Edited by W. Joseph Stroupe with the mission of explaining world events correctly via strategic analysis & forecasting
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Russia has found the Achilles Heel of the US Colossus. In concert with its global oil-producing partners and the rising powerhouse economies of the East, Russia is altering the foundations of the current US-led liberal global oil market order, insidiously working to undermine its US-centric nature and slanting it toward serving first and foremost the energy security needs and the geopolitical aspirations of the rising East, all at the impending incalculable expense of the West. What is increasingly at stake is secure US access to global energy resources - strategic US energy security - because the West's traditional control respecting those global resources is seriously faltering in the face of the compelling strategies undertaken by Russia and its global partners.
The US Giant is increasingly at risk as it faces what is gradually but now more widely being recognized as Russia's clever, skillful and insidious exploitation of US foreign energy dependency and the hemorrhaging of its all-important economic-geopolitical capital: its traditional global energy leadership and dominance via its one-time virtually all-pervasive oil majors.
US Senator Richard Lugar, who recently labeled Russia an "adversarial regime" that increasingly uses its growing energy dominance as a powerful geopolitical weapon, has warned of economic "catastrophe" for the US, notwithstanding its status as a superpower. Consequently, informed and reasoned leaders such as Senator Lugar increasingly see the US in energy-based jeopardy. Such informed leaders clearly do not put blind trust in the conventional wisdom that keeps insisting the US Giant has no Achilles Heel and is virtually immune to the efforts on the part of comparatively smaller powers like Russia and its partners to undermine the current US global position of supremacy.
Backing up the mounting concerns of leaders like Senator Lugar, as reported on October 1, 2006 by The Guardian Unlimited, widely respected energy economist Professor Peter Odell, who was an advisor to Tony Benn, the UK energy minister in the late 1970s and who has since worked for a host of different foreign governments, said he was not being alarmist or controversial when he recently warned that the West is at imminent risk of losing access to global energy resources as a result of Russia's global oil grab. Professor Odell warned that at any time Russian and Chinese state-owned oil companies, backed up by certain rich members of OPEC who are closely aligned with the two, could make hostile takeover bids for key Western oil majors like BP-Shell, ExxonMobil and/or Chevron, thereby gutting what little remains of the Western oil majors' control over the global markets and thereby further threatening US access to strategic resources.
Professor Odell warned that the Western oil majors are already losing their leadership of the global oil system, have now been reduced to controlling a mere 9% or 10% of the world's reserves, and are unable to win new production rights or even hold onto those granted by current PSA's (Production Sharing Agreements). Recent developments regarding Russia's Sakhalin-1 and Sakhalin-2 projects, in which the position of the Western oil majors is being threatened, illustrate the ominous trend that is accelerating world-wide.
In order to forcefully rock the US Colossus out of its position of global dominance and credibly threaten to inflict economic and geopolitical "catastrophe" upon America and the West, Russia and its strategic partners need not exceed, nor individually even remotely match, US economic, political or military strength in a conventional head-to-head contest of might. Instead, they need only to effectively exert their mounting energy-based strengths against US vulnerabilities in that same sphere, not in a conventional head-to-head confrontation with the US Colossus, but instead by going after the Achilles Heel by employing a clever asymmetrical end-run strategy around the US, one targeting the foundations of the current US-dominated liberal global oil market order, a strategy that leaves the US Giant with significantly reduced secure access to, and control over, global strategic resources. Once that goal is accomplished, without ever a conventional head-on confrontation with the US Giant, then the US economy can be effectively and powerfully held hostage to the political and economic aspirations of Russia and the rising East.
