Energy prices are at their
historic low. The benchmark Brent crude took a plunge and stood at USD 49.55
per barrel, lowest since the financial crisis of 2008. Natural gas saw a
similar downward trend with its prices. Natural gas prices dropped from a high
of USD 6/mmBTU in early 2014 to around USD 3.01/mmBTU today. Coal prices showed resilience in 2014, but
fell down from a high of USD 63/st in early 2014 to USD 46.8/st today. For the
past six months the global energy prices have been in secular decline. Sanctions
on Iran, conflict in Iraq, civil war in Libya and political instability in
South Sudan have all reduced the global oil output. Asian economies, which also
happens to be large oil importers (India and China), have slowed but not
drastically. The cars on streets of Delhi and Shanghai are still increasing and
factories of China and India are demanding more power for their production
lines. Yet the energy prices are ebbing.
Energy experts believe that one
reason the oil prices are in free fall is the decision of Saudi Arabia (the
most powerful member of the oil cartel, OPEC) to not cut oil production. The
logic behind this decision is to throttle the energy boom in the US and Canada.
Both countries perfected technologies to extract oil from shale and tar sands.
Saudi Arabia has taken a similar step in the past to put pressure on Iran. If this
is indeed the logic behind low oil prices, the trend is likely to stay for a
while. It will take some time for the Americans and Canadians to give up their
quest for extracting oil from its sands in response to weakening oil prices.
In south of France scientists are
busy shaping up a nuclear fusion reactor. The project called ITER or
International Thermonuclear Experimental Reactor is an international venture funded
and run by seven entities including China, European Union, India, Japan, Russia,
South Korea and the US. Aim of the project is to design a reactor capable of
generating energy at a commercial scale. Though nuclear energy is common today,
it has its negative environmental impact. The Fukushima disaster of 2011 is
reminder of the dangers nuclear power poses. The ITER once ready will generate
power using Hydrogen isotopes, which are abundant. Another advantage of fusion
reaction is its safety. The fusion process leaves behind harmless residual
elements, which can be disposed of easily. If successful, the process can make
every country in the world self-reliant and can possibly lead to elimination of
energy import costs.
Falling energy prices, promising non-conventional
sources of energy, increasing fuel efficiency and efficient energy storage
(batteries in an electric car) indicate towards a future where oil and gas will
play a less important role in shaping a country’s economy. What will such a
future mean for us? Cost of living will go down for one. We can push global
warming back by a few centuries, perhaps. But the most important change we will
see will happen in how people live in oil rich countries today. Though some of
the countries like Brazil, Nigeria, the US have democratic setup and power
keeps changing hands, most of the oil producing countries are either
dictatorships (Venezuela) or medieval kingdoms (Saudi Arabia, UAE).
While countries like Venezuela
are in sever financial trouble despite their huge oil reserves, the likes of
Saudi Arabia are splurging to buy legitimacy. Other than keeping their subjects
happy by providing subsidized fuel, housing, education, overseas education,
cheap loans, cheap foreign labour, and so on, the kingdom also runs one of the
largest terror financing networks. It is no secret that the Middle East in
general and Saudi Arabia in particular have funded the growth of radical Islam by
means of funding mosques and training clergy. A recent report in The Tribune talks about Pakistan waking up to Saudi terror funding using its
mosques. The Saudis and other Middle Eastern countries have been funding terror
and extremist ideologies in the past. Flush with oil money the Kingdoms of the
Middle East poured money in the Iran-Iraq war and to fight the Russians in
Afghanistan. Books written on the politics of Saudi Arabia note that various
charities in the Kingdom funded the “mujahideens” who wanted to fight in Afghanistan.
Flight tickets were provided, arms and fleets of pickup trucks were financed
and local media was turned into a propaganda machine highlighting the glories
of “Jihad” in Afghanistan. The activities continued in the twenty first
century. Saudi and Emirati men planned and carried out the 9/11 attacks with
people from other countries. Much of this is still going on, despite an attempt
to curb down terror funding by countries like Pakistan (itself a terror
sponsor).
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| As long as the oil lasts |
All this has happened with the
backing of petro dollars. So what will happen when the oil becomes irrelevant? When
the cars will get fully charged while you finish your coffee. Or when homes
will be lit with cheap and clean energy from wind or nuclear fusion. Or when
factories will produce goods using a mix of energy options with oil not being
one of them. An oil free world is still a speculation, but a realistic one. In
the next decade or so we will see a change in the energy mix, away from coal
and oil. If that happens, countries like Russia, Venezuela and the Kingdoms of the
Middle East will have nothing to turn to. They will have to feed the
population, which has grown up on handouts. The change will be slow but sure.
How these countries will tackle that is yet to be seen.
Will plunging oil prices stop the
Kingdoms from financing terror activities and use the money to feed their
subjects? We do not know yet. The fund crunch might stop terror financing but
on the other hand an economy solely dependent on oil money will surely fail. Even
the apparently diverse economy of the UAE relies heavily on oil money. How will
the subjects react to a changing economic situation? Will they mend their ways
and start working as street cleaners and truck drivers? Or will they take to
violence? How will the over pampered clergy of the Kingdoms react once the
money stops flowing in? Will they go back to living in their Bedouin tents? Or will
they resort to propagation of extremist Islam to wrest legitimacy from the
rulers? These are some questions for, which we have no answers yet.
