Column: Wake Up, West – a new energy world order is building, fast

From the BOE REPORT

Terry Etam

Here in the weird West, where we set aside our vast wealth, bountiful resources, technological prowess, best-in-history medical/safety establishments, and other assorted existential victories to get into fistfights about whether more racism will eliminate racism and who can go to the bathroom where, we are used to watching ancient conflicts take place on the other side of the world, shaking our head, and wondering either “Why can’t they all just get along” or “Well that’s unacceptable, better step in.”

The weird west has long gotten involved in many of these conflicts because of, well, o-i-l. It’s been that way since the 1950s, probably longer; the west’s insatiable thirst for hydrocarbons has driven a lot of international shenanigans and weird relationships. Recall that after a gang of terrorists hijacked four planes and flew them into the US’ most fundamental landmarks on home soil, and that more than half of those terrorists were from Saudi Arabia, the US promptly and expectedly retaliated – by invading two other countries, and going for tea with Saudi Arabia. Kind of transparent, that one.

But that established hydrocarbon-based camaraderie is fading fast, and it doesn’t look like the West has a game plan in response. That’s about as far as I’ll wade into geopolitics because the whole mess is grossly complicated (who hates who again this week?), other than to point out how rapidly things are changing and how that is impacting the energy world.

As a backbone or framework for this whole discussion, keep in mind that low gasoline prices are of paramount importance to US politicians. They trump everything. No matter what tub is being thumped or what policy is being terror-drilled into the minds of citizens (climate emergency, for example), it will be dropped like a hot potato if it means higher gasoline prices.

Consumers don’t really care about big geopolitical things in their day-to-day life, and they aren’t really scared by the weather (tornado alley excepted). But gasoline prices are on every huge sign in every town in every state; nothing else has its price shoved in your face so vehemently. And those consumers really get up in arms when gasoline prices get too high.

To show how seriously politicians take this, the US half-drained the strategic petroleum reserve last year for the sole purpose of lowering domestic gasoline prices before an election. 

The west has befriended some fairly dubious characters in the past to ensure access to big juicy oil fields (see 9/11 example above). Much of the world order as we know it has been built around access to cheap energy. For the longest time, it was the US’ might economic engine, the biggest by far in the world, that moved the big chess pieces around.

Everything went through the US – either through Washington, or through Wall Street. That’s not necessarily a critique; that’s what superpowers do. 

But storm clouds are on the horizon for the existing superpower order.

Just this past weekend, OPEC – led by Saudi Arabia – announced another production cut in a bid to shore up oil prices. Now, on its own, this isn’t a big deal; OPEC/Saudis have been doing that for decades (both real cuts and sabre-rattling false charges). But this cut was a big deal – it was huge, possibly 1.6 million barrels per day (probably less, but still significant), and it was directly in the face of the US administration which wants to see more oil, and not less. Increased oil prices are like a new tax on everyone, a tax that hits poor people hardest, and politicians seldom want to be associated with that.

Not very long ago, the US government was admonishing producers to produce more, urging OPEC to open the taps, and then finally draining strategic reserves, all in effort to drive down gasoline prices.

A few months into 2023, with oil prices far lower than last year, the US is supposed to be refilling the SPR, which would have had the effect of stabilizing oil prices in this range. But they won’t do it, and Saudi Arabia + buddies said ‘enough’ and acted voluntarily in a move that seemed to surprise almost everyone. 

This isn’t just oil market machinations; this is the tip of a very big iceberg. It is a new big kid on the block flexing its muscles. I’m not referring to Saudi Arabia here, but a whole new context in which Saudi Arabia appears to be quite comfortable in going its own way. Here’s why they are feeling that chipper. 

The BRICS alliance – Brazil, Russia, India, China and South Africa – is apparently no longer willing to stand by and have someone else dictate how their world will go (so to speak). They are flexing their muscles, and bringing in other nations as well. The following countries have expressed an interest in joining BRICS – Iran, Saudi Arabia, Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain and Indonesia, along with two nations from East Africa and one from West Africa, according to a Bloomberg article. There is talk that Mexico wants to join as well, which is quite the thunderbolt considering the leaky border it shares with the US.

The repercussions of this development are hard to understate. Consider Iran, historically viewed as a troublemaker here in the West, dubbed a member of the “Axis of Evil” by George W. Bush some 20 years ago. Iran has been (at least theoretically) shut out of global oil markets because of their tinkering with nuclear weapons and their animosity towards neighbours that have a lot of oil (more than Iran anyway, which is the equation that matters).

