The Middle East needs vision to look beyond the oil age

The global energy landscape has rarely been as chaotic as in recent years. As the World Future Energy Summit opens today in Abu Dhabi, it is in the context of a rapidly changing world. Oil production is approaching its peak: the International Energy Agency has for the first time set 2020 as the dreaded moment when conventional oil discoveries cease to outstrip the depletion of existing fields. The investment needed to extract it increases, price becomes more volatile, global demand rises and choke points may multiply from pirates in the Horn of Africa, insurgents in the Niger Delta, or potentially in the Strait of Hormuz if Iran should become involved in a conflict.

It is unsurprising that the world’s energy addiction, in the form of oil and natural gas, is now more than ever a prime determinant of global politics. Oil remains a precious instrument of statecraft and wealth – state-owned oil companies control 80 per cent of the world’s oil reserves, thus the unmistakable correlation between oil and power. But oil-rich countries also have to prepare for a turbulent future and think about the consequences of climate change. For the UAE, that means investing in alternative energy sources. For Saudi Arabia, it is about preserving its role as the guarantor of a stable energy supply.

For countries on the demand side, secure access to oil remains paramount to their well-being, growth and security, but growing competition is creating complications at the local and international levels. Consider Central Europe, where people freeze in their apartments every time Russia and Ukraine have a falling out and Moscow turns off the gas tap. The European Union has gone into overdrive to find routes that bypass Russia to end its almost crippling dependence. The Nabucco pipeline could be that solution: through Turkey and south-eastern Europe, it would bring Azeri, Iraqi and perhaps one day Iranian gas straight to European consumers.

Nabucco will also have a significant impact on Middle East politics: it would make Turkey an essential element of European economic security, but could also give Iran more leverage over the EU as it became a valuable partner. But the Russians are hitting back with plans for a northern route under the Baltic Sea that would bring gas straight to Germany – to that country’s pleasure and the EU’s detriment.

Ask African citizens from Sudan and elsewhere; they often see Chinese investment in their countries for the sole purpose of pumping oil with little consideration for the environment or their communities. By 2030, resource-hungry China will have to import two thirds of its oil. Among the fast-developing nations, it poses a tremendous challenge to the traditional oil markets. To fuel its growth, Beijing prefers bilateral agreements with weak, resource-rich countries to guarantee its supply. This distorts the global marketplace and has a negative impact on transparency and governance.

India, whose dependence on energy imports continues to grow, is making massive investments in Iran, violating sanctions that are meant to control that country’s nuclear programme.

And observe the sloganeering in the United States about ending US dependence on the Middle East as a means to combat Islamic extremism. US dependence on Arab oil is a myth: Canada and Mexico rank first and second among America’s oil suppliers, while Saudi Arabia and Iraq, ranked third and eight respectively, are the only Arab producers among America’s top 10. If oil in part explains the political and economic backwardness prevalent in the Arab world, it alone is not the cause of extremism and terrorism.

All this makes the Middle East, and the Gulf region in particular, even more important in geopolitical terms. Even if Kuwait were not liberated and Iraq invaded for their oil, that commodity still is undoubtedly the prism for American and global interest for the region. The region has the lowest costs of production per barrel, the world’s largest reserves in Saudi Arabia and the most promising untapped fields in Iraq, because of instability, and Iran, because of sanctions. Technology and capital abound.

Arab Gulf suppliers have resisted using oil for political purposes. But with growing demand from rising geopolitical giants like China, the race to secure markets and political goodwill may lead oil-producing countries to compromise that cherished principle. China’s reluctance to pressure Iran has much to do with the two countries’ growing energy relationship. US pressure on Gulf states to increase production to lower oil prices, thereby bankrupting the Iranian regime, is another example of using oil as a weapon.

It is also in the Middle East that the dependence on oil revenues, and thus the sensitivity to price fluctuations, is the highest. When oil prices drop critically, oil-producing countries see their economic plans compromised, forcing them to revise growth and budgetary calculations. Those difficulties, in turn, hurt oil-poor Arab countries who rely on their neighbours’ economic dynamism and remittances for their own development. When prices rise again, the risks are mismanagement and complacency, exemplified by the demand by Kuwaitis that the government erases all personal debts.

And countries pay a high price for mismanaging their oil wealth. Syria and Yemen were, until recently, oil exporters with national budgets heavily dependent on oil revenues, but their fields are nearly depleted. Because they failed to invest in other productive sectors of their economy, they now face a host of problems ex****bated by the oil curse. And the Middle East hurts itself in other ways. Subsidies make oil excessively cheap in our region, which encourages wasteful consumption – the region consumes almost twice what India does, but has just one-quarter of its population – when it makes more sense to stockpile it, export it or transform it into value-added exports like petrochemicals.

To maintain geopolitical relevance, the Middle East will have to start imagining a future beyond its narrow reliance on oil. The UAE’s investment in nuclear and alternative energy will hopefully help it make the most of an endowment that, when mismanaged, is deservedly known as the devil’s excrement.

http://www.thenational.ae/apps/pbcs....701179920/1080