Courting future resource conflict: the shortcomings of Western response strategies to new energy vulnerabilities




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Courting future resource conflict: the shortcomings of Western response strategies to new energy vulnerabilities


Susanne Peters

Political Science Department

Giessen University


Courting future resource conflict: the shortcomings of Western response strategies to new energy vulnerabilities



  1. Introduction




  1. Globalization theories and the negligence of conflict


3. Global Fossil Fuel Depletion


4. EU Energy Supply: New vulnerabilities, risky strategies


4.1. EU import dependency

4.2. Risky Strategy: Putting all eggs in the Russian basket

5. Inadequate Western crisis management


5 1. Western vulnerabilities and the IEA crisis mechanism

5.2. Western geopolitics of energy


5. Conclusion


Abstract



With the phenomenon of economic globalization having absorbed our attention for the last decade, environmental challenges as well as the necessity to manage the distribution of resources have been neglected. This paper focuses on the potential for future resource conflicts among states which – as will be argued - will be fought along the axis of the consumers and producers of energy. Conflict over resources can be provoked by the increased energy import dependency of some Western states, intensified by a progressive process of global fossil fuels depletion. The strategies of the West to prevent and manage this type of conflict - risk reduction, crisis management and geopolitics of energy - will be evaluated according to their effectiveness. It will be argued that these strategies might be effective in the short- and mid term but are inadequate in the long term, and that Western states cannot depend on them to prevent a conflict over fossil fuels. The focus of the study is the EU and its precarious strategy of “risk reduction” which, in effect, places all the eggs in the Russian basket. The discussion of Western crisis management as implemented by the International Energy Agency also points to their lack of reliability and effectiveness to manage a severe shortage crisis. The third strategy to prevent and manage supply crisis for the West - a geopolitics of energy – might work in the short run by furnishing Western states’ control of cheap oil, but is counterproductive in the long run by deepening the chasm between them and the producer countries on whose energy they depend. The only two effective and complementary strategies to avoid conflict over resources would be to start to reduce the dependency on fossil fuels by developing alternative and renewable energy, and, most of all, to pursue a global policy based on a more equitable and controlled energy distribution.


1. Introduction


Following the end of the cold war there was a short period of time when it looked as if the world was entering an era of political stability, enduring peace and the absence of conflicts. It was at this time that Francis Fukuyama wrote his famous book “The End of History and the Last Man”, which announced that the global spread of capitalism and liberal democracy would bring global prosperity and peace, even including the third world. It did not take long for this dream to be shattered: we witnessed the Gulf War with the direct involvement of three Western powers, and an eruption of ethnic conflicts unprecedented in history in terms of its dimension and geographical spread. The search for the one theory – the one explanation for these conflicts started, but none of the theories offered were wholly satisfactory and it became ever more evident that another dimension had to be added to explain the dynamics of global security: namely, the present and future potential for resource wars.1


In the following, I will discuss the potential for future resource conflicts among states which – as will be argued - will be fought along the axis of the consumers and producers of energy. Conflicts over resources can be provoked by the increased energy import dependency of the consumer states, intensified by a progressive process of global fossil fuels depletion. The strategies of the West to prevent and manage this type of conflict - risk reduction, crisis management and geopolitics of energy - will be evaluated according to their effectiveness. It will be argued that while they might work in the short- and mid term, they are inadequate in the long term, and Western states cannot therefore depend on these strategies to prevent future conflict over fossil fuels. The discussion focuses on the EU and its strategy of “risk reduction” vis-à-vis Russia by securing energy supply from one of their main suppliers through treaties and partnership arrangements. Western crisis management as implemented by the International Energy Agency also points to their lack of reliability and effectiveness to manage a severe shortage crisis. The third strategy to prevent and manage supply crisis for the West - a geopolitics of energy – might work geographically and temporarily, limited by furnishing Western states’ control and access to cheap oil, but is counterproductive in the long run because it only serves to deepen the chasm between themselves and the producer countries on whose energy they depend. The only two feasible and complementary strategies would be to start to reduce the dependency on fossil fuels by developing alternative and renewable energy, and to pursue a more equitable policy of global energy distribution.


It will be argued that the widely accepted globalization theories are incapable to explain conflict, including conflict provoked by environmental scarcity. Evidence for the progressive process of fossil fuels depletion will be presented as a further exacerbating factor explaining the potential for resource conflict. Subsequently the discussion will focus on new energy supply vulnerabilities on the part of the EU and its strategy of “risk reduction” which will be identified as a precarious strategy since it puts all eggs in the Russian basket and the suspended Energy Charter Treaty. Also the West’s, more specifically the OECD’s, inadequate crisis management of the International Energy Agency will also be highlighted as the implications of a Western geopolitics of energy.


