THE OIL ISSUE: "It's Still the One," by Daniel Yergin, Foreign Policy, September-October 2009.
The bulk of the article repeats the logic from a recent op-ed I blogged.
What caught my eye was the additional analysis re: possible resource conflicts:
The math is clear: More consumers mean more demand, which means more supplies are needed. But what about the politics? There the forecasts are murkier, feeding a new scenario for international tension -- a competition, even a clash, between China and the United States over "scarce" oil resources. This scenario even comes with a well-known historical model -- the rivalry between Britain and "rising" Germany that ended in the disaster of World War I.
This scenario, though compelling reading, does not really accord with the way that the world oil market works. The Chinese are definitely new players, willing and able to pay top dollar to gain access to existing and new oil sources and, lately, also making loans to oil-producing countries to ensure future supplies. With more than $2 trillion in foreign reserves, China certainly has the wherewithal to be in the lending business.
But the global petroleum industry is not a go-it-alone business. Because of the risk and costs of large-scale development, companies tend to work in consortia with other companies. Oil-exporting countries seek to diversify the countries and companies they work with. Inevitably, any country in China's position -- whose demand had grown from 2.5 million barrels per day to 8 million in a decade and a half -- would be worrying about supplies. Such an increase, however, is not a forecast of inevitable strife; it is a message about economic growth and rising standards of living. It would be much more worrying if, in the face of rising demand, Chinese companies were not investing in production both inside China (the source of half of its supply) and outside its borders.
There are potential flash points in this new world of oil. But they will not come from standard commercial competition. Rather, they arise when oil (along with natural gas) gets caught up in larger foreign-policy issues -- most notably today, the potentially explosive crisis over the nuclear ambitions of oil- and gas-rich Iran.
Yet, despite all the talk of an "oil clash" scenario, there seems to be less overall concern than a few years ago and much more discussion about "energy dialogue." The Chinese themselves appear more confident about their increasingly important place in this globalized oil market. Although the risks are still there, the Chinese -- and the Indians right alongside them -- have the same stake as other consumers in an adequately supplied world market that is part of the larger global economy. Disruption of that economy, as the last year has so vividly demonstrated, does not serve their purposes. Why would the Chinese want to get into a confrontation over oil with the United States when the U.S. export market is so central to their economic growth and when the two countries are so financially interdependent?
Oil is not even the most important energy issue between China and the United States. It is coal. The two countries have the world's largest coal resources, and they are the world's biggest consumers of it. In a carbon-constrained world, they share a strong common interest in finding technological solutions for the emissions released when coal is burned.
Sensible stuff, as always, from Yergin.
Thursday, October 8, 2009 at 12:51AM 