Iran has been sanctioned, yelled at, barred from oil markets, and viewed as a pariah. Even many in the neighbourhood can’t stand them; per a 2019 BBC article, Saudi Arabia and Iran are ‘bitter rivals’ fighting for regional control, and probably have been for a thousand years ever since someone forgot to take their boots off in somebody’s house or something (history is not my strong suit).

They are even riven by religion, and we all know how those spats turn out. Perhaps you prefer Time magazine’s infinitely more eloquent take: “In the pantheon of intractable, visceral conflicts, the feud between Iran and Saudi Arabia sits below few: rooted in doctrine, enmeshed in history, and waged via proxies across the Middle East.” 

But holy crap look at what just happened. China has just brokered a peace deal between Saudi Arabia and Iran. Well, maybe not a peace deal, that would be quite the accomplishment, but did manage to reestablish diplomatic ties, and has made incredible headway in healing that relationship, which seems even more bizarre than if Dr. Phil actually was to do that for once.

It gets even more eye-opening: China has stepped into the Russian war to try to broker a peace deal with Ukraine, and reportedly both Putin and Zelenskyy welcomed the move.

Bizarrely, or maybe not, the US admin turned up its nose at both diplomatic coups; with respect to the Saudi-Iran deal, the Biden admin downplayed it as insignificant and preferred to talk about China’s threat to the “rules-based international order.” Is the “rules-based international order” designed to keep conflicts going? And of course, the Russia-Ukraine talks were a nonstarter for the West, a point which I totally get since Ukraine wants its territory back, but that’s beside the point.

The point is that the axis of the world is shifting. Western Europe and the US no longer call all the shots; the old powers that spend a century or two civilizing and carving up the world to their satisfaction no longer may be in the driver’s seat. A thousand books could be written on that topic, but here I am sticking to the energy aspect because, you know, this is the BOE Report, and not Chauncy Goodfeather’s Oxford Guide to the Management of Barbarians, Boors and Yokels (don’t bother Googling that), and besides that it is worth noting how the energy world is being shaken up. 

Actually, it might not be shaken up in a global sense as much as we’d think, but here in the West we’re going to get a good metaphorical whack on the side of the head. Cast your mind back to the list of countries either in BRICS or applying to join. In that group are billions of people, many of whom have insufficient power, nutrition, clean drinking water, etc. Even a significant number of Russians apparently don’t have indoor toilets, which maybe their leadership should have worried about that crappy situation rather than invading countries. 

And amongst that crowd, Iran is set to potentially join the club. A few billion people don’t find them so evil, I guess. I’m not defending that regime, just sayin’.

For all these billions of BRICS people, energy security and availability are pretty high up on their list of priorities, in stark contrast to the West’s obsession with reducing CO2 levels at absolutely any cost. It is the sheer quantity of energy available (or not available) that is a problem for the BRICS gang, which is one reason China is the world’s leader in installing renewable energy but also is building new coal-fired power plants hand over fist. They need it all. India also builds a lot of solar, but relies on coal, and buys oil from Russia without a care in the world. Hungry mouths come first.

Here in the West, we generate research reports by credible institutions that point out that we don’t have enough minerals and metals to perform the energy transition that we flamboyantly carve into law, and then we just shout “Who cares” and bring the net zero timelines even closer.

We adopt grandiose plans to develop our own critical minerals supply chains, acting completely obliviously to the fact that segments of our very own citizenry will protest the bejeezus out of any new mine application, out of any new large infrastructure development, out of any new messy and environmentally unfriendly metals/minerals processing industry that the Chinese currently have a lock on, and that we can’t do a thing without.

In the rest of the world where hundreds of millions would be ecstatic to have a refrigerator, their aspirations are somewhat more grounded and less insane. 

That vast group, the one that is scrabbling for survival and sees a chance for a better future by joining BRICS, has a far different take on what their most pressing emergency is. 

Don’t dismiss BRICS as the ‘developing world’ or any such label as we like to scribble on foreheads at our whim; the BRICS group, even without all the new recruits, has surpassed the G7 in GDP. The founding BRICS group has a combined population of well over 3 billion, versus less than one billion for ‘the west’, which means a lot of consumers, a very big market, and a good chunk of the world’s resources.

Now that even the likes of the filthy rich Saudis are looking to join the BRICS party, it should be apparent to us over here in the West that maybe we have better things to worry about than that which is amplified by our preoccupation with our Victim of the Week Wailing Club.

Energy dialogue should be exciting and positive – if you’re going to wade into the current energy mess, might as well enjoy it. Pick up  “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks!29dk2902lhttps://boereport.com/29dk2902l.html

Read more insightful analysis from Terry Etam here, or email Terry here.