Reducing the Opportunity Cost of Energy
It is arguable that securing energy supplies is the most important single challenge within the international security agenda. Entire foreign policies are based around this aim, and nations are constantly jostling to cut deals – in all sorts of ways and often at the expense of others – with energy suppliers, private and governmental. It is hardly surprising, for energy drives our modern economies and is an indivisible component of economic and social growth. The recent war in Iraq and the continuing upheaval in that country is a prime example of an attempt to secure energy supplies. Certainly, stating that Iraq was a “war for oil” is a gross simplification. However, the Middle East is strategic primarily for its energy reserves, and thus it is certainly in the world’s interest to promote a stable Middle East. Such an aim has been a central plank of the foreign policy of every major world power for decades. Of late, however, the developed world has become increasingly engaged in the Middle East – with the overarching aim of securing energy supplies. This has inflamed cultural and often geopolitical tensions, arguably culminating in the current “War on Terror” scenario. I will examine some of the forces at play in the Middle East relevant to global energy supply, and attempt to provide a solution to the energy supply challenges faced today. The West must play the leading role in this envisaged solution, not just because it is most able to; it has the most to gain by determining the solution to the world’s energy supply problems. It can secure its comfortable, energy-reliant way of life into the distant future, as well as making for more peaceful global relations.
Western involvement in the Middle East stretches back long before the existence of the concept of “The West” itself. Obviously, this history impacts on events today, howeverplenty has been written about that and I don't want to dwell on it here. In the place of historical analysis, I will state the obvious and highlight the Middle East’s current strategic importance. At the end of 2003, it contained well over half of the world’s known reserves of crude oil. Crude oil is humankind’s most important, widely used and versatile energy source, and it is the largest selling commodity in the world by value of sales. Saudi Arabia, the nation with the largest reserves of crude oil in the world, sits on approximately a quarter of known reserves. Following Saudi Arabia (in descending order of size of reserves) is Iran, Iraq, the United Arab Emirates and Kuwait. These four nations contain approximately 40% of the world’s known reserves of crude oil between them.
I briefly mentioned the conflict in Iraq above. Whilst it is too soon to say the Coalition’s mission there has failed, it is surely safe to assert that events are not unfolding in a way the architects of this war had hoped. The predominantly American occupation of Iraq could conceivably still “win the peace”, however it seems less and less likely that the post-Saddam Iraq will resemble the model the United States was hoping for. When the Iraqi occupation ends, Iraq is supposed to be a democratic, liberal, Western-friendly, human rights respecting nation that will hopefully spread these values to its neighbours. It is supposed to be a pacifying keystone in the Middle East. The removal of Saddam Hussein was supposed to defuse much of the tension in the region. None of these objectives have been achieved yet. A hideous tyrant who oppressed the majority in his country to keep cultural tensions at bay and shore up his regime has been toppled. However, the removal of his iron fist has caused an explosion of ethnic-based insurgency. This may yet be quelled, however the salient fact is that the occupation and reconstruction of Iraq is taking place at phenomenally vast expense – borne by the American taxpayer, mainly. As of this moment, the American government had spent over US$200 billion on the war and occupation, and much more is required. The question must be asked; is it worth the cost? The Iraqi lesson is providing the answer, and that is almost certainly no. The military might of the United States could undoubtedly conquer all the armies of the entire Middle East if the US desired, but the Coalition of the Willing is struggling to administer one Arab nation. Even after all the blood that has been spilled and the money that has been spent, it is still possible that a post-occupation Iraq will become a more dangerous entity than the pre-occupation Iraq.
The Western world’s need for crude oil has required it to act amorally to ensure supply. It has, over the years, acquired some strange and ugly bedfellows to ensure this goal. The West’s shameful partners include the House of Sa’ud, which most notably enforces dark-age levels of freedom on half its population, amongst other abominable human rights breaches; Saddam Hussein, who was arguably the most brutal dictator of the last three decades; and the Shah of Iran, who was not particularly far behind Mr Hussein. There is a moral imperative for Western democracies to stop supporting regimes of these flavours. However, the experiment in direct intervention to bring about change in the Middle East has failed on economic grounds, despite the fact that it is too soon to call the mission itself a failure. A tactical shift is required.
The solution is clear – the Western democracies must disengage from the Middle East – militarily, politically, economically. This means that the West needs to wean itself off the Middle East’s trump card; its crude oil. This is obviously a transitional process that would take some years, but it is necessary that the process commences soon. Obviously, we need to get our energy from somewhere. Alternatives must be developed, however we need to be clear-headed about the nature of these alternatives. Realistically, it must be expected that in the medium term our reliance on fossil fuels will continue. However, governments need to encourage development of fossil fuel alternatives to Middle Eastern crude, and development in the long term of more sustainable alternatives to fossil fuels in general. A two-pronged strategy is required that would use strategic total tax breaks on certain types of research and development efforts, as well as on investment to create production and distribution of the new sources of energy.
