45 comments on Wildcats & Tigers: China's Oil Acquisition Strategy
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By getting long term supply contracts with nations that are politically unstable and have no respect for property law this whole strategy could backfire on China. Just look at what happened to US companies in Venesuala and the civil war in Nigeria. China could make tens of billions in infrastructure investment only to have the next dictator tear up the contract.
Actually, this is good news for the world and the USA. China is spending gobs of money, tens of billions, to develop oil fields everywhere, especially where we cannot due to political reasons. This is perfect for us.
Oil is a fungible commodity. If China spends $5 billion in Venezuela (they are), and pumps out great gobs of oil, and takes it back to China, that is that much less demand on other world oil markets.
This is even better than good. China spends the money to enhance the world's productive capacity, but we benefit from the extra supplies, which hold prices down.
The downside is that this is another reason to worry about a glut going forward. The higher prices we see now are flattening world crude demand, possibly causing a Peak Demand. That is the good news. The bad news is that an ensuing glut will pound prices back into the $20s range, then we go back to the profligate and polluting ways,
Oil is, today, a fungible commodity. The notion of a dawning mercantilism suggests that its fungibility may be short-lived. The whole point of gaining an equity stake--as with the other current trend toward long-term, bilateral supply contracts--is to remove your supply chain from the uncertainties of a global marketplace. Fungibility defines what is on the market, but to a far lesser extent supplies that are locked down into equity stakes or long-term contracts.
Remember, in a market environment, the value to a buyer of an essential commodity is not just in the average price (lower is better), but also in reducing variance (lower is better) of this price.
Classic option theory.
Consider a parallel situation with electricity demand. It's even worse than oil since it can't be stored at all (as opposed to having capacity to store a very small fraction of yearly consumption).
If alot needs to be purchased on the spot market then the variance will be very high and the consumer is subject to intermitted insane spikes which will hurt them economically.
China is interested in reducing the variance of its costs, not just optimizing the mean.
This highlights China's current, obvious military weakness: no expeditionary capability and a "blue water navey" that is hard-pressed to even cross the Taiwan Strait. They are rapidly working to address this shortfall, but they certainly aren't there yet...
A blue water navy today only works if their is one.
Two simply destroy each other and quickly. Outside of subs.
A modern ship cannot survive long in a naval battle the question is only if you can keep some ships afloat but one of the navies is assured of utter destruction down to its submarines.
Better to think of them as mobile bases for a single world power to manage its assets during the cold war the navies in a sense ignored each other.
Its interesting that you bring it up since a gentleman's agreement to share the declining resources is needed in the past we had the cold war but thats not easily done when your facing ever declining resources.
In the future I think that anyone that threatens MAD will simply get hit with a first strike we won't fight another cold war so I think that your left with the worlds super powers having to divide the world first and then its a tenuous game if everyone keeps their side of the bargain.
Say the US/Europe/Japan gets Iraq China gets Iran etc etc.
And India cannot be ignored they have nuclear weapons or maybe they are who knows and of course some of the "gifts" are temporary for example China is sticking its head in a noose by having close ties with Venezuela since its trivial for us to control being so close. But since they are the weaker partner with only the threat of nuclear war as a bargaining chip it makes sense that they get the most troublesome and least defensible resources.
Outside of MAD America is still in control we have won the prime position for the coming resource wars now its a matter of elimination of our own democratic government so we can clean out the pesky natives living on top of our oil.
Will Venezuela be as trivial to control as, say, Iraq?
No doubt in my mind as a American that has lived all over the US when push comes to shove and its a issue of keeping the SUV and the McMansion and killing millions for oil or withdrawing to put our house in order the vast majority of Americans will agree with killing. We are the biggest bastards on the planet it would be wise not to forget it. The current holding pattern in Iraq is simply caused by the fact we can't at this movement call in the B52's and level Baghdad and any other problematic city without oil. Its a temporary condition.
And it will be resolved. Bush is well aware of the fact that we either need to leave or wipe out the insurgency in Iraq and further they understand full well this means basically wiping out the Iraqi population. They may be arrogant but they are not fools. We need either the civil war to spin out of control so we can restart a real war or have it resolve or wait until the public voluntarily gives up enough right to allow our foreign to proceed unimpeded.
Don't consider the current state of the US military playing the gentle giant to persist. And never underestimate the US military when the job is destruction. We are the best in the world at killing people in large numbers. The only thing we are waiting for is a flimsy excuse to crank up the war.
memmel,
It's possible that the current mess is exactly on-plan, keeping the pot boiling there without costing too many GI's per week. The US needs a pretext for its fourteen huge, permanent bases in Iraq, with the key word being permanent.
The destabilizing effect of the occupation on Saudi, the brinksmanship with Iran, even the control of pipeline routes through Afghanistan, it all works to the same end, creating and maintaining the pretext for a permanent and expanding occupation.
At least I find such grim, conspiratorial machinations more comforting than chalking this fiasco up to the "banality of evil."
