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The Geopolitics of $130 Oil [复制链接]

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John Mauldin's Outside the Boxhttp://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/default.aspx The Geopolitics of $130 Oil May 27, 2008 By George Friedman Oilprices have risen dramatically over the past year. When they passed$100 a barrel, they hit new heights, expressed in dollars adjusted forinflation. As they passed $120 a barrel, they clearly began to haveglobal impact. Recently, we have seen startling rises in the price offood, particularly grains. Apart from higher prices, there have beendisruptions in the availability of food as governments limit foodexports and as hoarding increases in anticipation of even higher prices. Oiland food differ from other commodities in that they are indispensablefor the functioning of society. Food obviously is the more immediatelyessential. Food shortages can trigger social and political instabilitywith startling swiftness. It does not take long to starve to death. Oilhas a less-immediate -- but perhaps broader -- impact. Everything,including growing and marketing food, depends on energy; and oil is theworld's primary source of energy, particularly in transportation. Oiland grains -- where the shortages hit hardest -- are not merelystrategic commodities. They are geopolitical commodities. All nationsrequire them, and a shift in the price or availability of eithertriggers shifts in relationships within and among nations. Itis not altogether clear to us why oil and grains have behaved as theyhave. The question for us is what impact this generalized rise incommodity prices -- particularly energy and food -- will have on theinternational system. We understand that it is possible that the priceof both will plunge. There is certainly a speculative element in both.Nevertheless, based on the realities of supply conditions, we do notexpect the price of either to fall to levels that existed in 2003. Wewill proceed in this analysis on the assumption that these prices willfluctuate, but that they will remain dramatically higher than priceswere from the 1980s to the mid-2000s. If that assumption is trueand we continue to see elevated commodity prices, perhaps risingsubstantially higher than they are now, then it seems to us that wehave entered a new geopolitical era. Since the end of World War II, wehave lived in three geopolitical regimes, broadly understood:
  • TheCold War between the United States and the Soviet Union, in which thefocus was on the military balance between those two countries,particularly on the nuclear balance. During this period, all countries,in some way or another, defined their behavior in terms of theU.S.-Soviet competition.
  • The period from the fall of theBerlin Wall until 9/11, when the primary focus of the world was oneconomic development. This was the period in which former communistcountries redefined themselves, East and Southeast Asian economiessurged and collapsed, and China grew dramatically. It was a period inwhich politico-military power was secondary and economic power primary.
  • The period from 9/11 until today that has been defined interms of the increasing complexity of the U.S.-jihadist war -- areality that supplanted the second phase and redefined theinternational system dramatically.
With theU.S.-jihadist war in either a stalemate or a long-term evolution, itsimpact on the international system is diminishing. First, it has lostits dynamism. The conflict is no longer drawing other countries intoit. Second, it is becoming an endemic reality rather than an urgentcrisis. The international system has accommodated itself to theconflict, and its claims on that system are lessening. Thesurge in commodity prices -- particularly oil -- has superseded theU.S.-jihadist war, much as the war superseded the period in whicheconomic issues dominated the global system. This does not mean thatthe U.S.-jihadist war will not continue to rage, any more than 9/11abolished economic issues. Rather, it means that a new dynamic hasinserted itself into the international system and is in the process oftransforming it. It is a cliche that money and power arelinked. It is nevertheless true. Economic power creates political andmilitary power, just as political and military power can createeconomic power. The rise in the price of oil is triggering shifts ineconomic power that are in turn creating changes in the internationalorder. This was not apparent until now because of three reasons. First,oil prices had not risen to the level where they had geopoliticalimpact. The system was ignoring higher prices. Second, they had notbeen joined in crisis condition by grain prices. Third, the permanenceof higher prices had not been clear. When $70-a-barrel oil seemedimpermanent, and likely to fall below $50, oil was viewed verydifferently than it was at $130, where a decline to $100 would bedramatic and a fall to $70 beyond the calculation of most. As oilpassed $120 a barrel, the international system, in our view, started toreshape itself in what will be a long-term process. Obviously,the winners in this game are those who export oil, and the losers arethose who import it. The victory is not only economic but political aswell. The ability to control where exports go and where they don't gotransforms into political power. The ability to export in a seller'smarket not only increases wealth but also increases the ability tocoerce, if that is desired. The game is somewhat more complexthan this. The real winners are countries that can export and generatecash in excess of what they need domestically. So countries such asVenezuela, Indonesia and Nigeria might benefit from higher prices, butthey absorb all the wealth that is transferred to them. Countries suchas Saudi Arabia do not need to use so much of their wealth for domesticneeds. They control huge and increasing pools of cash that they can usefor everything from achieving domestic political stability toinfluencing regional governments and the global economic system.Indeed, the entire Arabian Peninsula is in this position. Thebig losers are countries that not only have to import oil but also areheavily industrialized relative to their economy. Countries in whichservice makes up a larger sector than manufacturing obviously use lessoil for critical economic functions than do countries that are heavilymanufacturing-oriented. Certainly, consumers in countries such as theUnited States are hurt by rising prices. And these countries' economiesmight slow. But higher oil prices simply do not have the same impactthat they do on countries that both are primarilymanufacturing-oriented and have a consumer base driving cars. EastAsia has been most affected by the combination of sustained high oilprices and disruptions in the food supply. Japan, which imports all ofits oil and remains heavily industrialized (along with South Korea), isobviously affected. But the most immediately affected is China, whereshortages of diesel fuel have been reported. China's miracle -- rapidindustrialization -- has now met its Achilles' heel: high energy prices. Chinais facing higher energy prices at a time when