Tomgram: Michael Klare, The Oil World in Chaos
By Michael Klare
Posted on May 26, 2016, Printed on May 31, 2016
http://www.tomdispatch.com/blog/176145/ ;
One small aspect of a trip I took to El Paso, Texas, back in the 1970s
remains in my mind: the weather. No, not the weather in El Paso, which is
more or less the same much of the year, but the weather on the local
television news. I remember watching a weatherman begin his report in -- of
all places at the time -- the Persian Gulf and sweep swiftly and
dramatically across the globe (and its various weather perturbations) before
finally reaching El Paso where things were, of course, predictably hot and
dull. It might have been my earliest introduction to the charms of the
weather to television news, which could be summed up this way: plenty of
drama -- storms, floods, droughts, fires, wrecked homes, weeping survivors,
shipwrecked people -- and no politics to muck things up. Just Ma Nature,
just The Weather!
What was then a strange phenomenon on one citys news has since become the
definition of all TV news. At this point who hasnt watched countless
weather reporters struggling against the slashing winds and driving rain of
some oncoming hurricane while shouting out commentary or heading into the
waters of what had only recently been a town or city in the hip waders that
are now requisite gear for flood coverage?
Only one problem: climate change threatens to screw up the formula. That
phenomenon has complicated weather coverage by inserting human (that is,
fossil fuel) politics where only the periodically awesome destructive power
of nature and raw human emotion once were. All too often, bad weather may
now be traced back, at least in part, to our endless burning of fossil
fuels. On the whole, however, onscreen news coverage continues to ignore
that reality even as it features the weather ever more prominently. In a
sense, the news has been coopting climate change. A small sign of this is
the way the tag extreme weather has become commonplace as reports of
floods ravaging the Southwest, fires the West, and tornadoes the South and
the Great Plains proliferate. Extreme weather, in other words, has gained
its place in our consciousness largely shorn of the crucial factor in that
extremity: the increasing amounts of greenhouse gases humanity has been
dumping into the atmosphere.
Case in point: the staggering fire that continues to ravage the tar sands
regions of Alberta, Canada, after an uncomfortably hot and dry winter and
early spring that left local forests little more than kindling (in a world
in which fire seasons are extending and intensifying globally). With the
industry that extracts those carbon-heavy tar-sands deposits endangered --
their work camps incinerated, the city of Fort McMurray, which supports
their operations, devastated, and tens of thousands of climate refugees
created -- you would think that some sense of irony, if nothing else, might
have led the onscreen news to focus on climate change this one time.
But no such luck (at least as far as I could tell), even if the extremity of
that fire was indeed big news. There were, of course, mainstream exceptions
to this -- in print. Among others, perhaps our finest environmental
journalist, Elizabeth Kolbert of the New Yorker, weighed in early, as did
Justin Gillis of the New York Times with a similarly themed front-page
story. Otherwise, to this day, extreme weather remains the great-grandchild
of the TV weather reporting I first saw in El Paso four decades ago.
Fortunately, at TomDispatch, Michael Klare continues to follow the world of
oil exploitation and the extremity that accompanies it with a keen eye. For
the petro-states of our planet, the weather, it seems, has been undergoing
a distinct change for the worse. For them, extremity of an unsettling sort
is becoming a way of life. Tom
The Desperate Plight of Petro-States
With a Busted Business Model, Oil Economies Head for the Unknown
By Michael T. Klare
Pity the poor petro-states. Once so wealthy from oil sales that they could
finance wars, mega-projects, and domestic social peace simultaneously, some
of them are now beset by internal strife or are on the brink of collapse as
oil prices remain at ruinously low levels. Unlike other countries, which
largely finance their governments through taxation, petro-states rely on
their oil and natural gas revenues. Russia, for example, obtains about 50%
of government income that way; Nigeria, 60%; and Saudi Arabia, a whopping
90%. When oil was selling at $100 per barrel or above, as was the case until
2014, these countries could finance lavish government projects and social
welfare operations, ensuring widespread popular support. Now, with oil
below $50 and likely to persist at that level, they find themselves curbing
public spending and fending off rising domestic discontent or even incipient
revolt.
At the peak of their glory, the petro-states played an outsized role in
world affairs. The members of OPEC, the Organization of the Petroleum
Exporting Countries, earned an estimated $821 billion from oil exports in
2013 alone. Flush with cash, they were able to exert influence over other
countries through a wide variety of aid and patronage operations. Venezuela,
for example, sought to counter U.S. influence in Latin America via its
Bolivarian Alliance for the Peoples of Our America (ALBA), a cooperative
network of mostly leftist governments. Saudi Arabia spread its influence
throughout the Islamic world in part by financing the efforts of its
ultra-conservative Wahhabi clergy to establish madrassas (religious
academies) throughout the Islamic world. Russia, under Vladimir Putin, used
its prodigious oil wealth to rebuild and refurbish its military, which had
largely disintegrated following the collapse of the Soviet Union. Lesser
members of the petro-state club like Angola, Azerbaijan, and Kazakhstan
became accustomed to regular fawning visits from the presidents and prime
ministers of major oil-importing countries.