2. Globalization theories and the negligence of conflict


The end of the cold war in 1989 and the collapse of the Soviet Union prompted a debate in international relations on the “nature” of the new world order, on the “one defining thing” of the post-bipolar world. In several analyses it has been argued that economic globalization has emerged as the world’s dominant feature, bringing unprecedented prosperity even to impoverished regions of the world.2 It is further argued that economic globalization leads to an eradication of conflicts in the long run, since major disputes will be economic by nature and will be resolved through the market mechanism.


But while most scholars would agree that economic globalization and the emergence of the global market is a critical new feature of the international system, there is controversy concerning the extent to which these economic factors eventually determine the prospect for cooperation and conflict in the new international system. The proponents of a global spread of neo-liberalism would argue that globalization will yield greater interdependency among states and make their borders more permeable. Thus, apart from the spread of prosperity, these globalization processes would also lead to international cooperation and world peace.


One group of critics of the optimistic view of liberal proponents of globalization disagree in particular with the assumption that the globalization process will foster peace and cooperation. Instead they predict an intensification of conflict between regional economic blocs competing with each other in a struggle for market shares and technological supremacy. Then there are those analyses which are not part of the globalization debate and which focus explicitly on conflict and security. Quasi as a counter design to the idea of globalization, Samuel Huntington delivered his bold and provocative view of the future world order and global security. In his seminal 1996 book “The Clash of Civilizations and the Remaking of World Order”, he argues that the future will be characterized by clashes between civilizations and its core states, and not between states and regions like in the past. He identifies seven civilizations which are in conflict with each other. At the macro level it all boils down to the “West versus the Rest”3 with “the most intense conflicts occurring between Muslim and Asian societies on the one hand, and the West on the other.”4 Huntington has been criticized widely for the simplicity of his “plate tectonics”5 and being proven wrong by recent occurrences in which the West, or rather the US, aligned with Muslim states, i.e. in Bosnia or in case of Azerbaijan and Turkmenistan. Another provocative scenario for global conflict has been offered by Robert Kaplan who in a well received 1994 article argued that the defining element of the future world will be some form of anarchy, caused by scarcity, crime, overpopulation, tribalism, and disease. His scenario is based on a transfer of West Africa’s devastating and catastrophic experience to other parts of the globe, including the Western world. The new concept of “environmental scarcity” plays an essential role in his apocalyptic prophecy as a cause for war at the sub-national level.


The term “environmental scarcity” had been introduced into the political science debate at the beginning of the 1990s by a Toronto research team referring to a depletion and degradation of renewable resources, i.e. of water, forests, fertile land and fisheries. These wars are not fought at the national level, but rather in sub national – tribunal and communal - context. The identification of disputes over resources as cause for international conflict is not new. The concern and apprehension for the economic well-being of the Western industrialized societies in connection with the two oil crisis in the 70s brought the notion of a “resource war” close to home, leading to a proliferation of research dealing with resource conflicts. A 1986 analysis provided a list of 12 conflicts in the 20th century involving resources, beginning with WWI and concluding with the Falklands/Malvinas War. Access to oil was at issue in 7 of these conflicts, even if indirectly such as in the Malvinas case when the existence of off-shore oil was assumed rather than proven. Only five of these conflicts involved renewable resources, and only two conflicts did not involve non-renewable resources.6 These findings confirmed the observation that states fought more over non-renewable than renewable resources. Thomas F. Homer-Dixan gives two reasons for this observation: First, since fossil fuels and minerals are critical constituents of any war production, they can be more directly converted into state power than for example fish and forests. Second, the very countries that are most dependent on renewable resources, and which are therefore most motivated to seize resources from their neighbors, also tend to be poor - inhibiting their capability for aggression.


The urgent concern involved in energy security, i.e. access to affordable energy, dissipated in the course of the 80s in response to a substantial increase of supply, induced by a successful Western diversification strategy. This decreasing urgency of energy security was accompanied by a fading interest in research on inter-state conflicts concerning non-renewable energy. With violent conflict between ethnic groups seemingly becoming the dominant feature of the post cold war period, conflict research transferred its focus to the sub-national level and non-renewable energy as one motive for these conflicts. But by the end of the 90s new trends were visible: non-renewable energy is slowly, but progressively subject to depletion and energy import dependency of some Western states is increasing. Thus conflict research has to reconsider its implicit assumption that wars among states is a feature of the past. 7


