ARTICLE: “As Profits Surge, Oil Giants Find Hurdles Abroad,” by Jad Mouawad, New York Times, 11 May 2006, p. A1.

Oil prices are up primarily because global demand continues its rapid trajectory thanks to the emergence of the New Core and the huge expansion of the global economy over the last generation (to include a global growth rate right now approaching a whopping 5%). The media will never give you that explanation, though, because it’s a one-time story. Better to say it’s all about supply and jitters and wars in the Middle East, because that’s a story they can write over and over and over again.

Right now, with these high prices that won’t go away any time soon, we see a resurgence of nationalism in the Gap and New Core Russia. Putin, at least, has a plan for diversification and downstream acquisition over time, and yes, we’re seeing more intelligent responses from certain Gulf states, but expect most of this nationalistic surge to be about as strategic in its thinking as your average lotto winner (to wit, Bolivia, which is well on its way to scaring most Brazilian investment out of the country, which should help development a whole lot there).

So Yergin has it right in this article (when does he ever get it wrong?): when prices are up, governments and their NOCs (National Oil Companies) hold all the cards and when they come back down, those same governments open up to foreigners. We saw this dynamic across the 1960-70s (nationalism) and 1980-90s (opening up).

The problem for the producers this time is that the global economy probably isn’t up for another round. Instead, we’ll see this market dynamic naturally push the Old and New Core further and faster down the carbon chain in the direction of renewables, nukes and hydrogen.

Way back when we burned wood, and released lotsa carbon. Then we moved onto coal, and released a bit less. Then oil, still less. More and more gas, still less. Each time we move on it’s not because of supply limits. It’s because we see a better deal economically, when all the externalities (like pollution) are considered. Nationalism in the energy sector is a big externality (i.e., pain in the ass). The more we see of it, the more we’ll see countries move along, like Brazil did so patiently on sugar-cane ethanol over the past generation.

The more advanced countries opt out of this cycle, the more the “all-powerful” producers will be left behind economically in coming years.

Ah, but you’re talking the long run and we’ll all be dead! Not that long of a long run. I remember being a teenager in the 1970s and wondering if the whole world would go to hell in a handbasket because OPEC was controlling everything. Didn’t take long for that worm to turn (my college years).

The problem we face now (the far larger Core of globalization wanting far more energy) is a problem of success (we won the Cold War and expanded our economic universe) not of failure. So the oil producers get another swing at the plate--big deal!

Some will be smart enough to walk away from this period stronger (like Russia), most will not.

But the global energy market and globalization in general will simply move beyond.