The first prong in the strategy involves developing alternative fossil fuel sources. Tax breaks should be introduced to cover exploration for crude in Western countries and countries friendly to the West. Also, tax breaks should extend to funding development of huge alternative fossil fuel deposits such as the Canadian tar sands. The Canadian tar sands hold a phenomenal amount of recoverable tar that can be converted into synthetic crude, and thus other petroleum products. The University of Alberta claims that there are 1.7 trillion barrels of oil locked up in the sands. Using current technology, it is claimed that 265.5 billion barrels of oil (To put that figure into perspective, Saudi Arabia at the end of 2003 held 262.7 billion barrels of proven oil reserves) is accessible. Currently, the process is more expensive than, and not as clean as, oil extraction in the Middle East. However, research and development into harvesting a greater percentage of the tar sands more efficiently and cleanly should narrow the gap. Research and development into crude oil extraction has developed new techniques that have made previously exhausted oil wells produce again and previously inaccessible oil fields viable, so expecting that more research and development into mining the tar sands will lead to more effective exploitation is hardly a flight of fancy. Harvesting tar sands is a technique that is still in relative infancy, and producing synthetic crude from them is becoming cheaper and cleaner. This process needs to be sped up by the strategic application of tax breaks, which should also apply to money invested in large scale production and distribution infrastructure to markets around the world. The second prong in the strategy involves a longer timeframe.
In my opinion, the most plausible sustainable alternatives rest on technology we already possess – nuclear energy for fixed energy consumers and hydrogen fuel for mobile appliances such as automobiles. Hydrogen ‘fuel cell’ technology is in a relatively advanced stage of development, however rolling out the comprehensive infrastructure to transport and store hydrogen at all places where automobiles venture will take a great deal of time, and this is the major challenge. Converting water to hydrogen is also quite an energy intensive process, and further research and development is required to reduce the cost of this. However, emission-free nuclear energy can be utilised for this purpose. Australia and Canada already have enormous reserves of radioactive commodities, and we have barely started exploration for radioactive elements like uranium in earnest – due to a relative lack of demand. Uranium is a very common commodity.
Disengaging from the Middle East could potentially solve a great many problems for the Western world. Disengaging is one matter, however it would be unfair – and possibly counterproductive - for the West to quarantine the Middle East. Disengagement should result from a campaign of incentives to reduce demand for Middle Eastern oil, rather than coercive measures to stifle Western economic activity in the Middle East and vice versa. The West should still trade with the Middle East if parties from both regions are consenting. However, oil would not be required by us. The West becoming more self-reliant in energy would conceivably lower prices. If, for example, the Western world started relying on its own fields and alternative fossil fuel sources like the Canadian tar sands, the power of the OPEC cartel would dissolve. OPEC has constantly put upward pressure on the price of crude oil since its inception. It is estimated that over the last three decades since the energy crisis of 1973, OPEC has artificially diverted 7 trillion dollars from American oil consumers to oil producers through its quota programmes. Also, it is worth considering that prices are also influenced by perceptions of supply, not just supply itself. If consumers, traders and speculators alike believed there was a strong programme afoot to bring the oil age to a close, this expectation would put downward pressure on the oil price. The economic boon of lower energy prices is not the only drawcard of disengagement. Many of the so-called “root causes” of Islamic extremism – as laid out by extremists and various commentators in the West – would disappear, for example. Islamic extremists have made it clear that they do not appreciate the presence of Westerners or Western icons in their homelands. A Western exit from the Middle East should placate many who seethe at the thought of infidels in the holy lands.
There are complications here – such as whether those willing to resort to terror to achieve their sometimes ambiguous aims – will “move the goalposts” and discover new objectives. It may well redefine the War on Terror. If we do withdraw from the lands of the terrorists and terrorism ceases to be an issue, then great. They can go their way, and we ours. If, as I suspect, the terror organisations simply change their demands, their true objections will hove into view. It will be impossible to assert (sanely) that we are not facing an implacable enemy whose target is our way of life. It will be a sign that we need to get serious in our struggle against those who wish to construct the international caliphate - the Clash of Civilisations is real. It will also mean that the endgame is in sight.
Israel is another complication - it is only useful to the West whilst the Middle East is strategic, yet we have a duty to protect it. Having said that, there is no reason why we should continue to prop it up with aid and treat it as a special case diplomatically if the Middle East stops being an energy source. Perhaps the USA could simply mention that Israel falls under its nuclear umbrella. That should be enough to deter any would-be aggressors, in the event that Israel's own nuclear deterrent is not sufficient. Anyway, the chance of Islamic fundamentalists and Arab nationalists driving Israelis into the sea seems incredibly far fetched, given the above scenario. An Arabia bereft of petrodollars is hardly going to be in a position to wage effective war on a military tour de force like Israel, which - despite its current reliance on American aid - could easily stand on its own two feet economically.
An organised disengagement from the Middle East makes sense to me. I am trying to determine whose interests run against such a plan. Not big oil - most Middle Eastern oil is pumped by state owned juggernauts like Saudi's Aramco - surely the biggest company in the world by any measure. Big oil should love tax breaks on exploration. The major losers are clearly the Middle Eastern states with their undiversified economies. Most would, in a few years of no oil revenue, be plumbing the depths of penury alongside Africa. Perhaps the military industrial complex might have objections? Any ideas?
(Crossposted at Samizdata)