3. Global Fossil Fuel Resource Depletion


Among the non-renewable resources oil is the most important in the economies of the industrialized countries. It is an extensively used raw material and an important factor for transport8 and the agricultural sector. The petrochemical sector would collapse without oil supply and, so far, no replacement for oil is in sight. In particular, the agricultural sector is dependent on oil since the new “green revolution” is based on water and nutrients—both of which require petroleum. But with oil prices having experienced a record plunge during most of the 90s, there seemed to be no reason to think about the interdependency between these two facts: that oil is a finite resource and that the West is heavily dependent on its supply. Moreover, in the 1970s we all were subject to the alarming predictions of the Club of Rome’s “Limits of Growth” which was based on wrong forecasts in terms of demand growth and therefore wrong.9 However, 30 years later, it now appears that new problems are on the horizon.


Over the past few years, voices10 predicting a problem with oil production in the foreseeable future have grown stronger. These are the essential arguments on which these analysts base their concern:


1. Oil is a finite resource. The big discoveries have all been made. The peak of discovery occurred in the 1960s and the discovery rate has fallen dramatically in recent years. For every two barrels used, only one new one is found. Oil production will reach a peak around 2010 and decline thereafter. Peak means that half of the world’s finite supply of conventional oil will have been consumed. Peak production means the mid-point of depletion.11

2. Reserves are an important basis to predict future discovery. There is, first of all, confusion about the definition about what a “reserve” is. Furthermore, assessments of reserves are subject to diverse political motivations to understate or overstate the quantities involved. Moreover, the alleged discoveries of the OPEC countries in the 1980s, which are regularly pointed to in the BP Review and adopted by many other sources, are simple additions by several OPEC members who were competing for quota based on reserves; however, nothing had changed in their reservoirs.12 It started with Iraq, when it added an eleven billion barrel increase that in fact was a delayed report of a discovery in the late 1970s. Venezuela followed by doubling its reserves in 1987 by the admission of, at that point, large amounts of heavy oil it had found long before. Iran, Iraq, Abu Dhabi, Dubai and later Saudi Arabia felt compelled to counteract Venezuela’s action by reporting huge increases of their own, “practically overnight.”13 The actual figures might be somewhere in the middle, because the old numbers (provided by the companies before being expropriated) might have been understated. Moreover, it is implausible that a large and increasing number of countries report unchanged numbers year after year although “production eats into reserves.” In the overall statistics for discoveries, these distortions of the 1980s continue to have a considerable impact.

3. The category of non-conventional oil is another swing factor in all the estimates. Non-conventional oil is oil from oil shale, tar sands and from enhanced recovery, oil in very hostile environments, in very small accumulations, and heavy oil. Non-conventional oil is difficult and expensive to extract and the crucial question for the future will be to what extent technology will develop to facilitate access to this non-conventional oil. The IEA has estimated that oil companies would have to invest $1 trillion in the production process of non-OPEC countries to compensate for the loss of their aging fields.

4. The cake is not only getting smaller, but more parties are eating it. Energy consumption of the developing word will increase steadily in the foreseeable future. In terms of primary energy demand14 the biggest share of the potential increase will come with 68% from the developing world. OECD’s countries share of increase will account of 23%. While the share of OECD demand will fall from 54% (1997) to 44% (2020)15, this does not mean that consumption of OECD countries compared to that that of the developing countries is not completely disproportional: Based on 1992 figures Goldstein showed that the global South with 76 percent of the world’s population accounts for only 26 percent of the world’s aggregate energy consumption, which means on a per capita basis that the North uses nine times as much energy as the South.16 With energy resources dwindling over the next decades we can expect a fight over the distribution of the remaining resources, with the South no longer prepared to accept this disproportional consumption of energy.


It is difficult to render an assessment as to what extent these arguments are known, ignored or refuted by the Western political elites responsible for securing the availability of energy for their industrialized economies. The big oil companies might be reluctant to talk about these issues publicly since their fortune and positive dividends depend on the stock market and the unchallenged idea that oil is flowing in endless streams. Moreover, official sources such as the Report to the Trilateral Commission17 do not see a problem of scarcity in the long run, rather one of an abrupt interruption of supply. But there are also critical voices from the oil companies such as Franco Bernabé from ENI (the Italian energy company),18 as well as BP’s new corporate name “Beyond Petroleum”, which clearly acknowledges that there will be a problem of supply in the future.19 Even the chief executive of ARCO stated dramatically: “We’ve embarked on the beginning of the last days of the age of oil”.20


4. EU Energy Supply: New Vulnerabilities, Risky Strategies


While the dimension of resource depletion is a controversial subject and debated heatedly in expert circles, there is no controversy about the increasing import dependency of some Western states and their newly grown energy vulnerability which constitutes the background for inter-state resource conflicts. In the US energy vulnerability has already been a subject of intensive discussion for decades. Although the EU is even more in need of external energy resources than the US, the European Union started to advance its own analysis and strategies to deal with the subject as late as the mid 90s. Therefore the following discussion will focus on the European arena. After a short presentation of new EU energy vulnerabilities, the effectiveness of the EU strategy of “risk reduction” vis-à-vis Russia will be discussed.


