Here's my presentation from last week's ASPO conference in Sacramento. I've taken my speaking notes and turned them into a narrative after each slide, so the text is probably quite close to what I actually said. Here's the PowerPoint file if you're so inclined. Thanks to Guy Kawasaki--though I've given innumerable Power Point presentations in the past, in the spirit of continual innovation I tried some of his "Top 10" format for this presentation and I've received nothing but positive feedback.
I think that this concept of “Energy Geopolitics” is extremely broad and complex. As a result, it’s necessary to take a systems-thinking approach, addressing the issues of complexity and feedback loops head-on. My goal here is, in only 10 slides, to start with the sources of geopolitical conflict and tie them up into a coherent model of a system of geopolitical disruption to energy and resource supplies.
1. The first source of conflict is the result of simple economic processes. Here, rational extraction sets the stage for increasing geopolitical problems. It’s well understood that we pursue the geologically “easy oil” first, and are now left with the more geologically and net-energy challenging oil reserves. This same process also operates in the realm of geopolitics. Just as we exploited the geologically easy oil first, we also exploited the geopolitically easy oil first. Now, what is left is increasingly geopolitically challenging.
So, geologically, we exploit the East Texas field before we go to Tupi or the Arctic. By the same process, but applied to geopolitics, we go to Pennsylvania before we go to Nigeria.
While such simple and linear explanations are useful, we need to move beyond exclusively linear models and recognize that geopolitics form complex, non-linear systems. So, BOTH of the following are true (and they aren’t the same thing): 1) oil is increasingly in geopolitical trouble spots, and 2) there is increasingly geopolitical trouble where there is oil.
2. The character of our energy demand also exacerbates geopolitical problems. As we pass peak oil, reduction in oil consumption will increase the inelasticity of remaining demand as we choose to cut the most elastic demand first. This tightens the system: all actors will take increasingly extreme measures to ensure supplies to meet their increasingly inelastic demand.
3. There are a number of catalysts to geopolitical conflict. First, there is the division between State and Nation. Where, especially in post-colonial and globally networked environments, the demands of the Nation and the desires of the State don’t line up, there is conflict. Likewise, there is conflict where there is disparity between the demands of State and Non-State groups such as religious sects, or ideological or affinity groups. There is also conflict between the “Legal” owners of a resource and those who claim “Moral” ownership. Consider, for example, an Ijaw villager in the Niger Delta region. He sees that his land, and the land that his people have occupied as long as anyone can remember, is now being exploited by a foreign oil company. He feels that he has moral ownership to this land and this oil. He isn’t concerned that, because the British amalgamated 250+ distinct ethnic groups into the colonial construct of the Nigerian state over 100 years ago, there is a legal structure in place that gives ownership to a distant government that is then leased to an IOC. Instead, this disparity between moral and legal ownership drives conflict.
All of these sources of conflict fall under the general heading of “Mutually Exclusive Overlap.” When the minimum demands of groups A and B can’t be simultaneously met, this situation perpetuates conflict, causes sides to dig in, escalate the conflict, and choose to use violent means to forcibly meet their minimum demands. We certainly see this today in regions such as Iraq and Nigeria.
4. Additionally, in a world of dwindling resource supply, actors must make tough choices: do they accept reduced supply or fight to maintain current levels of consumption? Generally, actors will seek to secure their slice of a shrinking pie.
This creates a resource insecurity issue, and harkens back to the old (but increasingly new again) economic philosophy of Mercantilism. These mercantilist tendencies manifest in a number of ways. One is pipeline mercantilism. There is this tendency to accept without qualification the assertion that oil and natural gas are globally fungible commodities, but in reality there is a certain element of fixedness of resource flows introduced by the sunk cost in energy infrastructure. Actors seek to ensure that this infrastructure, these pipelines, direct resource flows toward their markets. Another mechanism of mercantilism is the long-term, bi-lateral supply contract coupled with aid deals. This is a favorite of China and India of late. And finally, if these fail, there is always military adventurism. This is something that we already see in the headlines: Iraq and the Georgian conflict just to cite two obvious examples. However, this has the potential to spread to many more areas: the Spratly Islands, Ethiopia’s Ogaden province, North Africa (with increasing Russian influence), and the dark horse, the Arctic.
5. In a sense, the Nation-State conflict and the mercantilism/resource insecurity issues both become issues of a changing military landscape: a shift in power relationships and a democratization of the state’s traditional monopoly of the use of violence (at least in theory). This evolution in military tactics is exacerbating the geopolitical threat to energy supplies (spreading understanding of targeting methodology that leads to selecting energy infrastructure targets as critical nodes capable of inducing cascading failures, recognition of the increasing ROI of energy targets as energy becomes increasingly scarce, network-innovation advantage held by decentralized adversaries, innovations in modern “swarming” and “guerilla” tactics, etc.).
So, simultaneously you have a situation where disenfranchised groups of all stripes have an improved ability to challenge established power structures militarily AND a situation where the increasingly preferred and effective means of doing so is to directly disrupt energy supplies.
