IN this era of Realpolitik, with ethics, rules, morals and ideology been sidelined to the dustbin of history and sheer politics ruling the crude world — as ever — it could be the harbinger of things to come.
The ardent proponent and practitioner of realpolitik in modern times, still calling shots and having a say within the Washington establishment, Henry Kissinger is back again on the subject of oil, with a bang — ominous sign indeed for the industry.
In an op-ed column he coauthored with Martin Feldstein, professor of economics at Harvard University and President Ronald Reagan’s chief economic adviser, the two assert on restoring the “The Power of Oil Consumer.”
Putting aside the basics of free market economics, at the very beginning of the op-ed piece, they openly come out with their concerns. “The tripling in the price of oil from $30 a barrel in 2001 to more than $100 today represents the largest transfer of wealth in human history. The 13 OPEC members alone are expected to earn more than $1 trillion. Inevitably, this must bring with it major political consequences. Not the least significant aspect of this political and economic earthquake is that it is exacted from the world’s most powerful nations by some of the world’s weakest.”
And then the learned writers, proponents of realpolitik in their own stride, lament, “Yet the victims stand by impotently as if the price of oil were some natural event determined by a competitive economic market that is uninfluenced and uninfluenceable by political forces.”
The two hence continue to argue, “The monopoly suppliers will continue to have strong market power until the consuming nations sharply reduce their dependence on imported oil and develop a political strategy to counter political manipulation of the oil market or the use of the vast OPEC surpluses to blackmail the economies or individual industries of the consuming nations. Failing such efforts, the high and rising price of oil will produce profound political and economic consequences.”
Even with the drop in oil prices to around $100 a barrel, the Middle East oil exporters will receive over $800 billion in 2008. Kissinger and Feldstein are wary of this too, as “this revenue goes to a handful of countries with small populations,” providing them with “a disproportionate political influence on world affairs.”
Loathing this situation, the highly influential writers say, “The explosive rise in oil prices has tempted more assertive policies. Resources are being shifted from passive investments in US and European government bonds to corporate equities and to the outright purchase of American and European businesses. As these new investments multiply, they may tempt the creditors into a growing influence over Western economies.
And then the practitioners of realpolitik assert, “This state of affairs is intolerable in the long run. The foreign policy of industrialized nations must not become a hostage to the oil producers. So long as consuming countries sit by passively or deal with the challenge on a largely national basis while hoping to benefit from the efforts of others, the present dangers will continue, if not increase.” And then suggesting a way out of the scenario, the two say, “Rather than wait passively for the next blow to fall, the major consuming nations — the Group of Seven, together with India, China and Brazil — should establish a coordinating group to shift the long-term trends of supply and demand in their favor and to end the blackmail of the strong by the weak. Russia should be invited to participate in this effort.”
Stressing action on the global oil scene by the consumers, the two suggest, “Coordinated policies should therefore focus on reducing US gasoline use, while foreign countries could contribute by shifting from oil to hydro, clean coal technology or nuclear power to generate electricity.” The eminent writers also emphasize increase in supplies — indeed irrespective of the market dynamics — so as to engineer market collapse at the cost of producers’ economies. “Increasing the supply of oil deserves high priority. American policies to increase supply by expanding drilling and by developing oil shale need to be matched by policies to increase supply abroad. That requires more investment by state-owned oil providers, the primary sources of oil today. The oil consumers are in a position to use diplomatic measures (read pressures) to establish a new balance between producers and consumers.”
Using the natural resources of smaller, inconsequential nations, rather cheaply, remains hallmark of imperial forces. History is full of such anecdotes. The changing tide, in terms of capital flow toward the smaller, “weaker” oil producing nations, is now being loathed by those who matter in this world.
Oil producers need to take note and be on guard. They are in for harder times. The next phase in this intriguing cat and mouse game is going to be interesting, mind boggling and indeed extracting. New moves are being made on the global energy chessboard — not something completely new to the oil producers too — and OPEC has a big task in hand.