That, of course, was then, and this is now. While these countries still
matter, what worries these presidents and prime ministers now is the growing
likelihood of civil violence or even state collapse. Take, for example,
Venezuela, long an ardent foe of U.S. policy in Latin America, but today the
potential site of a future bloody civil war between supporters and opponents
of the current government. Similar kinds of internal strife and civil
disorder are likely in oil-producing states like Algeria and Nigeria, where
the potential for the further growth of terrorist violence amid chaos is
always high.
Some petro-states like Venezuela and Iraq already appear to be edging up to
the brink of collapse. Others like Russia and Saudi Arabia will be forced to
reorient their economies if they hope to avoid such future outcomes.
Whatever their degree of risk, all of them are already experiencing economic
hardship, leaving their leaders under growing pressure to somehow alter
course in the bleakest of circumstances -- or face the consequences.
A Busted Business Model
Petro-states are different from other countries because the fates of their
governing institutions are so deeply woven into the boom-and-bust cycles of
the international petroleum economy. The challenges they face are only
compounded by the unnaturally close ties between their political leaderships
and senior officials of their state-owned or state-controlled oil and
natural gas industries. Historically, their rulers have placed close allies
or even family members in key industry positions, ensuring continuing
government control and in many cases personal enrichment as well. In Russia,
for example, the management of Gazprom, the state-controlled natural gas
company, and Rosneft, the state-owned oil company, is almost
indistinguishable from the senior leadership in the Kremlin, with both
groups answering to President Putin. A similar pattern holds for Venezuela,
where the government keeps the state-owned company, Petróleos de Venezuela,
S.A. (PdVSA), on a tight leash, and in Saudi Arabia, where the royal family
oversees the operations of the state-owned Saudi Aramco.
In 2016, one thing is finally clear, however: the business model for these
corporatized states is busted. The most basic assumption behind their
operation -- that global oil demand will continue to outpace world petroleum
supplies and ensure high prices into the foreseeable future -- no longer
holds. Instead, in what for any petro-state is a nightmarish, upside-down
version of that model, supply, not demand, is forging ahead, leaving the
market flooded with fossil fuels.
Most analysts, including those at the International Monetary Fund (IMF), now
believe that increases in energy efficiency, the spread of affordable
alternative energy sources (especially wind and solar), slowing worldwide
economic growth, and concern over climate change will continue to put a
damper on fossil fuel demand in the years ahead. Meanwhile, the oil
industry -- now equipped with fracking technology and other advanced
extractive techniques -- will continue to boost supplies. Its a formula for
keeping prices low. In fact, a growing number of analysts are convinced that
world oil demand will in the not-so-distant future reach a peak and begin a
long-term decline, ensuring that large reserves of petroleum will be left in
the ground. For the petro-states, all of this means persistent pain unless
they can find a new business model that is somehow predicated on a permanent
low-oil-price environment.
These states vary in both their willingness and ability to respond to this
new reality effectively. Some are too deeply committed to their existing
business model (and its associated leadership system) to consider
significant changes; others, increasingly aware of the need to do something,
find almost insuperable structural roadblocks in the way; and a third group,
recognizing the desperate need for change, is attempting a total economic
overhaul of its oil economies. In recent weeks, examples of all three types
Venezuela for the first, Nigeria the second, and Saudi Arabia the third --
have surfaced in the news.
Venezuela: A Nation on the Brink
Venezuela claims the worlds largest proven reserves of petroleum, an
estimated 298 billion barrels of oil. In past decades, the exploitation of
this vast fossil fuel patrimony has ensured incredible wealth for foreign
companies and Venezuelan elites alike. After assuming the presidency in
1999, however, Hugo Chávez sought to channel the bulk of this wealth to
Venezuelas poor and working classes by forcing foreign firms to partner
with the state-owned oil firm PdVSA and redirecting that companys profits
to government spending programs. Billions of dollars were funneled into
state-directed missions to the poor, lifting millions of Venezuelans out
of poverty. In 2002, when the companys long-serving managers rebelled
against these moves, Chávez simply replaced them with his own party
loyalists and the diversion of funds continued.
In the wake of the ousting of that original management team, the countrys
oil production began to decline. With prices running at or above $100 per
barrel, this initially seemed to make little difference as money continued
to pour into government coffers and those missions to the poor kept right on
going. What Chavez didnt do, however, was create the national equivalent of
a rainy-day fund. Little of the oil money was channeled into a sovereign
wealth fund for more problematic moments, nor was any invested in other
kinds of industries that might in time have generated streams of
non-fossil-fuel income for the government.
As a result, when prices began to drop in the fall of 2014, Chavezs
presidential successor, Nicolás Maduro, faced a triple calamity: diminished
revenues for social services, scant savings to draw upon, and no alternative
sources of income. Not surprisingly, as a new impoverishment spread, many
former Chavistas lost faith in the regime and, in last Decembers
parliamentary elections, voted for emboldened opposition candidates.
