New Study Predicts Future Resource Wars

Jim Brown
 
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A new study released last week predicts there is a rising risk of violence over the next several years as oil supplies begin to decline.

Robert Slater published the study called "Seizing Power: The Grab for Global Oil Wealth - How Oil Volatility May Lead to Violence Among Oil Powers." In his publication he argues that increasing volatility once oil supplies begin to decline and oil prices begin to rise will be a recipe for conflict between nations. I have been arguing this point for years so Robert and I are on the same page.

We have seen in the past how other nations have been willing to use oil and gas as a weapon to force countries into submission. Russia has used this ploy several times and cutoff supplies to Europe when countries would not pay their higher prices. Those countries were forced to pay up but they immediately begin locating supplies from other sources and spending billions on pipelines to bring those supplies to their country.

That is not the kind of resource war Slater is warning against but that kind of tactic has been used many times in the past. Think back to the disruptions in the U.S. when the Arab world cut off our oil in the late 1970s. There were long lines at service stations and a sharp spike in prices and that was just a political disruption of supply.

Consider what is going to happen when we have a permanent geologic interruption in supplies. This won't be something we can negotiate our way out of. Supplier countries will be at liberty to sell their oil to anyone they choose and while we may end up being the highest payer for sometime that will only be a temporary solution.

As oil supplies begin to shrink the outlaw nations may decide to consolidate supplies by taking it from other countries. The Middle East countries don't get along well in peace time so you can imagine how well they will get along when their livelihood is at stake.

OPEC is our friend only as long as they can produce more oil than the world consumes. They view it as a waiting game while they wait for other countries to begin to decline. Once they can confirm that all other countries are in decline they will no longer be friends. Today they want to manage the price to prevent price hikes that will slow consumption. They want to give the illusion that they will always have plenty of oil because that gives other countries a false sense of energy security. The other countries will elect to spend money on other things rather than a crash course to convert their transportation system away from oil.

OPEC is the sleeping dog. They wait patiently with one eye open as the world consumes around them. Once they see they are finally in control of global production they will morph into a bear and it will be their price or else.

As China and India expand aggressively they are catapulting their population from an average of 5.7 barrels per day per 1,000 people to much higher levels. China is 144th in the world in per capita oil consumption. India is 165th with 2.4 bpd per 1,000 people. The U.S. is 23rd with 68.7 bpd per 1,000 people. Saudi Arabia is 10th at 83.7 bpd per 1,000. In order for China and India to move up to even 100th on the list and equal to Bulgaria at 14 bpd per 1,000 people that would require an impossible amount of new oil.

China and India together consume 10.2 million barrels per day at their ridiculously low per capita levels of consumption. In order to bring them up to the level of Bulgaria at 14 bpd would require an extra 23.4 million barrels per day. It is NOT going to happen.

At best OPEC has 3-4 million barrels per day of excess production. They will never have any more because any new production over the next decade from Iraq and Iran will be offset by declines I existing fields in other nations.

Current global production is just over 86 mbpd. Let's assume that all of the claimed excess production from OPEC was real and if they turned on every well we could get to 90 mbpd. Where does that leave the growing demand from China and India and the 23.4 mbpd of new production they will need just to move up to 100 on the list of oil consumers? They are out of luck. It is not going to happen.

Why do you think China spent $150 billion this year on upgrading their military with the emphasis on the Navy? Why is Australia building a fleet of air-warfare ships with the most advanced air offense and defense capability? Why is Australia adding 11 new submarines to its fleet? Why is Saudi Arabia buying $60 billion in advanced weapons from the U.S.?

These countries are preparing for the next chapter in global conflict, the resource wars. Australia is trying to make it harder for China to invade and take all of its resources back to China. Australia is a big country with a small population. They correctly see the writing on the wall suggesting they are a target for takeover.

China has been preparing for the last ten years for the coming resource shortage. They have been buying reserves of everything from iron ore, copper, oil, etc, all over the world. China is not doing this so they can sell it at higher prices later. They are doing it to lock up those supplies for their own use. They are rapidly upgrading their navy and air force so they can protect those assets once the shortages begin.

This is just one chapter in the coming resource grab. As developing countries reach for a middle class lifestyle their demand for oil and resources expands exponentially. This will cause sharp increases in crude demand and in the price for crude. Once oil passes triple digits again many countries will not be able to afford it. They will lash out in the only way they know to try and take oil and minerals from other countries.

The coming resource squeeze will be more damaging to the global economy than the subprime crisis because everyone on the planet uses oil. Not everyone invested in subprime mortgages. This oil shortage will force normally sane countries to grasp at straws to provide for their citizens but with insufficient supplies the only way to acquire oil will be to pay an outrageous price or take it by force.

I am sure you are reading this and thinking "maybe at some point in the future this could happen." What you probably don't know is that this future is very near. Current estimates for peak oil are as close as 2012 if OPEC excess capacity claims are bogus or as late as 2014 if they are true. Let's assume they miss it by two years or even four years. That means serious problems for the global economy well before the decade is over.

Since the U.S. is the largest consumer by volume of oil at 22 million barrels per day we will be impacted the most. This does not mean that all 22 mbpd disappears but maybe only 2 or 3 mbpd. Even that small amount is a 10% shortage and will be toxic to the U.S. economy. If demand is 2 mbpd more than supplies it won't take very long before riots break out and civil disobedience becomes commonplace. How will your life change if your gasoline allotment dropped by 20% the first year and continued in a downward spiral every year after that? I guarantee you can count on it.

Most studies predict a rapid decline in available oil once peak oil is confirmed. Countries with a small resource base, say exports of 200,000 to 300,000 bpd will quickly halt exports to save that oil for their own citizens. Once one or two countries take this step there will be a dozen to follow. That will put a serious crimp in the 90 mbpd of pre peak production. When you net it down it becomes not the amount of oil produced but the amount of oil exported that matters. It is not the number of barrels in the ground but the rate of flow out of the ground and into waiting tankers. That export flow is going to shrink dramatically in the first 24 months after the confirmed peak. No country is going to want to run out of oil because they sold it to someone else.

Resource wars are coming and I would be very surprised if we did not see it before the decade is over. Well before the decade is over.

Jim Brown

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