the U.S. economy is weakand the ability to raise prices is limited. As oil prices increasecosts, the Chinese continue to export and, with some exceptions, areholding prices. The reason is simple. The Chinese are aware thatslowing exports could cause some businesses to fail. That would lead tounemployment, which in turn will lead to instability. The Chinese havetheir hands full between natural disasters, Tibet, terrorism and theOlympics. They do not need a wave of business failures. Therefore,they are continuing to cap the domestic price of gasoline. This hascaused tension between the government and Chinese oil companies, whichhave refused to distribute at capped prices. Behind this power struggleis this reality: The Chinese government can afford to subsidize oilprices to maintain social stability, but given the need to export, theyare effectively squeezing profits out of exports. Between subsidies andno-profit exports, China's reserves could shrink with remarkable speed,leaving their financial system -- already overloaded with nonperformingloans -- vulnerable. If they take the cap off, they face potentialdomestic unrest. The Chinese dilemma is present throughoutAsia. But just as Asia is the big loser because of long-term high oilprices coupled with food disruptions, Russia is the big winner. Russiais an exporter of natural gas and oil. It also could be a massiveexporter of grains if prices were attractive enough and if it had theinfrastructure (crop failures in Russia are a thing of the past).Russia has been very careful, under Vladimir Putin, not to assume thatenergy prices will remain high and has taken advantage of high pricesto accumulate substantial foreign currency reserves. That puts them ina doubly-strong position. Economically, they are becoming major playersin global acquisitions. Politically, countries that have becomedependent on Russian energy exports -- and this includes a good part ofEurope -- are vulnerable, precisely because the Russians are in asurplus-cash position. They could tweak energy availability, hurtingthe Europeans badly, if they chose. They will not need to. TheEuropeans, aware of what could happen, will tread lightly in order toensure that it doesn't happen. As we have already said, thebiggest winners are the countries of the Arabian Peninsula. Althoughsomewhat strained, these countries never really suffered during theperiod of low oil prices. They have now more than rebalanced theirfinancial system and are making the most of it. This is a time whenthey absolutely do not want anything disrupting the flow of oil fromtheir region. Closing the Strait of Hormuz, for example, would bedisastrous to them. We therefore see the Saudis, in particular, takingsteps to stabilize the region. This includes supporting Israeli-Syrianpeace talks, using influence with Sunnis in Iraq to confront al Qaeda,making certain that Shiites in Saudi Arabia profit from the boom.(Other Gulf countries are doing the same with their Shiites. This isdesigned to remove one of Iran's levers in the region: a rising ofShiites in the Arabian Peninsula.) In addition, the Saudis are usingtheir economic power to re-establish the relationship they had with theUnited States before 9/11. With the financial institutions in theUnited States in disarray, the Arabian Peninsula can be very helpful. Chinais in an increasingly insular and defensive position. The tension ispalpable, particularly in Central Asia, which Russia has traditionallydominated and where China is becoming increasingly active in makingenergy investments. The Russians are becoming more assertive, usingtheir economic position to improve their geopolitical position in theregion. The Saudis are using their money to try to stabilize theregion. With oil above $120 a barrel, the last thing they need is a wardisrupting their ability to sell. They do not want to see the Iraniansmining the Strait of Hormuz or the Americans trying to blockade Iran. TheIranians themselves are facing problems. Despite being the world'sfifth-largest oil exporter, Iran also is the world's second-largestgasoline importer, taking in roughly 40 percent of its annual demand.Because of the type of oil they have, and because they have neglectedtheir oil industry over the last 30 years, their ability to participatein the bonanza is severely limited. It is obvious that there is nowinternal political tension between the president and the religiousleadership over the status of the economy. Put differently, Iraniansare asking how they got into this situation. Suddenly, theregional dynamics have changed. The Saudi royal family is secureagainst any threats. They can buy peace on the Peninsula. The highprice of oil makes even Iraqis think that it might be time to pump moreoil rather than fight. Certainly the Iranians, Saudis and Kuwaitis arethinking of ways of getting into the action, and all have the means andgeography to benefit from an Iraqi oil renaissance. The war in Iraq didnot begin over oil -- a point we have made many times -- but it mightwell be brought under control because of oil. For the UnitedStates, the situation is largely a push. The United States is an oilimporter, but its relative vulnerability to high energy prices isnothing like it was in 1973, during the Arab oil embargo.De-industrialization has clearly had its upside. At the same time, theUnited States is a food exporter, along with Canada, Australia,Argentina and others. Higher grain prices help the United States. Theshifts will not change the status of the United States, but they mightcreate a new dynamic in the Gulf region that could change the frameworkof the Iraqi war. This is far from an exhaustive examination ofthe global shifts caused by rising oil and grain prices. Our point isthis: High oil prices can increase as well as decrease stability. InIraq -- but not in Afghanistan -- the war has already been regionallyovershadowed by high oil prices. Oil-exporting countries are in amoneymaking mode, and even the Iranians are trying to figure out how toget into the action; it's hard to see how they can without theparticipation of the Western oil majors -- and this requires buryingthe hatchet with the United States. Groups such as al Qaeda andHezbollah are decidedly secondary to these considerations. Weare very early in this process, and these are just our openingthoughts. But in our view, a wire has been tripped, and the world isrefocusing on high commodity prices. As always in geopolitics, issuesfrom the last generation linger, but they are no longer the focus. Lastweek there was talk of Strategic Arms Reduction Treaty (START) talksbetween the United States and Russia -- a fossil from the Cold War.These things never go away. But history moves on. It seems to us thathistory is moving.
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John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Communications from InvestorsInsight are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of InvestorsInsight, and should not be construed as an endorsement by InvestorsInsight, either expressed or implied. InvestorsInsight is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.
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