Today, Venezuela is a nation living under an officially declared state of
emergency, politically riven, experiencing food riots and other violence,
and possibly on the brink of collapse. According to the IMF, the economy
contracted by 5.7% in 2015 and is expected to diminish by another 8% this
year -- more, that is, than any other country on the planet. Inflation is
out of control, unemployment and crime are soaring, and what little money
Venezuela had in its rainy-day account has largely been spent. Only China
has been willing to lend it money to pay off its debts. If Beijing chooses
to hold back when the next payments come due this fall, the country could
face default. Opposition leaders in the National Assembly seek to oust
Maduro and move ahead with various reforms, but the government is using its
control of the courts to block such efforts, and the nation remains in a
state of paralysis.
Nigeria: Continuing Disorder
Nigeria possesses the largest oil and natural gas reserves in sub-Saharan
Africa. The exploitation of those reserves has long proved immensely
profitable for foreign companies like Royal Dutch Shell and Chevron and also
for well-connected Nigerian elites. Very little of this wealth, however,
has trickled down to those living in the Niger Delta region in the south of
the country where most of the oil and gas is produced. Opposition to the
central government in Abuja, the capital, to which the oil income flows, has
long been strong in the Delta, leading to periodic outbursts of violence.
Successive federal administrations have promised a more equitable allocation
of oil revenues, but a promise this has remained.
From 2006 to 2009, Nigeria was wracked by an insurgency spearheaded by the
Movement for the Emancipation of the Niger Delta, a militant group seeking
to redirect oil revenues to the countrys impoverished southern states. In
2009, when President Umaru Musa YarAdua offered the militants an amnesty
and monthly cash payments, the insurgency died down. His successor,
Goodluck Jonathan, a southerner, promised to respect the amnesty and channel
more funds to the region.
For a while, high oil prices enabled Jonathan to make good on some of his
promises, even as entrenched elites in Abuja continued to pocket a
substantial percentage of the countrys petroleum income. When prices began
to plummet, however, he was confronted with mounting challenges. Pervasive
corruption turned people against the government, feeding recruits into Boko
Haram, the terror movement then growing in the countrys northern reaches;
money intended for soldiers in the Nigerian army disappeared into the
pockets of military elites, subverting efforts to fight the insurgents. In
national elections held a year ago, Muhammadu Buhari, a former general who
vowed to crack down on corruption, rescue the economy, and defeat Boko
Haram, took the presidency from Jonathan.
Since assuming office, Buhari has demonstrated a grasp of Nigerias
structural weaknesses, especially its overwhelming dependency on oil monies,
along with a determination to overcome them. As promised, he has launched a
serious crackdown on the sort of corruption that is a commonplace feature of
petro-states, firing officials accused of blatant thievery. At the same
time, he has stepped up military pressure on Boko Haram, for the first time
putting a crimp in that groups brutal activities. Crucially, he has
announced plans to diversify the economy, placing more emphasis on
agriculture and non-fossil-fuel-related industries, which might, if pursued
seriously, help diminish Nigerias increasingly disastrous reliance on oil.
In the cold light of day, however, the country still needs those oil
revenues for the lions share of its income, which means that in the current
low-price environment it has ever less money to fight Boko Haram, pay for
social services, or pursue alternative investment schemes. In addition,
Buhari has been accused of disproportionately targeting southerners in his
fight against corruption, sparking not just fresh discontent in the Delta
region but the rise of a new militant group -- the Niger Delta Avengers --
that poses a threat to oil production. On May 4th, the Avengers attacked an
offshore oil platform operated by Chevron and the Nigerian National
Petroleum Corporation, forcing the companies to shut down production of
about 90,000 barrels per day. Add that to other insurgent attacks on the
countrys oil infrastructure and the Nigerian government is expected to lose
$1 billion in May alone. If repairs are not completed on time, it may lose
an equal amount in June. It remains a nation on edge, in danger of
devastating impoverishment, and with few genuine alternatives available.
Saudi Arabia: Seeking a New Vision
With the worlds second largest reserves of oil, Saudi Arabia is also the
planets leading producer, pumping out a staggering 10.2 million barrels
daily. Originally, those massive energy reserves were owned by a consortium
of American companies operating under the umbrella of the Arabian-American
Oil Company (Aramco). In the 1970s, however, Aramco was nationalized and is
now owned by the Saudi state -- which is to say, the Saudi monarchy. Today,
it is the worlds most valuable company, worth by some estimates as much as
$10 trillion (10 times more than Apple), and so a source of almost
unimaginable wealth for the Saudi royal family.
For decades, the countrys leadership pursued a consistent
political-economic business plan: sell as much oil as possible and use the
proceeds to enrich the numerous princes and princesses of the realm; provide
lavish social benefits to the rest of the population, thereby averting
popular unrest of the Arab Spring variety; finance the ultra-conservative
Wahhabi clergy so as to ensure its loyalty to the regime; finance
like-minded states in the region; and put aside money for those rainy-day
periods of low oil prices.
