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The End of the Oil Age Is Upon Us By Srdja Trifkovic 7-9 minutes _____ Four weeks ago I posted an article examining some likely geopolitical implications of the COVID-19 epidemic <https://www.chroniclesmagazine.org/blog/a-peek-at-the-post-covid-world/> . The first among those concerned attempts by major oil producers to halt the collapse of prices by agreeing to the largest production cut in history. I noted that it was uncertain whether the agreement would be enough to push the prices back to their pre-March level, considering the rapid decline in demand due to global lockdowns. That conclusion, as we can now see, was wholly inadequate to express the magnitude of the oversupply crisis. A week after my piece was posted, the price of a barrel of West Texas Intermediate Crude (WTI) for May delivery briefly went into negative territory, reflecting an acute lack of storage for barrels of oil no longer needed by a quarantined economy. While that historic price drop was a fluke, it may reflect a fundamental shift in the oil market that is not temporary. My hunch is that we are now on the verge of a major energy reset, comparable to the shift from coal to oil a century ago. One key milestone in that earlier shift was the decision by the U.S. and British navies to convert their dreadnaught burners on the eve of the Great War. Today’s oil market has been struggling for a long while. Current prices have recovered to around $30 a barrel, which is a decline of roughly 50 percent from a year earlier. Right now we are witnessing the remarkable combination of rapidly declining demand, vanishing storage capacity, and reduced production. The recovery is uncertain and the historic market rules may no longer apply, such as the rule that low prices are the cure for low prices, as an increase in demand would follow—were there normal times. The pandemic has caused deep and possibly irreversible changes in living, working, and shopping habits all over the developed world. In the past, low oil and fuel prices had encouraged people to travel more. This time, they may not go back to the roads and skies en masse when it is all over. Many businesses have seen that remote working works better, especially financial services, insurance, media and IT. E-commerce had started doing the same for remote shopping well before the epidemic, but the process is now well advanced. Some studies suggest that reducing road trips by up to a third may become the new normal in metropolitan areas. As for flying, corporate executives and senior bureaucrats on both sides of the Atlantic are increasingly comfortable with videoconferencing and other forms of communication technology. This makes their physical presence in a remote location only marginally useful, especially when matched against the cost and time. Reduced supply chains will reduce the need for onsite inspections in remote foreign provinces. Even the partial return to self-reliance, let alone autarky, will cut down freight distances and volume. The new normal may be $25 to $30 a barrel. If so, the consequences for many countries would be dire. Russia and the smaller Gulf monarchies may have sufficient reserves of liquidity to endure. This is especially so if they can rely on natural gas, which may rise <https://www.rigzone.com/news/natural_gas_prices_could_double_next_year-15-may-2020-162100-article/> to well over $3/MMBtu next winter. Not so Saudi Arabia, which has failed in its long-heralded plan to diversify its economy. The desert kingdom’s kleptocratic regime depends on two pillars: its ability to buy social peace at home with oil-financed subsidies, and the readiness of the U.S. military to continue underwriting the rule of the House of Saud. In Washington’s view, Saudi Arabia has broken the basic deal <https://oilprice.com/Geopolitics/Middle-East/Oil-Price-War-Puts-Entire-Kingdom-Of-Saudi-Arabia-At-Risk.html> established in 1945 between FDR and then-Saudi King Abdulaziz, as Simon Watkins, a seasoned industry analyst, pointed out a few days ago: The deal was that the U.S. would receive all of the oil supplies it needed…in return for which the U.S. would guarantee the security of the ruling House of Saud. This has subsequently altered slightly to ensure that Saudi Arabia also allows the U.S. shale industry to continue to function and to grow. If this means that Saudi Arabia loses out to U.S. shale producers by keeping oil prices up but losing out on export opportunities to U.S. firms then that is just the price that the House of Saud must pay for the continued protection of the U.S.—politically, economically, and militarily. Now that this trust has been broken with Saudi attempts to undermine the U.S. shale oil industry, all options are on the table. A while back, President Trump warned the Saudi royals specifically that they would not last in power for two weeks without the backing of the U.S. military. This is true, which provides him with a splendid opportunity to recalibrate the relationship with Saudi Arabia, which is the global hub of promoting and financing Islamic extremism. No meaningful partnership is possible for as long as the nature of its regime remains unchanged. Trump has been blinded from this realization by his obsession with Iran, which in reality poses no serious threat to the U.S. By contrast, the extremist Wahhabist sect of Saudi Arabia is alive and well and continues to pose a threat to the world of the “infidel” West, which they call Dar al-Harb, or the “domain of war.” Of course, if there is no price recovery there will be oil-based economies which may sink into chaos and anarchy. In Africa, Nigeria with its 200 million people would face uncertain future and possible disintegration, as its government battles Islamic insurgency in the north and renewed separatism in the south. Iraq’s new government would face insurmountable budgetary obstacles; Iran is on the verge of bankruptcy, and Venezuela is well beyond it. All of which may be regrettable but unavoidable. Most of the Middle East had been irrelevant in the global geopolitical calculus before oil became important in the 1930s, and then very important indeed after World War II. It should revert to where it rightfully belongs in civilizational, geostrategic, and cultural terms. In the long term, exporting technology to Riyad is as unpromising as “exporting democracy” outside of the framework of ideas that sustain it. These ideas, in the case of the West, are rooted back into the history of the polis of Greece, the Scriptures, the heresy of the Enlightenment, the notion of liberty, of individual responsibility resulting from the existence of individual free will, of collective creativity embodied in the rendering of classical symphonies and the launching of space missions. The predominant response in the Muslim world to the crisis caused by oil’s demise will be the demand for more “Islamic solutions.” So be it. Generations of urban modernizers in the oil-rich Middle Eastern countries have failed to “sell” the Western blueprint to their compatriots, not only as a source of consumer durables and life-saving medicines but also as a desirable social and political model. At long last, the United States will have no business intervening to prevent the establishment of Sharia in some remote desert wasteland. There is another benefit to the prospect. All over the Islamic world there still prevails the deep belief that our civilization is on its last legs. After COVID-19, with more stringent immigration controls along the Mediterranean shores, and with oil-based sources of revenue drying up, perhaps the West will no longer be seen as “a candy store with the busted lock.” That would be a good thing. Making sure that the lock is indeed hard and impenetrable would be even better. While it is hard to imagine the end of the oil age, it is even harder to imagine that it will not happen in the years to come. And I do mean years—not decades. -- You received this message because you are subscribed to the Google Groups "SERBIAN NEWS NETWORK" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To view this discussion on the web visit https://groups.google.com/d/msgid/senet/129401d62daa%245d07f0a0%241717d1e0%24%40gmail.com.
