The Dialectic of Peak Oil and Resource Nationalism in Russia

This week, amid the much more dramatic news of PricewaterhouseCoopers in Russia, I have attended two different energy conferences in Madrid and Brussels to give speeches and had the opportunity to exchange ideas with some very interesting people, including some self-described peak oil experts. I will spare my blog readers from the tedium of going over the minutia of all these sessions, but I think it may be valuable to outline a few of the comments from the proceedings as it relates to Russia, especially as these concerns have been mirrored in numerous recent media reports.

The peak oil evangelists are no strangers to controversy, and, as I found in Madrid and Brussels, they range from erudite, credible and well reasoned energy analysts to the other end of the spectrum – conspiracy types who proclaim the end of the world as we know it. Given that it is so often argued that a crash in Russia’s oil wealth could totally change the political direction of the country, I was interested to see what I could learn from my colleagues. The famous quotation from Sheikh Zaki Yamani, the former Saudi oil minister, continues to hold true: “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” The present stage of fossil fuel addiction in our society is a challenge of unprecedented proportion, and will to some extent be determined by a complicated combination of geopolitical forces. For example, we have already felt the sting of resource nationalism, which is pressing down production while attempting to exploit higher prices for the rent seekers in government. Just today, Fatih Birol of the International Energy Agency told Reuters that “In general, one can say that resource nationalism could well have negative implications in the countries where you don’t have major domestic capital formation.” But at the same time, these same resource nationalists are facing the glass ceiling of climate change in the future – a phenomenon that with almost divine cruelty is going to impact emerging markets more than the developed world. This situation leads to a painful dialectic. The very autocrats that are engaged in the serial expropriation of assets are going to require enormous amounts of capital in their unstable infrastructures, while at the same time continuing to make investment a less and less attractive proposition. The second aspect of this dialectic is the necessity for emerging markets to embrace the very alternative energy that will make their endowment in fossil fuels self-limiting. Putin and Chavez may be quixotically battling windmills in their minds, but they are most terrified of the real ones. In addition, the increased state control over natural resources is inspiring men like Putin and Chavez to reject and denounce the open nature of the global economic structure and seek to build a “new architecture” that cherishes rent seeking and opacity, and at least tolerates corruption and autocracy. This goal is a direct challenge to Europe, and we must take heart in the fact that the new Reform Treaty agreed on last weekend actually involves language as the following: “In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens … as well as to the strict observance and the development of international law.” One can therefore argue that this new Reform Treaty emboldens the outward expression of the core values enshrined within the European Charter of Rights – values which form the basis for the most important antidote for the geopolitical virus of peak oil. It is imperative that energy importing nations begin demanding that suppliers play by the rules, and engage in fair and equitable structured relationships in the energy trade – instead of legitimising the “new financial architecture” of lawlessness and autocracy, as we have seen BP do in Russia. Values and principles in foreign policy is one of the only ways to ride out these closing chapters of the Oil Age with reduced turbulence rather than the chaos and conflict toward which we are heading right now.