Saudi leaders have recently come to recognize that this plan is no longer
sustainable. In 2016, the Saudi budget has, for the first time in recent
memory, moved into deficit territory and the monarchy has had to cut back on
both its usual subsidies to and social programs for its people. Unlike the
Venezuelans or the Nigerians, the Saudi royals socked away enough money in
the countrys sovereign wealth fund to cover deficit spending for at least a
couple of years. It is now, however, burning through those funds at a
prodigious rate, in part to finance a brutal and futile war in Yemen. At
some point, it will have to sharply curtail government spending. Given the
youthfulness of the Saudi population -- 70% of its citizens are under 30 --
and its long dependence on government handouts, such moves could, in the
view of many analysts, lead to widespread civil unrest.
Historically, Saudi leaders have been slow to initiate change. But recently,
the royal family has defied expectations, taking radical steps to prepare
the country for a transition to whats being termed a post-petroleum
economy. On April 25th, the powerful Deputy Crown Prince, Mohammed bin
Salman, unveiled Saudi Vision 2030, a somewhat hazy blueprint for the
kingdoms economic diversification and modernization. Prince Mohammed also
indicated that the country will soon begin to offer public shares in Saudi
Aramco, with the intention of raising massive funds to invest in and create
non-oil-related Saudi industries and revenue streams. On May 7th, the
monarchy also abruptly dismissed its long-serving oil minister, Ali
al-Naimi, and replaced him with the head of Saudi Aramco, Khalid al-Falih, a
figure deemed more subservient to Prince Mohammed. Falihs job title was
also changed to minister of energy, industry, and mineral resources, which
was (so the experts speculated) a signal from the monarchy of its
determination to move beyond exclusive reliance on oil as a source of
income.
This is all so unprecedented that there is no way of predicting whether the
Saudi royals are actually capable of bringing anything like Saudi Vision
2030 to fruition, no less moving away in a serious fashion from its reliance
on oil. Many obstacles remain, including the possibility that jealous royals
will push Prince Mohammed (and his vision) aside when his father, King
Salman, now 80, passes from the scene. (There are regular rumors that some
members of the royal family resent the meteoric rise of the 31-year-old
prince.) Nevertheless, his dramatic statements about the need to diversify
the kingdoms economy do show that even Saudi Arabia -- the petro-state par
excellence -- now recognizes that some kind of new identity is now a
necessity.
The Stakes for Us All
You may not live in a petro-state, but that doesnt mean you dont have a
stake in the evolution of this unique political life form. From at least the
oil shock of 1973, when the Arab OPEC members announced an oil boycott
against the U.S. for its involvement in the Yom Kippur War, such countries
have played an outsized role on the world stage, distorting international
relations, and -- in the Greater Middle East -- involving themselves (and
their financial resources) in one conflict after another from the Iran-Iraq
War of 1980-1988 to the wars in Yemen and Syria today.
Their fervent support for and financing of favored causes -- whether it be
Wahhabism and associated jihadist groups (Saudi Arabia), anti-Westernism
(Russia), or the survival of the Assad regime in Syria (Iran) -- has
provoked widespread disorder and misery. It will hardly be a tragedy if a
lack of funds forces such states to pull back from efforts of this sort. But
given the centrality of fossil fuels to our world for the last century or
more, the chaos that could ensue in the oil heartlands of the planet from
low oil prices and high supply is likely to create unpredictable new
nightmares of its own.
And the greatest nightmares of all lurk not in any of this but in the
inability of these states and those they supply to liberate themselves from
reliance on fossil fuels fast enough. Looking into the future, the demise
of petro-states as weve known them could have a profound impact on the
struggle to avert catastrophic climate change. Although these states are not
primarily responsible for the actual combustion of fossil fuels -- thats
something we in the oil-importing countries must take responsibility for --
their pivotal role in fueling the global petroleum economy has made them
largely resistant to international efforts to curb emissions of carbon
dioxide. As they try to repair their busted business model or collapse under
the weight of its failures, we can only hope that the path they follow will
entail significantly less dependence on oil exports as well as a
determination to speed up the conclusion of the fossil fuel era and so
diminish its legacy of climate disaster.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world
security studies at Hampshire College and the author, most recently, of The
Race for Whats Left. A documentary movie version of his book Blood and Oil
is available from the Media Education Foundation. Follow him on Twitter at
@mklare1.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest
Dispatch Book, Nick Turses Next Time Theyll Come to Count the Dead, and
Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars,
and a Global Security State in a Single-Superpower World.
Copyright 2016 Michael T. Klare
© 2016 TomDispatch. All rights reserved.
