The Perfect Financial Storm - Part 10D: Market Shift

Naturally, It's Natural Resources

The coming boom in natural resources will be driven by population growth, economic expansion, and the spread of industrialization. As wealth expands through industrialization in the developing world, it is accompanied by an appetite for material goods. Demand will increase for energy, autos, building materials, appliances, and resource-intensive commodities. This escalating worldwide demand for resources and commodities of all types will lead to scarcities and disputes over the ownership to these mineral rights. Necessity will collide with the fact that world supplies of many of these resources are limited with oil and water leading them. The combination of increasing world demand, resource shortages, and disputes over their ownership will become the source of conflict in this new decade.

Conflicts Will Arise

Throughout human history, natural resources have been the cause behind most wars. Nations wanted them and took them or tried to take them by going to war. There are no new frontiers to explore on this planet. Therefore nations will find themselves in opposition over access to the earth's remaining resources. The last century was a prelude of things to come. Oil has been behind the conflict in three major wars of the last century. The most recent conflict over oil was the Gulf War of 1991. The side that prevails in war will be the side that can maintain a robust economy and control over resources vital to its economy. Lack of access to oil defeated Germany and Japan. Oil was at the center of the stage in the last two World Wars of the 20th Century. It is likely to provoke conflict in this century as well. No industrialized nation or developing nation can survive without access to oil.

I've already covered demand for oil and water in Part 8 of this Storm Series. Without belaboring the subject, all I wish to add are some thoughts on the geo-political aspects. Right now America has three major problems with natural resources. We once had plentiful supplies of oil and natural gas. Today, our oil reserve base is down to about 30 billion barrels. A second problem is the rise in power of the environmental movement. The Green's are shutting down the development of our remaining resources. This limitation has led to a third problem which is our dependence on foreign powers for supply to meet our resource deficits.

These three issues are setting the stage for the coming conflicts of the new century as nations jostle over access to oil and water. In the case of oil, the nexus will be the Middle East, the Caspian Sea basin, and South China Sea. Once again the Middle East, the cradle of civilization, will occupy the front pages as it always has. Throughout recorded history there have been more wars fought in this region than in any other place on the globe. From ancient Mesopotamia, to the Babylonian and Assyrian empires, to the Greek and Roman Empires, to the British and the Americans in the 20th Century, empire after empire have sought control over this sacred ground. It is the genesis of the world's three largest religions and the source of one of the earth's most precious resources.

The Politics of Oil in the Middle East

The Middle East contains approximately 65% of the world's remaining sources of oil. The Caspian Sea is estimated to contain another 10%. Therefore, in one region of the globe we have 75% of what the world wants and values as its most precious resource. There simply is no other pool of oil large enough to sustain the world's voracious appetite. Five Arab nations control this oil. All of them are Muslim. Some are friendly but suspicious of the West, while the others are hostile. But it is these nations and not the West which control the oil. We find a similar situation In the Caspian Sea basin. Russia and Iran, along with several former Soviet Republics, border this land-locked sea of vast energy resources. The Caspian contains the second or third largest source of energy reserves of oil and natural gas in the world.

Shifting Military Strategy

The next source of global conflict will be centered in these regions. America is already shifting its military assets and building up its presence in the region. The US spends approximately billion, or 25% of its military budget each year defending its interest in the Middle East. Russia is also building up its military assets around the Caspian Basin. In a major foreign policy speech President George W. Bush has signaled a change in America's military strategy. It will shift away from Europe to the Middle East and the Pacific where the main oil regions of the world are found. America's military strategy is transitioning to be able to strike with lighting speed and project its presence over longer distances. American leaders see a strategic interest in developing the Caspian energy supplies as a necessity to the continuing risk in the Persian Gulf.

Washington has two specific interests in the Caspian basin. The first is an alternative source of oil to the Persian Gulf and the second is to ensure control over the transportation of that oil to markets controlled by the West. Washington wants to bypass Russia and Iran. To accomplish this the United States wants to build a pipeline from Kazakhstan and Turkmenistan to Georgia and Turkey. The Cold War may be over, but a new Cold War and possible confrontation is building between the two powers in the Caspian. Both sides are reinforcing and strengthening their military positions. As a Caspian state, Russia is in a better position to build on its existing infrastructure. Tensions throughout the Caspian basin will surely mount as the US and Russia stretch their military muscles.

