Energy crisis looming across the globe

Posted in Energy Security , Other | 27-Oct-07 | Author: Ioannis Michaletos

Caspian Sea & the surrounding states

On January 2007 the average price for a barrel of oil was just above 50$ whilst it reached almost 90$ in mid-October, an impressive 70% increase without a major catastrophe or war in between. Already the international investment houses, such as Merrill Lynch and Citigroup, predict the average price to reach well above 90 USD and certainly do not assume for a radical change in the current day upward trend.

Moreover, according to Matthew Simons, the President of the investment bank Simmons & Co, prices might triple (Reaching above 200$!), if certain events take place in parallel. For instance a Turkish invasion in the Kurdish-dominated Northern Iraq, a war in Iran and widespread terrorist attacks by the global Jihad networks; might bring the economy to a phenomenal recession.

One of the reasons for the oil price increase is the deteriorating value of the USD, which is priced at 1.43 Euro. Taking as a fact that petroleum as well as most commodities are priced with the American Dollar, as long as its value decreases the price of the oil barrel will increase. Furthermore the IMF in its mid-term report describes the dynamism of the worldwide economic environment, which is characterized by a significant growth of the Asian economies, especially China and India. Due to the sheer size of their domestic markets and their energy consuming industries, there is a strong demand for oil, that naturally assists rise in the energy price index.

Goldman Sachs, in its 3rd Quarter report, notes around the decrease of the global oil reservoirs, for the first time over the past ten years. According to the analysts, the price of oil might exceed 93$ during wintertime if it is colder that the previous year or 77$ if the temperature is as hot as last year. It has to be commented that the winter of 2006-2007 was most probably the hotter ever in recent history, and resulted in 850,000 barrels of oil per day consumed less than usual.

Caspian energy blues

As the world’s attention is centered on the energy problems, important developments in that field emerged in the Teheran meeting between Putin, Ahmadinejadand and the Caspian leaders. It seems that another regional entente based in energy emerges, and it is one composed by countries controlling almost half of the world’s natural gas assets and 20% of the global oil reserves. The most important aspect was the joint proposal by Iran and Russia to veto the construction of any pipeline traversing the Caspian states in the future. This initiative will be decided in next year’s conference in Baku, and if accepted by all interested parties it will signify an important shift in energy issues that finds Russia stronger in dictating the rules of the game in relation to the Western oil multinational corporations and of course it elevates the role of Iran as well.

Russia also proposed to divide the basin of the Caspian Sea equally between all five states, thus sharing the energy commodities lying beneath. For the surface of the energy-rich Sea, Moscow proposes joint ownership that ultimately means Russian dominance due to the size and importance of the latter. Iran benefits as well, because according to the present day borders it was not legally able to exploit all but a small portion of the territory.

Lastly all the Caspian Heads of Government agreed not use their territories so as to launch attacks against each other, therefore presenting a direct message to the West and especially USA against the use of force in relation to the Iranian nuclear crisis. A joint declaration was also signed supporting the use of nuclear energy for civil purposes by Iran, a second crucial step that differentiates the today’s Central Asian stance towards Teheran that that of USA, Israel and most of the European capitals.

On overall the energy crisis in sight and the Russian initiatives alter the current state of the world affairs and present a landscape where the main producers, such as Russia are able to use energy as leverage for geopolitical advancement. Also it seems that the traditional Washington-Riyadh energy axis is being supplemented by an emerging Moscow-Teheran one, perhaps adding Astana of Kazakhstan and Baku in the equation. Certainly the 21st “Energy game” has begun and the countries without their own resources might find themselves in a difficult period characterized by continuous antagonism, unpredictable upturns and most certainly fascinating political developments. This might sound fascinating for the average international affairs correspondent it is certainly not for the average citizen regardless of his habituation or nationality.

APPENDIX:

Natural gas reserves (Trillions of Cubic Feet)
Source: EIA (Jan. 2007)

1) Russia: 1,688.763 (Full account of Sakhalin reserves not applicable)
2) Iran: 974.000
3) Qatar: 910.500
4) Saudi Arabia: 243.500
5) UAE: 214.500
6) USA: 204.385

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