Nations: Energy consumption will continue to rise over the next 20 years

Developing Nations: Nearly exponential growth in energy consumption over next 20 years

Developing and Industrialized nations projected to have similar energy consumption by ~ 2020

EE = Eastern Europe FSU = Former Soviet Union

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Oil Consumption and Geopolitics 9

World Crude Oil Reserves, 1999

6%7%

2%

7%

64%

8%6% North America

Central & South America

Western Europe

Eastern Europe & FormerU.S.S.R.Middle East

Africa

Far East & Oceania

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Major Crude oil reservoirs 0 50 100 150 200 250 300

Saudi Arabia

Iraq

Kuwait

Iran

United Arab Emirates

Russia

Venezuela

China

Mexico

Libya

Nigeria

United States

Algeria

Norway

Indonesia

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Top World Oil Consumers, 2008(thousand barrels per day)

Rank Country Consumption  

1 United States 19,498  

2 China 7,831  

3 Japan 4,785  

4 India 2,962  

5 Russia 2,916  

6 Germany 2,569  

7 Brazil 2,485  

8 Saudi Arabia 2,376  

9 Canada 2,261  

10 Korea, South 2,175  

11 Mexico 2,128  

12 France 1,986  

13 Iran 1,741  

14 United Kingdom 1,710  

15 Italy 1,639  

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Oil Consumption and Geopolitics 12

Economic Importance of Oil

• Costs of oil dependency– Wealth is transferred from oil consumers to

producers.– The economy’s overall ability to produce is

reduced by oil’s greater economic scarcity.– When price movements are sudden and drastic,

inflation and unemployment cause additional losses of output.

– Creates instability.

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The Oil Countershock• A changing scene

– At the end of the 1980s and at the beginning of the 1990s, OPEC countries lost their price-fixing power.

– Internal problems (economic and geopolitical conflicts between its members).

– New producers such as Russia, Mexico, Norway, England and Colombia.

• Not constrained by OPEC policies and were free to fix their own prices.– Mexico surpassed Saudi Arabia in 1997 to become the second

largest oil exporter to the United States, after Venezuela.– Latin American countries such as Columbia and Brazil are trying

to boost their oil production.

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The Oil Countershock– Vietnam is exploring offshore fields, as are other Southeast Asian

countries, hopeful that there are major reserves under the South China Sea.

• Divergences– Since 1982, divergences occurred within OPEC members to fix

quotas and prices as competition increased.– The share of OPEC dropped from 55% of all the petroleum

exported in the 1970s to 41% in 1992.• All-time low of 30% in 1985.• That year Saudi Arabia lowered the price of its oil to increase its market

share.– Oil counter-shock that lowered the price of the barrel under 20

dollars, even reaching a record of 15 dollars in 1988.– The oil market was again a market controlled by the demand.

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Oil Consumption and Geopolitics 15

The Oil Countershock

• The Gulf War– Respecting production quotas became a major issue among

OPEC members.– Countries such as Kuwait producing well above quota.– This event was a motivation for the invasion of Kuwait by

Iraq in 1990, which saw the price of petroleum jump to 41$.– 7.8% of the world’s oil production was removed (Iraq and

Kuwait).– Other petroleum-producing countries were quick to expand

their production to replace Iraq's and Kuwait's shortfalls.– The increase in oil price was short-lived.

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The Oil Counter shock• Aftermath of the Gulf War

– The price of oil fell to 25 dollars per barrel by the mid 1990s.– By 1998, the price of petroleum went under 10 dollars per barrel.– Rendering several producing regions temporarily unprofitable.– OPEC countries only control about 42% of the global oil production

and are so in a weak position to fix prices.• Reemergence

– At the end of the 1990s, the price of petroleum increased.– Oil reserves are in the Middle East.– Share of OPEC expected to climb to 48% in 2005 and 52% in 2010.

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Economic & Social Consequences of Oil Dependency

1. Financial indebtedness and possible insolvency of oil consuming countries.

2. Dependence on oil as the main revenue in oil producing countries, at the expense of other infrastructure development efforts.

3. Adverse impacts on the environment, indigenous peoples livelihoods and social structure.

4. Creating monopolies that nurture corruption in the oil producing as well as the oil consuming countries

5. Militarization of energy security policies leading to conflicts with high economic and human costs.

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Oil Consumption and Geopolitics 18

Oil & Wars

• 1980-88, President Reagan, during the Iran-Iraq war supported Iraq’s Saddam Hussein, reflagged Kuwaiti tankers with American flags, and provided them with US Navy escorts.

• George H.W. Bush in 1991 relied on the Carter Doctrine to implicitly justify US intervention in the invasion of Kuwait by Saddam Hussein.

• In 1997, President Clinton engineered building a US military base in Kyrgyzstan side by side a Russian military base. The bidding games between the two powers to maintain these bases, are still going on.

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Oil Consumption and Geopolitics 19

Oil & Wars (continued)

• President George W. Bush formally adopted the National Energy Policy Group’s (NEP) report in 2001 to: “make energy security a priority of our trade and foreign policy.”

• Then it proceeded to invade Iraq in 2003, when Saddam Hussein agreed to give oil exploration rights to Chinese, Russian, French, and other nations excluding the US and British multinational companies.

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Oil Consumption and Geopolitics 20

Oil and the Iraq War

• In 2003 the US invaded Iraq, with President George W. Bush citing various reasons. However, the real reason is expressed in a quote by a prominent US government individual:

“I am saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil.”

Alan Greenspan,Chairman Federal Reserve Board

1987-2006

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Oil Consumption and Geopolitics 21

Central Asia Oil & Gas Pipeline Projects

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Oil Consumption and Geopolitics 22

Energy & Oil Security Strategies

The energy hungry big powers have and continue to employ the various strategies of offering energy producing countries:

1. Economic development incentives 2. Industrial development incentives 3. Armament sales 4. Military alliances and bases

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Perils of Energy Security Militarization

1. Encouraging the creation of repressive autocratic regimes for ‘assuring’ energy security.

2. Inducing ethnic violence within states, 3. Invoking violent regional instabilities, resulting in

territorial conflicts between states, 4. Leading to military conflicts between big powers,

and/or their client states. 5. Breeding Terrorism

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Iran - Khuzestan Oil Fields

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US Military Bases in the Middle East

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A Perpetual Crisis: What We Could Do

1. Incentivize and enforce conservation policies.2. Demilitarize energy security strategies. War has never been

a zero-sum game. 3. Work on breaking up oil monopolies and cartels leading to

price manipulations, by encouraging free trade. 4. Use cooperative strategies of economic and industrial.

development between energy producers and consumers. 5. Encourage international cooperation in renewable energy

research and technologies. 6. Adopt international standards that assure human and

environmental safety.

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Alternatives

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Thank You

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