View this story online at: http://www.tomdispatch.com/blog/176145
Tomgram: Michael Klare, The Oil World in Chaos
By Michael Klare
Posted on May 26, 2016, Printed on May 31, 2016
http://www.tomdispatch.com/blog/176145/ ;
One small aspect of a trip I took to El Paso, Texas, back in the 1970s
remains in my mind: the weather. No, not the weather in El Paso, which is
more or less the same much of the year, but the weather on the local
television news. I remember watching a weatherman begin his report in -- of
all places at the time -- the Persian Gulf and sweep swiftly and
dramatically across the globe (and its various weather perturbations) before
finally reaching El Paso where things were, of course, predictably hot and
dull. It might have been my earliest introduction to the charms of the
weather to television news, which could be summed up this way: plenty of
drama -- storms, floods, droughts, fires, wrecked homes, weeping survivors,
shipwrecked people -- and no politics to muck things up. Just Ma Nature,
just The Weather!
What was then a strange phenomenon on one citys news has since become the
definition of all TV news. At this point who hasnt watched countless
weather reporters struggling against the slashing winds and driving rain of
some oncoming hurricane while shouting out commentary or heading into the
waters of what had only recently been a town or city in the hip waders that
are now requisite gear for flood coverage?
Only one problem: climate change threatens to screw up the formula. That
phenomenon has complicated weather coverage by inserting human (that is,
fossil fuel) politics where only the periodically awesome destructive power
of nature and raw human emotion once were. All too often, bad weather may
now be traced back, at least in part, to our endless burning of fossil
fuels. On the whole, however, onscreen news coverage continues to ignore
that reality even as it features the weather ever more prominently. In a
sense, the news has been coopting climate change. A small sign of this is
the way the tag extreme weather has become commonplace as reports of
floods ravaging the Southwest, fires the West, and tornadoes the South and
the Great Plains proliferate. Extreme weather, in other words, has gained
its place in our consciousness largely shorn of the crucial factor in that
extremity: the increasing amounts of greenhouse gases humanity has been
dumping into the atmosphere.
Case in point: the staggering fire that continues to ravage the tar sands
regions of Alberta, Canada, after an uncomfortably hot and dry winter and
early spring that left local forests little more than kindling (in a world
in which fire seasons are extending and intensifying globally). With the
industry that extracts those carbon-heavy tar-sands deposits endangered --
their work camps incinerated, the city of Fort McMurray, which supports
their operations, devastated, and tens of thousands of climate refugees
created -- you would think that some sense of irony, if nothing else, might
have led the onscreen news to focus on climate change this one time.
But no such luck (at least as far as I could tell), even if the extremity of
that fire was indeed big news. There were, of course, mainstream exceptions
to this -- in print. Among others, perhaps our finest environmental
journalist, Elizabeth Kolbert of the New Yorker, weighed in early, as did
Justin Gillis of the New York Times with a similarly themed front-page
story. Otherwise, to this day, extreme weather remains the great-grandchild
of the TV weather reporting I first saw in El Paso four decades ago.
Fortunately, at TomDispatch, Michael Klare continues to follow the world of
oil exploitation and the extremity that accompanies it with a keen eye. For
the petro-states of our planet, the weather, it seems, has been undergoing
a distinct change for the worse. For them, extremity of an unsettling sort
is becoming a way of life. Tom
The Desperate Plight of Petro-States
With a Busted Business Model, Oil Economies Head for the Unknown
By Michael T. Klare
Pity the poor petro-states. Once so wealthy from oil sales that they could
finance wars, mega-projects, and domestic social peace simultaneously, some
of them are now beset by internal strife or are on the brink of collapse as
oil prices remain at ruinously low levels. Unlike other countries, which
largely finance their governments through taxation, petro-states rely on
their oil and natural gas revenues. Russia, for example, obtains about 50%
of government income that way; Nigeria, 60%; and Saudi Arabia, a whopping
90%. When oil was selling at $100 per barrel or above, as was the case until
2014, these countries could finance lavish government projects and social
welfare operations, ensuring widespread popular support. Now, with oil below
$50 and likely to persist at that level, they find themselves curbing public
spending and fending off rising domestic discontent or even incipient
revolt.
At the peak of their glory, the petro-states played an outsized role in
world affairs. The members of OPEC, the Organization of the Petroleum
Exporting Countries, earned an estimated $821 billion from oil exports in
2013 alone. Flush with cash, they were able to exert influence over other
countries through a wide variety of aid and patronage operations. Venezuela,
for example, sought to counter U.S. influence in Latin America via its
Bolivarian Alliance for the Peoples of Our America (ALBA), a cooperative
network of mostly leftist governments. Saudi Arabia spread its influence
throughout the Islamic world in part by financing the efforts of its
ultra-conservative Wahhabi clergy to establish madrassas (religious
academies) throughout the Islamic world. Russia, under Vladimir Putin, used
its prodigious oil wealth to rebuild and refurbish its military, which had
largely disintegrated following the collapse of the Soviet Union. Lesser
members of the petro-state club like Angola, Azerbaijan, and Kazakhstan
became accustomed to regular fawning visits from the presidents and prime
ministers of major oil-importing countries.
