Pipeline Mercantilism

It's a slippery subject: How does a freely-exchange-traded commodity become subject to mercantilistic influences? Well, here's one example:

Russian and China Agree to Pipeline Project

How is this mercantilsm in action? Well, oil only goes where the infrastructure exists to ship it. Market forces will fund capital projects to build infrastructure to ship it where there is demand--but the key is that this pipeline project is not operating under the auspices of market forces, but is instead being subsidized by the two respective governments. So these government subsidies are intentionally directing market forces--this is subsidy mercantilism. It certainly isn't new, but we are definitely seeing more of it with regards to energy. So far almost all mercantilistic efforts have focused on negative barriers--making it cheaper for oil to flow the direction that a government wants it to, for example. The more dangerous phase in energy mercantilism will come with the increase in positive barriers--legal or financial barriers that make it more expensive for oil to flow any direction OTHER THAN the route desired by a given government. The critical difference here is that any nation willing to spend money can lower barriers through subsidy. Only nations with either 1) oil on ther own territory (or that must pass through their territory), or 2) sufficient military force to exert control over oil that does not directly flow through their territory. So the transition from creating negative barriers to creating positive barriers to oil flow is the "tipping point" between peaceful energy mercantilism and non-peaceful energy mercantilism.

At some point it is more expensive to create negative barriers than it is to erect positive barriers. At that point the global game of energy mercantilism will turn violent.