However, whenever this subject arises, that of a virtual energy-based economic-geopolitical checkmate of the US in particular or of the West in general, conventional wisdom is summoned up by the skeptics in order to make the argument that neither the West in general nor the US in particular can be effectively targeted with the energy weapon anytime soon because the structure of the global oil market prevents targeted oil embargoes from being effective. Once oil is sold on the global market no producer can control where it does or does not go, the argument says. Additionally, the argument continues, producers attempting an embargo cannot afford to withhold their products for long enough to damage the targeted economy lest their own economies, which are inordinately dependent upon oil and gas exports, themselves collapse. The clear insinuation of those making such arguments is that any talk of an energy-based economic checkmate of the West is merely hyperbole and sensationalism.
Those same arguments have been recycled over and over again by the skeptics and may appear to most persons to be as irrefutable tomorrow as they admittedly have been until today, but in fact they are already in process of collapsing under their own weight in the face of an entirely new array of mounting trends and developments that constitute an impending and grave threat to the strategic energy security of the West, making the old arguments valid no longer.
Such arguments are based upon an entirely erroneous and acutely fatal (for the West) grand assumption, namely that the foundations of the current US-led liberal global oil market order cannot be altered, nor the system itself circumvented and undermined anytime soon so as to revive and enhance the ability to effectively target the energy weapon against the West.
However, in its recent report entitled "National Security Consequences of U.S. Oil Dependency", The Council on Foreign Relations disagrees with such reassuring conventional wisdom and the myths and assumptions associated with it and warns that the US faces increasingly potent, negative political, economic and geopolitical consequences arising from its dependence on foreign energy resources. The report laments that the US is "insufficiently aware of its vulnerability" because its leaders and peoples have come to rely on reassuring myths and assumptions that do not square with the facts. One warning that is sounded is the potential of a fundamental alteration of the current liberal oil market order, the acceleration of new trends and developments potentially undermining its liquidity and dynamism and hence the ability of that order to serve the strategic energy security of the US.
We shall see precisely why the grand assumption noted above is entirely erroneous, and in what manner Russia and its partners are already insidiously altering the global oil market foundations and thereby undermining the traditional, liberal global oil market order to suit their collective agenda: to irreversibly rock the US Colossus out of its position of global dominance.
Pointedly heightened insecurity on the part of consuming nations as respects access to energy resources is powerfully governing policy in their capitals, and continuing to bolster the old US-dominated order is among the least of their concerns as they develop and implement policy. But it is Russia that has set the agenda for the global transition to an entirely new model of international energy security designed to address those intensifying concerns, especially those of the rising East. Russia, possessing unequalled energy-based leverage, takes global leadership among the world's producers and the rising powerhouse economies of the East to actively promote a vast worldwide web of alliances and ties prominently featuring rigid bilateral, private long-term supply contracts, a model that runs counter to and that increasingly circumvents the established liberal US-backed global oil market order, the order the West absolutely relies upon to guarantee its energy security, the selfsame order the West cannot function without, and therefore that order is its single point of failure. From the perspective of the West that current US-led order must remain fully vibrant, healthy and globally dominant.
Consequently, that new model increasingly being adhered to in addressing the energy security concerns of Russia's partners circumvents, undermines and exploits ever more powerfully the economic-geopolitical single point of failure for the West, namely the current US-led liberal energy order, undermining its global relevance and weakening the underpinnings vital to perpetuating the continued global dominance of that order. This is no accident. Russia acts as 'the point man' to locate and exploit, with the help of its partners, the Achilles Heel of the West.
In placing global developments over the past several years into their proper perspective, as if into a coherent bas-relief depicting how the global order in the energy, economic and geopolitical spheres is already dramatically transforming, the strikingly conspicuous feature is Russia's distinctive leadership role in fueling the global transition to new orders in the three key spheres: the energy, the global economic and the geopolitical. Take a careful look at that bas-relief.
Within six months of taking office Vladimir Putin, Russia's new president, was by the summer of 2000 already moving hard against the capitalist-inspired oligarchs who were actively fleecing Russia of its natural resources and industry with, at a bare minimum, the full complicity of the West. Western institutions operating within Russia and those exercising what the Kremlin saw as undue influence from without, most notably the West's oil majors and their closely related financial institutions, certain NGO's, and the media have eventually either been pushed out or brought to heel. Russia's strategic resources have been brought firmly under de facto Kremlin control in direct opposition to the West's loudly proclaimed liberal democratic principles of private ownership and control. Russia's example and success in such endeavors has instigated a global wave of nationalization and consolidation of state control over energy resources with an accompanying loss of leverage and control by the West's oil majors. That wave is accelerating.