That, of course, was then, and this is now. While these countries still
matter, what worries these presidents and prime ministers now is the growing
likelihood of civil violence or even state collapse. Take, for example,
Venezuela, long an ardent foe of U.S. policy in Latin America, but today the
potential site of a future bloody civil war between supporters and opponents
of the current government. Similar kinds of internal strife and civil
disorder are likely in oil-producing states like Algeria and Nigeria, where
the potential for the further growth of terrorist violence amid chaos is
always high.
Some petro-states like Venezuela and Iraq already appear to be edging up to
the brink of collapse. Others like Russia and Saudi Arabia will be forced to
reorient their economies if they hope to avoid such future outcomes.
Whatever their degree of risk, all of them are already experiencing economic
hardship, leaving their leaders under growing pressure to somehow alter
course in the bleakest of circumstances -- or face the consequences.
A Busted Business Model
Petro-states are different from other countries because the fates of their
governing institutions are so deeply woven into the boom-and-bust cycles of
the international petroleum economy. The challenges they face are only
compounded by the unnaturally close ties between their political leaderships
and senior officials of their state-owned or state-controlled oil and
natural gas industries. Historically, their rulers have placed close allies
or even family members in key industry positions, ensuring continuing
government control and in many cases personal enrichment as well. In Russia,
for example, the management of Gazprom, the state-controlled natural gas
company, and Rosneft, the state-owned oil company, is almost
indistinguishable from the senior leadership in the Kremlin, with both
groups answering to President Putin. A similar pattern holds for Venezuela,
where the government keeps the state-owned company, Petróleos de Venezuela,
S.A. (PdVSA), on a tight leash, and in Saudi Arabia, where the royal family
oversees the operations of the state-owned Saudi Aramco.
In 2016, one thing is finally clear, however: the business model for these
corporatized states is busted. The most basic assumption behind their
operation -- that global oil demand will continue to outpace world petroleum
supplies and ensure high prices into the foreseeable future -- no longer
holds. Instead, in what for any petro-state is a nightmarish, upside-down
version of that model, supply, not demand, is forging ahead, leaving the
market flooded with fossil fuels.
Most analysts, including those at the International Monetary Fund (IMF), now
believe that increases in energy efficiency, the spread of affordable
alternative energy sources (especially wind and solar), slowing worldwide
economic growth, and concern over climate change will continue to put a
damper on fossil fuel demand in the years ahead. Meanwhile, the oil industry
-- now equipped with fracking technology and other advanced extractive
techniques -- will continue to boost supplies. Its a formula for keeping
prices low. In fact, a growing number of analysts are convinced that world
oil demand will in the not-so-distant future reach a peak and begin a
long-term decline, ensuring that large reserves of petroleum will be left in
the ground. For the petro-states, all of this means persistent pain unless
they can find a new business model that is somehow predicated on a permanent
low-oil-price environment.
These states vary in both their willingness and ability to respond to this
new reality effectively. Some are too deeply committed to their existing
business model (and its associated leadership system) to consider
significant changes; others, increasingly aware of the need to do something,
find almost insuperable structural roadblocks in the way; and a third group,
recognizing the desperate need for change, is attempting a total economic
overhaul of its oil economies. In recent weeks, examples of all three types
Venezuela for the first, Nigeria the second, and Saudi Arabia the third --
have surfaced in the news.
Venezuela: A Nation on the Brink
Venezuela claims the worlds largest proven reserves of petroleum, an
estimated 298 billion barrels of oil. In past decades, the exploitation of
this vast fossil fuel patrimony has ensured incredible wealth for foreign
companies and Venezuelan elites alike. After assuming the presidency in
1999, however, Hugo Chávez sought to channel the bulk of this wealth to
Venezuelas poor and working classes by forcing foreign firms to partner
with the state-owned oil firm PdVSA and redirecting that companys profits
to government spending programs. Billions of dollars were funneled into
state-directed missions to the poor, lifting millions of Venezuelans out
of poverty. In 2002, when the companys long-serving managers rebelled
against these moves, Chávez simply replaced them with his own party
loyalists and the diversion of funds continued.
In the wake of the ousting of that original management team, the countrys
oil production began to decline. With prices running at or above $100 per
barrel, this initially seemed to make little difference as money continued
to pour into government coffers and those missions to the poor kept right on
going. What Chavez didnt do, however, was create the national equivalent of
a rainy-day fund. Little of the oil money was channeled into a sovereign
wealth fund for more problematic moments, nor was any invested in other
kinds of industries that might in time have generated streams of
non-fossil-fuel income for the government.
http://www.amazon.com/dp/1250023971/ref=nosim/?tag=tomdispatch-20
http://www.amazon.com/dp/1250023971/ref=nosim/?tag=tomdispatch-20As a
result, when prices began to drop in the fall of 2014, Chavezs presidential
successor, Nicolás Maduro, faced a triple calamity: diminished revenues for
social services, scant savings to draw upon, and no alternative sources of
income. Not surprisingly, as a new impoverishment spread, many former
Chavistas lost faith in the regime and, in last Decembers parliamentary
elections, voted for emboldened opposition candidates.
