The Geopolitics of Energy in the 21st Century

In the second half of my conversation with Daniel Yergin, author of the new and acclaimed best-seller The Quest: Energy, Security and the Remaking of the Modern World, we take a tour of the global horizon, discussing Yergin’s views on the dramatically changing global energy landscape and some of its important implications for international economic development and security.

Read part one of the interview here.

David Rothkopf: Shifting to the global impact of these changes, one of the things that’s interesting in the context of the book is the rising power of the BRICs. You have Brazil, which was not an energy player, likely to become a major energy power; you have China, which was not an energy player, becoming the leading consumer and also the leading investor in new technology; you have Russia, as the world’s leading net resource exporter; you have India, which is also a producer in some interesting ways. There has been a shift in the geopolitics of energy. What are your thoughts on this?

Daniel Yergin: One of the key features is the idea that I focus on — the "globalization of energy demand." Energy demand used to be a business of the developed world, and now the growth is all in the emerging world. So, for instance, the Middle East will increasingly look east for its growth markets. That raises interesting geopolitical questions about responsibility for security in the Gulf.

As for China, there is a lot of discussion about its ambitions in terms of a blue-water navy. The U.S. Navy has been the guardian of the global sea lanes. But will China try to have a responsibility — or feel the need — to help protect those sea lanes? This raises questions about what the role of the Chinese navy will be in the future, as well as the security of the Gulf region and the sea lanes.

DR: The Chinese are also involved in the Horn of Africa and West Africa. It poses a real conundrum for the United State: We’d like to have them share the burden, but we don’t want them to actually have the capability to share the burden.

DY: You put it very succinctly. This is a question that will become clearer in the next few years as China’s demand goes up and as the flow of oil increases from the Persian Gulf to East Asia and through the Strait of Malacca. But dealing with the growing piracy is really kind of a joint venture now. The major consuming countries are trying to manage that threat, and that threat has become more and more expansive.

Back to China, though. It is interesting that China hardly played a role in The Prize [Yergin’s prior major book on energy and winner of the Pulitzer Prize]; but in The Quest, China is the only country that gets two chapters. There’s a reason for that: it’s really important to understand the Chinese energy system and what their objectives are and what they’re trying to do — and where they came from. Where they differ from the Japanese, among other things, is that they already had a strong domestic industry on the back of which to go out into the world, and strong capabilities because China still gets half of its energy from its domestic production. And, in fact, until the early 1990s, China was an exporter, which is how it financed the first phases of economic reform. China is now the world’s second-largest oil importer and consumer of oil. If other countries were in China’s shoes they’d be doing the same thing, saying that they want to be global players. It’s important to keep it in perspective. If you take all the production of all the Chinese companies overseas it’s less than that of one of the major international oil companies.

DR: China is also, of course, leading the way in green power. They’re certainly spending hundreds of billions of dollars to develop that. But one of the things that is not fully appreciated is that the Chinese do this in a very self-interested way. They don’t so much have a green impulse as they do a desire to manage their burgeoning energy demand.

DY: There has been a shift on the discussion about climate change in China, but the Chinese also need to deal with local pollution, and to meet their growing electricity demand. In short, they kind of need everything. So I think their investment in alternative energy and efficiency is in that context. There’s a wonderful quote in The Quest from one of the senior Chinese decision-makers talking about the winds that they have in the northwest. He says they used to be viewed as a "natural disaster." Now the wind is a "very precious resource."

DR: Another area of growing interest and potentially growing tension is the Arctic.

DY: It’s certainly recognized that the Arctic will be a major source of hydrocarbons in the future. But there’s the Russian Arctic, there’s the U.S. Arctic, there’s the Canadian Arctic, there’s a Norwegian Arctic, so it’s not a direct clash — except where everything converges. But in Russia’s case, the Russians need to think about the next generation of oil and gas, and that means the Arctic. They can’t just continue to rely primarily on the brownfields for oil. Oil and gas are a critical revenue source for the government, and it’s a part of Russia’s vocation in the world. But it’s also a recognition that they can’t do it alone, and so we have seen the announcement of this very large deal between Rosneft and ExxonMobil saying that this has to be a collaborative project. And it is a project that will take 15 or 20 years to come to fruition. But the Arctic is certainly a next frontier.