4.1. EU Energy Supply Vulnerabilities


Most energy policy is still made at the level of the EU member states and so far the EU Commission failed in its goal to achieve formal competence for Common Energy Policy (CEP). To boost the case for a CEP, the Commission has launched a series of papers starting with a Green Paper in 1995. It outlined the main foundations of such a policy, including the promotion of an Internal Energy Market, a common security of supply policy, and the consideration of environmental aspects. Several other studies followed. In particular, the 2000 study “Towards a European strategy for the security of energy supply” is regarded as the key EU document in this context.


Oil import reliance


Europe’s oil import dependency will increase drastically in the mid-term future since North Sea crude oil production is projected to decline progressively after reaching peak production around 2000. Currently, in the EU, energy demand is covered by 41% oil, 22% gas, 16% coal, 15% nuclear energy and 6% renewables.21 The EU currently imports 76% of its oil energy requirements; by 2020, this is projected to increase to 90%. The Green Paper acknowledges that “geographic diversification” will be difficult in view of the fact that the remaining oil reserves will increasingly be concentrated in the Middle East.22 Forty five percent of EU oil imports come from the Middle East and, by 2020, 50% of the Union’s needs will be covered by OPEC. After the Middle East, the important oil suppliers of Western Europe are the CIS with 23 % and North Africa with 20%. Thus, with one fifth of the total import supply, North Africa also must be viewed as an important regional provider.23


Gas import reliance


Natural gas has seen a rapid growth in consumption since the 1990s, increasingly supplanting oil for heating. In the mix of energy, the share of gas--currently 22%--will increase to 29% by 2030. The EU imports 40% of its gas consumption; of that amount, Russia accounts for 42% of the EU’s gas imports and Algeria 30%.24 Thus, for the foreseeable future, Russia and Algeria will remain the main external suppliers. On one hand, gas poses less of a potential supply problem for the Western world than oil, since it will take longer for gas supplies to run out. On the other hand, there are two problems related to increasing reliance upon gas as a primary energy supply: 1) while there exists a mechanism for dealing with interruptions in oil supplies, there is no equivalent mechanism for gas at the EU level or, more widely, in the IEA framework25 and 2) there is a fundamental difference between oil and gas: gas, unless it has been transformed into liquid gas (LNG), can only be transported by pipelines directly to its customers and therefore requires long-term contracts between producers and consumers. In contrast to gas, oil only needs pipelines to be transported to transshipment points where it is loaded on ships for delivery to distant markets. This means that while there is a global market for oil, the corresponding market for gas is only regional. Should a crisis occur with the main suppliers, the options for diversification are therefore very limited. The Green paper concludes: “In the long run, the supply of gas in Europe risks creating a new situation of dependence.” 26


In view of the geography of its suppliers for the EU and the increasing dimension of its import dependency, the 1999 Annual Energy Review’s conclusion warns that


more than three quarters of world oil and gas reserves are located in potentially unstable areas from political and/or economic point of views. Furthermore these areas will remain the dominant source of European Union supplies in the future.27


The 2000 Green paper also discusses the potential instabilities in connection with the EU’s reliance on a few energy suppliers:

Adopting a policy of geopolitical diversification has not been able to free the Union from effective dependence on the Middle East (for oil) and Russia (for natural gas). Indeed, a number of Member States, and in particular the applicant countries, are entirely dependent on a single gas pipeline that links them to a single supplier country. 28


Diversification and technology


Diversification of suppliers, in particular in the gas sector, is therefore one important strategy recommended by the Commission. Towards this end, the EU - in its 1995 Green paper – declared its intention to develop and apply new technologies for enhanced exploitation of fossil fuels as well as making better use of new and renewable energy sources.29 But five years later, in 2000, renewables still accounted for only 6% of Europe’s supply, including 2% hydroelectricity.30 Moreover, the progress made in renewables has been offset by a further increase in consumption. Accordingly, the Commission set a new goal: it projected the target of doubling the share of renewables in global energy consumption from 6% in 1997 to 12% by 2010, a level of 7% for biofuels by 2010, and a target of 20% for all fuel substitutes. The investment required to meet these goals has been estimated to be about 165 billion Euros between 1997 and 2010. 31