The rise of a powerful and wealthy resources-based corporate state in Russia ("sovereign democracy"), its rapidly expanding control over global strategic resources, and the resultant loss of leadership and control of the global oil market by the West's oil majors, are developments that move directly against the very foundations of the current US-led liberal oil market order and the wider US-centric global economic order, because Russia is quite literally fueling the rise of the powerhouse economies of the East and helping to achieve a new global center of economic power in the East.
It was also Russia that fundamentally led, along with its key partner China, the opposition to the US invasion of Iraq in 2003. It has been Russia first and foremost that has taken leadership among its strategic partners since then to continue to stand firm inside and outside the UN in a hugely successful strategy to force the full and mounting geopolitical, economic and military burdens of Iraq onto US and British shoulders alone. Thereby Russia has taken the lead in proving the US-dominated geopolitical order can be successfully opposed. Consequently, it has clearly been primarily under Russia's leadership that the US-dominated global oil market, global economic and geopolitical orders are being transformed, circumvented and opposed by growing numbers of the world's powers.
Recall that Russia embarked upon such a course of global leadership when the widely predominant view said that opposing the US and its dominant oil market, economic, political and ideological orders and arrangements was futility, and sure suicide. Also recall that when Russia embarked upon its course of independence from the dominant US orders and arrangements in the summer of 2000 virtually no one believed any state, new order or arrangement deficient of full US approval and backing could succeed, let alone thrive. Russia is proving that the US and its dominant orders and arrangements can be modified, circumvented, undermined and opposed and the opposer can thrive as a result.
Russia has breached the aura of inviolability of the dominant US orders and arrangements, especially in the energy, global economic and geopolitical spheres, doing so in full view of the world at large. The world's oil and gas producing regimes were watching, as were the rising economic powers in the East. As such Russia has served as the trailblazer and has thus made opposing and circumventing the US and its dominant orders and arrangements much easier for the many others who have derived tremendous encouragement from Russia's leadership and have increasingly followed in Russia's steps. Rising, ever-more powerful, assertive and successful Russia is a great economic, energy security, technological, ideological and geopolitical comfort to those circumventing and opposing the US and its dominant orders and arrangements.
Against that backdrop the enormously significant global developments that signify an impending, forcible shift of the US Colossus out of its position of global dominance can be clearly seen, less as merely random and uncoordinated events, and more as a progressive coalescing of a coherent global strategy.
As indicated above, in a throwback to the era of the 1970s, the comparatively more rigid bilateral long-term supply contract is making a significant comeback. As Mr. Putin explained in his opening speech on international energy security at the recent G-8 summit:
"We want to form a stable system of legal, political and economic relations that ensures a reliable demand and stable offer of energy resources on the international market." [Emphasis added]
To explain further the real meaning of his words, President Putin later complained at the recent Valdai Club meeting outside Moscow on September 9, 2006 that consuming nations in the West too strongly focus on their own energy interests and security while simultaneously slighting the interests and security of producers. He noted that consuming nations want suppliers to pledge continuity of supplies for the long-term, "so customers should not be able to turn around and say 'We don't need it now'. Security works both ways. We need assurances, too." [Emphasis added]
Mr. Putin explicitly stated that Russia and other suppliers want bilateral long-term supply contracts with consuming nations so that suppliers know there will be a 'stable demand' for their exports.