DR: Where do you see other foreign policy flashpoints associated with energy?

DY: There is the Middle East. The Facebook and Twitter phase of the Arab upheaval seems to be over, and now it really is struggles for power: Who’s going to control the army, who’s going to control the government, who’s going to control the police, and who’s going to control the oil, if there is oil there? All of those questions are going to be fought out in different countries in different ways.

Three big risks can be foreseen in addition to risks from regional conflicts. One is that the continuing tumult and turmoil that will result from this youth bulge of people whose expectations are not met, namely regarding employment and the inability of these countries to generate sufficient opportunity. So that’s going to persist.

The second one is al Qaeda — the terrorist threat — and what happens next. Does Yemen become a failed state with its proximity to Saudi Arabia and that 1100-mile border? It’s located at the entrance to the Red Sea, with Somalia on the other side. Look at the map on oil choke points on p. 281. The Strait of Bab El-Mandeb is the gateway to the Red Sea and on to the Suez Canal.

And the third is the obvious one, which was somewhat pushed off the table of attention by the tumult and turmoil in the region. That is Iran’s continuing march on its nuclear program. That program is going to be more advanced in a year or two than it is now. At the very least, it could set off a nuclear arms race in the region — or more. All three of these things have to do with the stability of a region that holds 60 percent of conventional oil reserves.

DR: One thing that seems fairly likely to me is China’s desire to cash in on resources in different ways: through their pipelines, through these alliances, by reaching out to Central Asians and Pakistanis, and even investing in Afghanistan, as a way of seeking overland energy resources.

DY: Right. The Chinese definitely want to diversify the logistics of their energy. A few years ago, China’s president, Hu Jintao, talked about the Malacca dilemma, about what the vulnerabilities are. The Chinese are certainly also looking at pipelines that would circumvent the Malacca Strait, another key choke point.

There are others, such as the Russian pipelines. There’s this Chinese-Russian relationship, which used to be based on Marx and Lenin, and is now based on oil and gas. And they see the neighboring Central Asia and Caspian countries as their natural trading partners in terms of energy. I have a line in the book about how when the Chinese made their first purchase in 1997 in Kazakhstan, people said, "oh, what’s that about?" But now they intend to be major players there. One more map to look at, this one on pipeline politics, is on page 57. The pipelines go not only north and west from the Caspian region. They also go east. One Chinese pipeline goes to Turkmenistan.

DR: The Indians think about that pathway…Central Asia as a route for the Chinese to make their way to Middle Eastern oil on which they will increasingly depend.

DY: But mounting tensions around Iran’s nuclear program create very important questions for countries like China and Russia, and in particular China, which, as time goes on, has the same interest that the West does in the Gulf, which is really the over-all stability of the region.

DR: Let’s talk about a topic you touch upon, peak oil theory, and geopolitics. One of the big perceived implications of the peak oil theory was a decline in influence of the Middle East. But as it turns out, instead of peak oil we have had a plethora of major new supply discoveries. But many of them have been outside the Middle East. So even though the peak oil theory seems to have petered out, one of its big perceived implications turns out to have been true. It was at least in one area right but for different reasons.

DY: According to author M. King Hubbert, the father of the peak oil theory, under his calculation the U.S. today would be producing one and a half million barrels a day, but it’s actually producing five and a half million barrels a day. He had a view that technology was just going to be static. It reflected the mood of the 1950s. But, although the Middle East continues to be 60 percent of conventional reserves, we’ve seen the development of new resources that, for example, like oil sands in Canada tie the U.S and Canada together and have a geopolitical significance. And now there’s this big discovery off of French Guyana and Ghana, and other countries are coming into the game. The U.S. Geological Service has said that Guyana may hold more reserves than the North Sea. Over time there has been continued diversification of resources and that has had and will have very profound international consequences.

For more information on Dan Yergin and The Quest, go to www.danielyergin.com.