Dependence Necessitates Strategy

The American economy and its industry have become too dependent on imported supplies of critical raw materials. This necessitates a military strategy that protects this growing source of supply to the US economy. Economic security is driving foreign policy and military strategy. Increasingly America's voracious appetite for natural resources will come into conflict with the emerging demands of a developing world. With only 5% of the world's population, we consume a third of the world's energy.

The future war over oil is becoming more obvious by the growing buildup of military forces in the region. The Arab states are arming. Russia is shifting more of its forces into the North Caucasus and the Caspian Sea basin. It currently has over 80,000 ground troops throughout the region. The United States is providing arms and advice to several of the former Soviet Republics. At the same time, as a result of the Gulf War, the US has left in place substantial military assets in the region. The Pentagon has positioned vast supplies of heavy equipment at depots in pro-Western nations. It has also moved in ships and aircraft capable of assembling a substantial combat force. Those military assets are there for only one reason – to protect oil and the system that transports it.

The US may have abandoned its two-front war strategy, but in the Persian Gulf we are building forces large enough to handle a three-war scenario. These three scenarios are to repel Iraqi forces and the ambitions of Saddam Hussein, to keep Iran from closing the Strait of Hormuz, and to protect Saudi Arabia from internal revolt. The US doesn't want to repeat the mistakes of the Carter Administration when it let its valuable ally, the Shah, fall from power. The result was Shah Mohammad Reza Pahlavi was replaced by a militant religious regime led by the Ayatollah Ruholla Khomeini.

The protection of critical raw materials and their transit routes has been central to American security for over the last half century. From Roosevelt and Truman to Carter and Bush, American presidents have let it be known that we will go to war to protect access to resources and their transit routes. The task of implementing that strategy is at the heart of CENTCOM (US Central Command). "The ability to project overwhelming force and decisive military power is the key to CENTCOM's theater strategy as well as shape the battlefield,"[16] General Zinni told Congress in 1999. This commitment to unilateral intervention to protect US interests and a war doctrine of dominating the battlefield has become the cornerstone of US foreign policy in the region.

Now US forces are being expanded to cover the Caspian Sea basin. Unlike Russia, the US has no military bases in the Caspian. America is expanding its influence through surrogates, diplomatic efforts and military exercises and military aid to former Soviet States. The underlying message is clear. Americans consider the Caspian to be a vital US interest. The combination of the buildup of Russian and American military capabilities in the Caspian region will only heighten political tensions and hostility and make war that much more probable. Unlike the Persian Gulf, the conflicts will be over border disputes. There is no commonly accepted legal framework covering the ownership of the Caspian's underwater energy resources. As noted, the Caspian is a landlocked sea. Pipelines deliver the transportation of the regions resources of oil and natural gas. Those pipelines traverse terrain north and south, east and west bordered by conflict in either direction. As oil flows through these pipelines, they will take on strategic importance in the countries through which they pass. This could involve not only regional conflict within the area, but if not resolved at the local level, it could lead to the involvement of Washington and Moscow.

As of this writing there is a tense standoff between Iran and Azerbaijan over territorial disputes over the Caspian Sea. Iran is consulting closely with its ally, Russia, over the matter. Iran has already used its military power to block a British Petroleum research project. The dispute is still unsettled and unless a workable treaty is reached between the two states tensions could escalate even more.[17]

The Politics of Oil in the Far East

Energy politics also pervade the Pacific Rim around the South China Sea. Like the Middle East, five states border the region. It contains the third largest source of oil reserves in the world. From the great powers of China, Japan, and the United States to smaller nations like the Philippines, Taiwan and Vietnam - all have a strategic interest there because of oil. Like the Middle East and the Caspian, the local powers are building up their military assets. China, the US and Japan are also repositioning military assets in the region. The Pacific and the Middle East are replacing Europe in strategic importance in US foreign policy and military strategy. At the heart of that strategy is energy. Many of the same conflicts and rivalries that exist in the Middle East exist throughout this region as well. Until recently, most conflict in the region was between China and Vietnam. Since 1995 the conflict has spread to other nations as seen in the Philippines and Malaysia.