The underlying, impending risk to the liquidity of the current US-led global oil order posed by such a throwback to the rigid bilateral long-term supply contract was highlighted recently in the testimony of David L. Goldwyn before the House Government Reform Subcommittee on
National Security, Emerging Threats and International Relations and the Subcommittee on Energy and Resources on May 16, 2006. David L. Goldwyn is Senior Fellow, CSIS (Center for Strategic and International Studies), a prestigious Washington, D.C. think tank, and President, GIS (Goldwyn International Strategies), a leading provider of political and business intelligence, energy sector analysis, and Washington strategy advice to Fortune 100 companies and investment advisers. Mr. Goldwyn stated:
"The United States is more energy insecure today than it has been in nearly thirty years. We are insecure because the global oil market is more fragile, more competitive and more volatile than it has been in decades." [Emphasis added]
Mr. Goldwyn referred to the fact that "the growing [energy] dependence of rising powers such as China and India is rapidly eroding US global power and influence around the world" as those rising powers increasingly enter into bilateral long-term contracts with suppliers, ever greater numbers of which do not allow free market access by the West's oil majors to production and exploration acreage and who are creating a strategically tight market for the rest of the world. Mr. Goldwyn observed:
"... this “tight” market is undermining the fluidity and fairness of the market for available oil supplies and exploration acreage. New competitors like China and India, are trying to negotiate long term supply contracts (at market prices) to ensure that they have supplies in the event of a crisis or supply disruption. ... the trend is counter to the market system that operates so efficiently." [Emphasis added]
"the trend of long term contracts runs counter to the modern liquid global market which operates efficiently in rapidly moving supplies to meet market demand. ...China has not yet developed faith in these market mechanisms." [Emphasis added]
While Mr. Goldwyn presented such concerns in the context of a rising, but not yet imminent threat to the current US-backed liberal global oil market order, in testimony before the United States Senate Committee on Foreign Relations nearly one year earlier, on July 26, 2005 Mikkal E. Herberg of The National Bureau of Asian Research in Seattle, Washington, Senator Lugar, the committee chairman heard the following facts:
"For China and India both, as well as the other Asian powers, energy is becoming a matter of “high politics” of national security and no longer just the “low politics” of domestic energy policy. Governments in both countries have decided that energy security is too important to be left entirely to the [US-led liberal] markets as their economic prosperity increasingly is exposed to the risks of global supply disruptions, chronic instability in energy exporting regions, and the vagaries of global energy geopolitics. Both governments are responding to their growing sense of insecurity with a broad range of similar strategies regionally and globally to try to guarantee greater supply security and reduce their vulnerability to potential supply and price shocks. These efforts are growing in scale and scope and they range from largely cooperative and market oriented strategies to those that are deeply neo-mercantilist and competitive. Both China and India are accelerating their efforts to gain more secure national control of overseas oil and gas supplies by taking equity stakes in overseas oil and gas fields, promoting development of new oil and gas pipelines to feed their booming markets, developing broader trade and energy ties, and following up with diplomatic ties to cement relations with the major oil and gas exporting countries. ... And both governments sense they are excluded from the major institutions that govern global oil cooperation, such as the IEA, and feel largely excluded from the global oil industry they feel is dominated by the large oil companies from the industrial countries. Both feel they are playing “catch-up”. For China’s leaders, energy security clearly is too important to be left to the markets and so far its approach has been decidedly neo-mercantilist and competitive. [Emphasis added]
The term "neo-mercantilist" refers to the economic strategy and ideology pursued by the European colonial powers, wherein the natural resources and other wealth of the colonies that had been established by each colonial empire were rigidly dedicated exclusively to the sustenance of the mother empire. In application to India, China and the other rising powers of the East, the term refers to the somewhat comparable strategy of concluding rigid, private bilateral long-term supply contracts between themselves individually and producers they each target around the globe. This has the net effect of securing oil and gas exclusively for the individual consumer state at the expense of the liquidity of the global oil market, and hence at the expense of oil's fungibility.
Mr. Herberg went on to make the case that China's three main state-owned oil companies (CNPC, Sinopec and CNOOC) alone, by the latest data and estimates available over one year ago,
"have managed to establish control over about 300 MBD of crude production, which could reach up to 600 MBD by 2008."