Today, Venezuela is a nation living under an officially declared state of
emergency, politically riven, experiencing food riots and other violence,
and possibly on the brink of collapse. According to the IMF, the economy
contracted by 5.7% in 2015 and is expected to diminish by another 8% this
year -- more, that is, than any other country on the planet. Inflation is
out of control, unemployment and crime are soaring, and what little money
Venezuela had in its rainy-day account has largely been spent. Only China
has been willing to lend it money to pay off its debts. If Beijing chooses
to hold back when the next payments come due this fall, the country could
face default. Opposition leaders in the National Assembly seek to oust
Maduro and move ahead with various reforms, but the government is using its
control of the courts to block such efforts, and the nation remains in a
state of paralysis.
Nigeria: Continuing Disorder
Nigeria possesses the largest oil and natural gas reserves in sub-Saharan
Africa. The exploitation of those reserves has long proved immensely
profitable for foreign companies like Royal Dutch Shell and Chevron and also
for well-connected Nigerian elites. Very little of this wealth, however, has
trickled down to those living in the Niger Delta region in the south of the
country where most of the oil and gas is produced. Opposition to the central
government in Abuja, the capital, to which the oil income flows, has long
been strong in the Delta, leading to periodic outbursts of violence.
Successive federal administrations have promised a more equitable allocation
of oil revenues, but a promise this has remained.
From 2006 to 2009, Nigeria was wracked by an insurgency spearheaded by the
Movement for the Emancipation of the Niger Delta, a militant group seeking
to redirect oil revenues to the countrys impoverished southern states. In
2009, when President Umaru Musa YarAdua offered the militants an amnesty
and monthly cash payments, the insurgency died down. His successor, Goodluck
Jonathan, a southerner, promised to respect the amnesty and channel more
funds to the region.
For a while, high oil prices enabled Jonathan to make good on some of his
promises, even as entrenched elites in Abuja continued to pocket a
substantial percentage of the countrys petroleum income. When prices began
to plummet, however, he was confronted with mounting challenges. Pervasive
corruption turned people against the government, feeding recruits into Boko
Haram, the terror movement then growing in the countrys northern reaches;
money intended for soldiers in the Nigerian army disappeared into the
pockets of military elites, subverting efforts to fight the insurgents. In
national elections held a year ago, Muhammadu Buhari, a former general who
vowed to crack down on corruption, rescue the economy, and defeat Boko
Haram, took the presidency from Jonathan.
Since assuming office, Buhari has demonstrated a grasp of Nigerias
structural weaknesses, especially its overwhelming dependency on oil monies,
along with a determination to overcome them. As promised, he has launched a
serious crackdown on the sort of corruption that is a commonplace feature of
petro-states, firing officials accused of blatant thievery. At the same
time, he has stepped up military pressure on Boko Haram, for the first time
putting a crimp in that groups brutal activities. Crucially, he has
announced plans to diversify the economy, placing more emphasis on
agriculture and non-fossil-fuel-related industries, which might, if pursued
seriously, help diminish Nigerias increasingly disastrous reliance on oil.
In the cold light of day, however, the country still needs those oil
revenues for the lions share of its income, which means that in the current
low-price environment it has ever less money to fight Boko Haram, pay for
social services, or pursue alternative investment schemes. In addition,
Buhari has been accused of disproportionately targeting southerners in his
fight against corruption, sparking not just fresh discontent in the Delta
region but the rise of a new militant group -- the Niger Delta Avengers --
that poses a threat to oil production. On May 4th, the Avengers attacked an
offshore oil platform operated by Chevron and the Nigerian National
Petroleum Corporation, forcing the companies to shut down production of
about 90,000 barrels per day. Add that to other insurgent attacks on the
countrys oil infrastructure and the Nigerian government is expected to lose
$1 billion in May alone. If repairs are not completed on time, it may lose
an equal amount in June. It remains a nation on edge, in danger of
devastating impoverishment, and with few genuine alternatives available.
Saudi Arabia: Seeking a New Vision
With the worlds second largest reserves of oil, Saudi Arabia is also the
planets leading producer, pumping out a staggering 10.2 million barrels
daily. Originally, those massive energy reserves were owned by a consortium
of American companies operating under the umbrella of the Arabian-American
Oil Company (Aramco). In the 1970s, however, Aramco was nationalized and is
now owned by the Saudi state -- which is to say, the Saudi monarchy. Today,
it is the worlds most valuable company, worth by some estimates as much as
$10 trillion (10 times more than Apple), and so a source of almost
unimaginable wealth for the Saudi royal family.
