Resource wars, ahoy

Get ready for more forecasts of resource wars – virtually all of which, you can bet, will feature China and oil.

It’s not hard to find a starting point. China has for several years been a key – if not the key – determinant of international oil demand, boosted by the fact that oil demand has effectively peaked in the west.

China’s oil imports are now at a record high, it recently overtook the US as the biggest importer of Saudi oil, and it’s been forecast by Platts to overtake the US as the overall biggest importer of oil in the not-too-distant future.

It’s not just China – Saudi Arabia and India held meetings over the weekend which resulted in Saudi agreeing to almost double crude shipments to India. Asian imports from West Africa recently reached record levels. Saudi Arabia is ceasing shipments of two of its grades to Europe this year. Then there are last year’s loans-for-oil and other deals.

We could go on.

But so far, this is mostly unremarkable: oil markets are fungible and with the exception of China’s bilateral oil deals made last year, all the above facts simply reflect that China’s demand in particular is becoming very big, very fast, while developed countries have reached saturation point. In fact my colleague Ed Crooks argued last year that China’s growing oil appetite was actually good for other consuming countries, because it would help avert a lack of investment leading to a medium-term supply crunch.

But a more explicitly geopolitical angle crept in with a new report saying that China is looking into the economic, political and military implications of the Arctic being navigable in summer months. The report says Chinese scholars are considering the Arctic’s oil reserves – estimated by the USGS to be considerable – and how it might get the expertise to recover them. Meanwhile, Russia is already using the melted ice to create a new route for oil shipments. From the FT:

Sergei Frank, the chief executive of Sovcomflot, said the Arctic route would be a “floating pipeline,” gradually helping Russia re-orientate its oil and gas exports away from Europe towards more dynamic eastern markets, including China.

Okay, so now for the war theories. Christian Science Monitor columnist Walter Rodgers is worried about this, and writes, in a oped entitled ‘War over the Arctic? Global warming skeptics distract us from security risks’:

Moscow gets this, even if the US public does not. “The Arctic must become Russia’s main strategic resource base,” Nikolai Patrushev, the secretary of the Russian Security Council, declared last year. “It cannot be ruled out that the battle for raw materials will be waged by military means,” a Russian planning document has warned.

Partially because of years of climate change denial, “the United States remains largely asleep at the wheel,” according to a Foreign Affairs article last March by Scott Borgerson, a fellow at the Council on Foreign Relations.

And:

Because of the vagueness of undersea borders, the US and Canada are also arguing about overlapping sovereignty claims with hundreds of billions in petro profits hanging in the balance. China has no polar border, yet it is building an advanced icebreaker to promote “scientific “and “commercial’ pursuits both in the Arctic and Antarctic regions.

Meanwhile Marc ‘Dr Doom’ Faber, famed as the bearish analyst who predicted the 1987 stock market crash, among other things, last week told the CSLA conference in Tokyo to invest in farmland and gold, because resources wars are coming.

From The Times:

One of Dr Faber’s darker scenarios involves growing military tension between China and the United States over access to limited oil resources.

A couple of things to remember, however, before we all get carried away.  One: China is just as paranoid about its dependence on foreign oil as the US – and its energy security risk is higher than the US’, according to Maplecroft.

Secondly, China takes the long view in many matters – without the encumbrances of democracy, it is freer to do so than most states. And far from focusing exclusively on feeding its ever-growing oil appetite, China is also tackling the problem, at least in part, by reducing its dependence on oil in all sorts of ways, from encouraging smaller cars to spending vast sums on clean tech, renewables and electric vehicles.

On the other hand, fears about looming resource scarcity are hardly on the fringe, and food and water – which are even harder to substitute than oil – could both come under pressure from growing population, climate change, and a changing energy landscape.

Related links:

China’s oil supply dependency (Energy Security journal)
China’s fears about imported oil (FT Energy Source)
Peak demand: going big?(FT Energy Source)

Energy Source is no longer updated but it remains open as an archive.

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