Mr. Herberg goes on to make the irrefutable case that both China and India strengthen and solidify the exclusivity of such rigid long-term supply contracts with multiple layers of cross-investment and commercial ties between themselves and their producer partners, and with deepening diplomatic ties as well. The net effect is to shut out the free markets and Western oil majors and place rapidly growing portions of global supply under private lock and key. As Mr. Herberg noted,
"China now [as of July, 2005] has signed some form of “Strategic Energy Partnership” with nine countries, including Russia, Sudan, Iran, Venezuela, Brazil, Angola, and Kazakhstan. Beijing’s leadership has follow-up with a long list of high-level diplomatic visits to cement stronger diplomatic, energy, and trade ties. China has also used state diplomacy to secure future LNG supplies in contracts with Australia, Indonesia, and Iran. China’s leadership sees the development of broader diplomatic and trade ties and alliances as a key element in securing its access to future oil and gas supplies. This also includes military sales and cooperation, sales of nuclear equipment, and other potentially problematic trade ties."
None of this includes the profoundly important strategic partnership agreement China has recently signed with Saudi Arabia in January, 2006, nor its ever more wide ranging energy-based agreements with the other Persian Gulf oil and gas exporting states of Qatar, UAE, Kuwait and many others around the globe. India also is pursuing a global strategy very similar to that of China. Way back in July, 2005 Mr. Herberg noted that,
"Currently, nearly two-thirds of the Gulf’s oil exports go to Asia and this will grow sharply in the future. The growing nexus of diplomatic, trade, and military ties with China and India appeals to the Gulf producers who are looking to diversify their economic and geopolitical base beyond traditional dependence on the U.S. and European markets and diplomatic relationships."
Mr. Herberg concluded with this assessment of the negative effects upon the dynamism and liquidity of the current US-led liberal global oil market order:
"Another area of concern involves a range of impacts of China and India’s booming oil demand as well as the impact of their implied strategy of “locking up” national control of certain oil supplies to fuel their own economies, in effect, “taking oil off the market”. Both countries clearly aim to lock up their own national oil supplies with many of their investments in places like Sudan and this practice is likely to contribute to higher oil prices and price volatility by reducing global market flexibility to handle tight markets, shortages, and supply disruptions." [Emphasis added]
Russia, in conceiving the new model of "international" energy security and a new global energy market order, and in winning increasing numbers of key converts and adherents to its new model which rivals and increasingly undermines the current US-backed model, thereby defines and draws the circle of international energy security. Those inside the circle will achieve Russia's definition of "energy security", but those left outside the circle will be left with little if any energy security by any definition.
Russia has found the Achilles Heel of the West, and along with its partners it is fully exploiting that strategically vulnerable 'place' on the economic-geopolitical 'anatomy' of US Colossus. Whether Western leaders care to face it or not, the West has already come under energy-based economic check. Soon it could be checkmate.
References:
David L. Goldwyn Congressional Testimony:
http://reform.house.gov/UploadedFiles/5.16.06%20Goldwyn%20Testimony%20Final..pdf
Mikkal E. Herberg Congressional Testimony:
www.lugar.senate.gov/energy/hearings/pdf/050726/HerbergTestimony.pdf
Recent Comments, Professor Peter Odell, Energy Economist:
www.mosnews.com/money/2006/10/02/expertoil.shtml
US Senator Richard Lugar
www.lugar.senate.gov/energy/
The Council on Foreign Relations Report on US Foreign Oil Dependency
www.cfr.org/content/publications/attachments/EnergyTFR.pdf
| Note: This Gold version of the analysis is significantly condensed as compared to the full text Platinum version available only to subscribers. The Platinum version addresses head-on the issues of what are the key vulnerabilities of the current US-led global oil order, how Russia is already effectively exploiting them to its own advantage, and precisely why and how such efforts pose a grave risk to the US and the West. |
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