Thursday, November 03, 2005

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.


Paul said...

Jeff, terrific blog you have; I've learned a lot here in trying to understand how the world really works.

I had never looked at these arrangements quite from that angle; thanks for the insight. It will be interesting to observe the false rationales national leaders will use to promote their wars. Maybe authoritarian China and Russia don't need false rationale beyond "fighting for the homeland". From the U.S. end, where at least for awhile there is some need to get a degree of buy-in from the masses and big media, obviously you have "fight against tyranny and terrorism", "spreading democracy and freedom". After Iraq, will those be sufficient?

Peter said...

It's important these days to be alert for the soft signals that things are a changing.
For example, it appears that we have already hit Peak Hummer.


Peter said...

Published on 21 Dec 2005 by Asia Times. Archived on 21 Dec 2005.

China lays down gauntlet in energy war
by F William Engdahl

On December 15, the state-owned China National Petroleum Corp (CNPC) inaugurated an oil pipeline running from Kazakhstan to northwest China. The pipeline will undercut the geopolitical significance of the Washington-backed Baku-Tbilisi-Ceyhan (BTC)oil pipeline which opened this past summer amid big fanfare and support from Washington.

Looks like you're usual.

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