For decades, the countrys leadership pursued a consistent
political-economic business plan: sell as much oil as possible and use the
proceeds to enrich the numerous princes and princesses of the realm; provide
lavish social benefits to the rest of the population, thereby averting
popular unrest of the Arab Spring variety; finance the ultra-conservative
Wahhabi clergy so as to ensure its loyalty to the regime; finance
like-minded states in the region; and put aside money for those rainy-day
periods of low oil prices.
Saudi leaders have recently come to recognize that this plan is no longer
sustainable. In 2016, the Saudi budget has, for the first time in recent
memory, moved into deficit territory and the monarchy has had to cut back on
both its usual subsidies to and social programs for its people. Unlike the
Venezuelans or the Nigerians, the Saudi royals socked away enough money in
the countrys sovereign wealth fund to cover deficit spending for at least a
couple of years. It is now, however, burning through those funds at a
prodigious rate, in part to finance a brutal and futile war in Yemen. At
some point, it will have to sharply curtail government spending. Given the
youthfulness of the Saudi population -- 70% of its citizens are under 30 --
and its long dependence on government handouts, such moves could, in the
view of many analysts, lead to widespread civil unrest.
Historically, Saudi leaders have been slow to initiate change. But recently,
the royal family has defied expectations, taking radical steps to prepare
the country for a transition to whats being termed a post-petroleum
economy. On April 25th, the powerful Deputy Crown Prince, Mohammed bin
Salman, unveiled Saudi Vision 2030, a somewhat hazy blueprint for the
kingdoms economic diversification and modernization. Prince Mohammed also
indicated that the country will soon begin to offer public shares in Saudi
Aramco, with the intention of raising massive funds to invest in and create
non-oil-related Saudi industries and revenue streams. On May 7th, the
monarchy also abruptly dismissed its long-serving oil minister, Ali
al-Naimi, and replaced him with the head of Saudi Aramco, Khalid al-Falih, a
figure deemed more subservient to Prince Mohammed. Falihs job title was
also changed to minister of energy, industry, and mineral resources, which
was (so the experts speculated) a signal from the monarchy of its
determination to move beyond exclusive reliance on oil as a source of
income.
This is all so unprecedented that there is no way of predicting whether the
Saudi royals are actually capable of bringing anything like Saudi Vision
2030 to fruition, no less moving away in a serious fashion from its reliance
on oil. Many obstacles remain, including the possibility that jealous royals
will push Prince Mohammed (and his vision) aside when his father, King
Salman, now 80, passes from the scene. (There are regular rumors that some
members of the royal family resent the meteoric rise of the 31-year-old
prince.) Nevertheless, his dramatic statements about the need to diversify
the kingdoms economy do show that even Saudi Arabia -- the petro-state par
excellence -- now recognizes that some kind of new identity is now a
necessity.
The Stakes for Us All
You may not live in a petro-state, but that doesnt mean you dont have a
stake in the evolution of this unique political life form. From at least the
oil shock of 1973, when the Arab OPEC members announced an oil boycott
against the U.S. for its involvement in the Yom Kippur War, such countries
have played an outsized role on the world stage, distorting international
relations, and -- in the Greater Middle East -- involving themselves (and
their financial resources) in one conflict after another from the Iran-Iraq
War of 1980-1988 to the wars in Yemen and Syria today.
Their fervent support for and financing of favored causes -- whether it be
Wahhabism and associated jihadist groups (Saudi Arabia), anti-Westernism
(Russia), or the survival of the Assad regime in Syria (Iran) -- has
provoked widespread disorder and misery. It will hardly be a tragedy if a
lack of funds forces such states to pull back from efforts of this sort. But
given the centrality of fossil fuels to our world for the last century or
more, the chaos that could ensue in the oil heartlands of the planet from
low oil prices and high supply is likely to create unpredictable new
nightmares of its own.
And the greatest nightmares of all lurk not in any of this but in the
inability of these states and those they supply to liberate themselves from
reliance on fossil fuels fast enough. Looking into the future, the demise of
petro-states as weve known them could have a profound impact on the
struggle to avert catastrophic climate change. Although these states are not
primarily responsible for the actual combustion of fossil fuels -- thats
something we in the oil-importing countries must take responsibility for --
their pivotal role in fueling the global petroleum economy has made them
largely resistant to international efforts to curb emissions of carbon
dioxide. As they try to repair their busted business model or collapse under
the weight of its failures, we can only hope that the path they follow will
entail significantly less dependence on oil exports as well as a
determination to speed up the conclusion of the fossil fuel era and so
diminish its legacy of climate disaster.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world
security studies at Hampshire College and the author, most recently, of The
Race for Whats Left. A documentary movie version of his book Blood and Oil
is available from the Media Education Foundation. Follow him on Twitter at
@mklare1.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest
Dispatch Book, Nick Turses Next Time Theyll Come to Count the Dead, and
Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars,
and a Global Security State in a Single-Superpower World.
Copyright 2016 Michael T. Klare
© 2016 TomDispatch. All rights reserved.
View this story online at: http://www.tomdispatch.com/blog/176145