South China Sea's Spratly Islands Increasing in Importance

In 1995, the Philippines discovered that China had constructed a small military depot on Mischief Reef, an islet claimed by Manila. This provoked a series of military clashes that has since altered the strategic balance of power in the South China Sea. The conflict in the South China Sea is over a dispute over the Spratly Islands. This collection of islets, cays, and reefs are spread throughout 80 thousand miles bordering six states: China, Brunei, Malaysia, Vietnam, Taiwan and the Philippines. China now lays claim to the entire Spratly chain. To support its claims, China has embarked on a costly campaign to build a blue water navy. An aggressive expansion of China's navy has triggered a naval arms race in the South China Sea. Local states, fearing China's policy of aggrandizement since the late 1980's, have spent costly sums to build up their navies. In the next decade various naval acquisition programs now under way in the region will bring the number of war ships to over one hundred. This naval buildup is unmatched in any other part of the globe. Instead of patrol boats, we now have warships. The US has moved considerable naval assets into the region with a new naval base in Singapore. The coming conflicts in the South China Sea, like the Persian Gulf and the Caspian, will center on vital energy interests and the trade routes that transport it.

The Politics of Water in the World

Like oil, water is a scarce resource. The same needs that exist for oil exist for water. The vast majority of the earth's surface consists of large bodies of water, yet only 3% of the globe's total water supply is fresh water. The great majority of that supply is located in the polar ice caps. The risk of conflict that exists in energy is also present in water because many of the more important bodies of fresh water are shared by two or more nations. In Global Trends 2015, the Central Intelligence Agency states that half of the world's population will live in countries that will experience severe shortages of water. Water-stressed areas around the globe will be found in dense population centers located in Africa, the Middle East, South Asia, and in northern China. In the developing world, 80% of water is used for agriculture, a trend that will not be sustainable. Conservation and efficiency measures will not be ameliorate the coming water shortages. The CIA estimates that by 2015 limits on available water within those regions will lead to increased conflict.[18]

There are currently three strategic locations where the potential for conflict exists. They are located along the Nile River Basin and the Jordan River, the Tigris and the Euphrates, and the Indus Basin. Just as with oil, population growth and economic expansion are boosting world demand for water. Disorder can arise over the allocation of water resources as a particular supply of water traverses several international boundaries. For example, the Nile River passes through nine countries. The Euphrates travels through four.

In the Middle East, the Tigris-Euphrates, the Jordan, and the Nile have played key roles in the development and agriculture of the region. These rivers have been a source of war between competing kingdoms and empires that go as far back as the fighting over Jacob's wells. Approximately half a billion people live and feed off these rivers. They depend on them for the bulk of their food and their drinking water. Water, as much as oil, is behind much of the region's tensions. The next Middle East War could just as easily begin over water as politics or oil.

From the time of the Old Testament to the present age great wars have been fought along the banks of these rivers. Water is a major source of conflict right now in the Middle East. If you want to understand the current conflict between Israel and the Palestinians, you need to look at the issue of water. The West Bank sits on top of a large water aquifer. By gaining the Golan Heights from Syria during Six-Day War, Israel gained control over the Baniyas River. It also gained the West Bank, which gives Israel access to the lower Jordan River and all of the aquifers north of Jerusalem.

Each one of these three river basins poses significant risk for conflict. Population growth and hence the demand for water is growing faster than supply. As supply shortages of this valuable resource increase, so does the potential risk for war. Turkey is building new dams and irrigation projects on the Tigris and Euphrates Rivers, which will affect water flows to Syria and Iraq. Egypt is diverting Nile water that will direct flows away from Ethiopia and the Sudan. Action by one state that borders another state near a water region can precipitate action by another. Damming a river, controlling an aquifer and using more of its supply can force leaders to respond to what they consider an infringement upon national resources. Government is expected to provide for the needs of its people. This ability to provide for the basic well being of its constituents gives government its mandate to rule. When it fails to provide for those basic necessities, it must either attempt to stifle internal dissent (risking civil war) or it must blame others, which leads to conflicts between states.

Low Intensity Conflicts (LIC) Increasing

Since the end of the Cold War, political analysts have predicted a world of peace. Instead we have seen conflict. There are over 36 regional wars or LICs (Low Intensity Conflicts) around the globe today. Experts have tried hard to define the shape of the Post Cold War world. Samuel Huntington in his book, The Clash of Civilizations, has defined conflict along religious and tribal lines. Robert Kaplan defines it in his book, The Coming Anarchy: Shattering the Dreams of the Post Cold War, by a world of anarchy triggered by population excess. Friedman argues in The Lexus and the Olive Tree that the world will be shaped along economic interest triggered by globalization. Others, ranging from Youngquist to more recently Klare, believe it will be shaped more by the escalating demand for the earth's resources. Their arguments all contribute to our understanding of a world that is changing rapidly around us. I believe the growing demand for resources will in the end become the dominant factor, especially as we approach the sunset of the petroleum era.

Please note: All references listed in this article will be included forthcoming concluding piece, Acknowledgements & References.

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