These tactical developments certainly aren’t new—the graphic above shows a swarming span style="font-size:100%;">situation encountered by Alexander the Great over two millennia ago, but it is resurgent.These military developments really close the circle, taking discrete causes of geopolitical tensions and wrapping them up into a system of geopolitical feedback loops disrupting resource supply.
6. All of these developments act as positive feedback loops (they are driven by the scarcity and value of energy, and by taking energy supplies off the market they increase that scarcity). These phenomena form a system of positive feedback loops—a system that will only grow more intense as we pass peak oil and peak energy.
7. So here’s the dramatic graphic. The right side of civilization’s oil supply curve will not look like the left. Peak oil is dramatic enough in suggesting that the right side might look as bad as the left, but my argument is that geopolitics will actually make it look significantly worse.
Is this an over-dramatization? My answer: IF peak oil is a problem, then geopolitical feedback loops will make it worse. If we find a suitable energy substitute to continue fueling global economic and population growth indefinitely, then neither peak oil nor geopolitical feedback loops will pose a real challenge to humanity. The danger presented by geopolitical feedback loops is that, while we may understand the geological and economic nature of peak oil, we may persist in underestimating the problem if we fail to understand that geopolitics are not a separable set of phenomena, but rather are the inextricable result of geologically-driven scarcity.
So where are we now on this graph? As we’re all well aware, there is legitimate debate about the exact timing of peak oil. There’s debate about not just the timing but also the very existence of peak energy. But geopolitical feedback loops aren’t driven by the date of peak. Rather, they’re driven by the transition point from accelerating supply growth to decelerating supply growth, and there can be little doubt that we’ve passed that point.
What about the sharp cliff at the end of the geopolitical curve? Shouldn’t geopolitically determined supply mirror the gradual tail-off of the classic peak oil production curve? Not necessarily. While we’ll never run out of oil, it is certainly possible that we run out of the necessary geopolitically-permissible environment and level of economic complexity necessary to produce, export, or import oil in any substantial quantity.
8. I think it’s tempting to think of these phenomena as a bunch of conceptually and geographically separable problems. However, my argument is that this is a global feedback system (conflict in Nigeria increases scarcity which, in turn, drives energy targeting choices in Mexico, which further invigorates the conflict in Nigeria). As long as there is increasing global scarcity, there will be increasing catalyst for localized geopolitical problems even in regions that have not yet peaked.
This is a critical concept because events in regions that are clearly out of control—like Nigeria—are substantially impacting the geopolitical environment in formerly very stable areas like Scotland and Canada. Just a few years ago that might draw laughs, and I’m certainly not suggesting that we’ll soon see hoards of Picts and Scots wielding bucklers and swords advancing on York. But what I think is not questionable is that increased scarcity due to events in Nigeria are exacerbating the very real tensions around resource nationalism that already exist in places like Scotland.
9. There’s also a temptation to think of geopolitical troubles as a group of discrete, “solvable” problems that just need a good does of “good governance” or a bit more “democracy.” This may be true, to a degree, in an environment of decreasing scarcity, but in an environment of increasing scarcity of energy and resources it is not.
Instead, attempts to solve one geopolitical symptom often leads to an alternative negative outcomes. Nigeria’s corruption and failure to distribute oil wealth effectively to its people inflames existing conflicts between state and ethnic groups. However, it also keeps Nigeria’s people in abject poverty. If we “solve” the problem of Nigerian governance and properly distribute oil revenues to the people, we may close the door on one problem (ethnic insurgency) and open the door to another (rising domestic consumption). If the objective is good governance and supporting human rights, then the choice is clear. If the objective is to alleviate global energy woes, both outcomes make the situation worse.
10. “Solving” the geopolitical threat to energy requires far more radical restructuring than many assume. A global economy predicated on the notion of perpetual growth is fundamentally incompatible with reliance on a scarce and dwindling resource. Radical decentralization of energy sources, transition to truly renewable energy sources, reliance on vernacular modes and levels of consumption, and moving away from growth-generating hierarchal structures MAY be able to truly solve the problem. However, this “solution” would require such a radical restructuring of human affairs that it is highly unrealistic as a proactive choice. Individuals, communities, even regions may be able to pursue such a radical agenda to insulate themselves from the grinding effects of these geopolitical feedback loops but, in my opinion, the most pragmatic approach to these geopolitical phenomena is to treat them much like we treat geology: an immutable force of nature.
Regardless of whether you think that the problem of geopolitics can be “solved” or not, here is the key take-away:
Our energy future is not controlled solely by the comparatively straight-forward issues of geology, economics, and technology, but also by the much less concrete limiting factor of geopolitics. Oil supply under geopolitical reality will always be less than what is geologically, economically, and technologically possible. How much less? I don’t know—but I think it will be a significant and ever increasing difference. If you aren’t planning for this kind of uncertainty beyond the issues presented by economics and geology, then you aren’t prepared.