The 2000 EU Green paper states that “transport represents the great unknown for the future of energy” and that with its “almost complete dependence on oil” it is “an Achilles’ heel for Europe’s economy”.32 In the future, the transport sector is expected to grow by 2% per annum, with goods transport expected to increase by 38 % and passenger transport by 19 %. The EU concedes that the current absence of any real oil substitute (bio-fuels, natural gas) in the transport sector would “make any prolonged oil crisis critical”.33 But the transport sector is not the only problem: while the EU paper correctly acknowledges that energy savings in transport is a sine qua non for any substantial reduction in energy consumption, it completely omits the problem of the petrochemical and agricultural sectors, which are both heavily dependent on oil and where no short-term solutions – except controversial ones like genetic engineering - are in sight.34


The 2000 EU Green paper has been criticized widely for its critical shortcomings.35 One criticism refers to the lack of the paper’s engagement in the current controversial debate on resource depletion.36 Furthermore, instead of acknowledging the structural dimension of this problem in terms of the necessity to prepare for the inevitable long term shift to a system depended on renewable energy, the Commission reduces the problem to one of “import dependency”.37 As stated explicitly in the Green paper, the EU is not seeking to increase energy self-sufficiency or to decrease its dependence, but instead deliberately limits itself to a strategy of reducing “the risks linked to such dependency”.38 This approach is labeled here as being the “EU strategy of risk reduction.”


Independent of the strategy, the analysts who drafted the EU Green paper at least cannot be accused of underestimating the seriousness of the situation when they use the following analogy to describe the social risks of an energy crisis:


The instability of energy supplies, whether linked to erratic fluctuations in prices, relations with producer countries or a chance event, may cause serious social disruption. Today petrol is vital for the functioning of the economy, like bread. Any disruption of supply is likely to lead to social demands, if not social conflict. The situation is similar to that created by a bread shortage 200 years ago. 39


The Energy Charter Treaty and the most recent Energy Partnership with Russia have to be seen as a reflection and direct policy outcome of this strategy aimed at reducing the risk for an EU involved in high import dependency on Russia. But both policy initiatives, the Charter Treaty and the Energy Partnership, fall short of guaranteeing energy delivery from the EU’s most important and gas and second important oil suppliers.


4.2. The Risky Strategy of “Risk Reduction”: Putting all Eggs in the Russian Basket


The Energy Charter Treaty (ECT) belongs in the category of EU strategies of risk reduction, its’ aim being to secure energy supply through contractual and legal instruments. Originally the Charter was set in motion by the Dutch government in 1990 to stimulate economic growth in Eastern Europe and the former Soviet Union. The Charter was signed as a political declaration in 1991 and developed into the Energy Charter Treaty, signed in 1994. The signatories to the treaty, now totaling 51, include all members of the European Union, several Eastern European countries, Russia and the CIS states, plus Australia and Japan. The Treaty entered into force in 1998 following the ratification of 30 signatories. The treaty is still pending ratification for other countries. The purpose of the treaty is to establish legal rights with respect to investment, trade, and the transit of energy. But the most important issue is security of transit, with all signatories obliged to allow the transit of energy from third parties including in the event of a conflict with one of the parties. This issue was raised in view of the fact that Russian gas, for example, is transported via Ukraine and other republics who have potential or actual conflict with Russia.


But so far Russia has not ratified the ETC, nor would it appear that the Russian parliament intends to ratify the treaty in the foreseeable future.40 Thus the implementation of the ETC has been suspended indefinitely. The explanation for the Soviet reluctance to commit to this treaty is due to the transit protocols which would require the signatories to allow third countries to use their pipelines for transit of their energy goods. But Russia is not willing to allow third countries such as Turkmenistan and Uzbekistan to use Russian territory for transit, as it wishes to protect the monopoly position of the Russian gas company, Gazprom, in the European gas market. It is widely held amongst energy experts that “maintaining a stronghold over energy transit possibilities for former Soviet states has been a foreign policy instrument the Russian government has been reticent to relinquish.”41


In order to partially compensate for the lack of Russian participation in the ECT, the EU succeeded in achieving an “energy partnership” with Russia. This initiative has been launched as one policy outcome of the EU Green Paper stipulating that the EU’s share of Russia’s current gas and oil supply is planned to double in the next 20 years.42 But experts warn that Russia will not be capable of delivering reliably energy in these quantities in view of its limited reserves, its high domestic demand and the limited production capacity of its energy companies.

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