But I have to disagree with you about the US Navy. Submariners are fond of saying that there are only two types of ships, subs and targets, but the planners don't agree. In war gaming, the Nimitz-class carriers are just about invulnerable, positioned as they are in the center of the battle-group bubble. But their game changes completely the instant the first nuke detonates.
Part of the plan of 14 large bases requires the reinstatement of the draft. That draft may be the deciding question. Will American voters okay this?
I doubt it (the draft). Maybe in the future sometime, but it is not in sight yet.
On the Iraq war and the U.S. military, it's probably useful to keep in mind where the U.S. has been successful and where it has been unsuccessful. As long as the focus of the military was on killing enemies and blowing things up, as in the initial conquest of Iraq, the U.S. military was very successful. When the mission switched to a policing action, the U.S. military has had trouble. In a policing action, it is a bad day when a lot of Iraqis die, because they are no longer an enemy. In order to think clearly about the situation, the change in the mission is important.
I agree about the subs I thought I basically said the same thing. I guess I was misunderstood.
Also its really hard for me to set up china as a real military threat esp post peak. China will be facing serious internal problems that will make it hard for them to push outward.
If you look at China and India's and even Europe's internal problems have repeatedly ripped apart all attempts at world domination. Many people don't realize that China is just as polyglot as Europe with probably more languages. They do share a written language and a official language but at a regional level the local languages and identity are very strong in China.
America has finally managed to be the effective rulers of the world the problem is nobody wants it.
China doesn't have to be a superpower on a level with the US to be the effective hegemon.
Even a second-rate blue-water navy will be good enough to play gunboat diplomacy with Angola or Nigeria, should it prove necessary.
Who will stand up to them?
The USA? The Iraq adventure will have castrated the US for a couple of decades at least : not in terms of military capability, but in terms of public will for imperial adventures. I doubt if they could even sustain an occupation of Venezuela, politically.
Russia? The Chinese will carve out an entente with them.
Europe? Har.
When these countries renege on the the contracts it give China a reason to enforce the contracts using gunboat diplomacy.
They I believe have every intention on ensuring these contracts are honored at all costs including regime change if needed. The US has practiced the form of forced capitalism for centuries we learned it from Europe who learned it from the Romans. In general its called free trade using our terms and conditions.
The Chinese were, of course, on the receiving end of this sort of arrangement in the 19th and early 20th centuries. They will be expecting to dish it out as the rising power of the 21st. They will be utterly ruthless if they have to be, but mostly will presumably operate as the developed nations have done with respect to African mineral resources etc in the post-colonial era : make themselves the privileged partner; buy off the elites so that they work against their own nation's interests and in favour of the interests of the Chinese.
It will be tricky to figure out how to wage the resource wars without throwing to many nukes around. Probably the use of nuclear armed terrorists will allow a few strategic nukes without obvious aggression. So each side will periodically nuke each others cities with the terrorist as scapegoats allowing us or china to wipe out the particular country without overt nuclear war. Periodically we can sic the nuclear armed "terrorists" on any country that is causing problems with our resource grabs. The general unwinding of the world will give us plenty of scapegoat terrorists to use as cannon fodder. Worst case we can nuke our own cities esp ones causing problems for the regime when needed.
This of course means a military government or suspension of elections soon if the neo-cons are going to remain in power.
Which means if they really are this crazy they will crash the US economy in 2008 and call off the presidential elections. I can't see them willing to cede power.
If their are any real conspiracies with our current rulers going on they pretty much have to execute before the next election I think. Unless of course both parties are involved then we won't know for a long time.
You are a dreadful cynic. I believe in the resilience of American democracy.
Obama/Clark in 2008. Moralisation of foreign policy, and graceful decline.
Prediction: Your prediction of martial law and military government will not occur. Why? Because the neo-cons do not see the situation as that dire, thus they are willing to live with the electoral process for four more years. In fact, the neo-cons probably see Democrat incompetence as the key back to the White House after the sub-prime meltdown finishes.
Democrats will remain hamstrung on foreign policy and shoot themselves in the foot largely enough that 2012 will be a huge opportunity for the right again. Do any of you want to bet against a Jeb Bush in 2012 run if a Democrat wins in 2008?
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Yes, I'll take a $100 bet on that.
(bearing in mind that in 2012, $100 will probably not be worth collecting.)
Hmm but they know Iraq is over if we have another election. The chances of the Democrats losing is very low.
I'm sure they are aware our economy won't make it too 2012.
You may be right but I'm sure 2008 will be a decision point if any neo-con conspiracy is real. Losing the election will make much harder for them to act later and also they would effectively loose Iraq almost for sure.
Btw I'm gaming this a bit its a matter of if we assume that the neo-cons are seriously on some sort of mega-power trip and so far the actions of GW indicate this is true then they will be forced in my opinion to act in 2008 if they wish to maintain power. It comes all the way back to the old warning about the military industrial complex and the danger American democracy can face from it.
I see a real decision point if the election looks like it will go democratic. On the other hand if the democrats win and its a smooth transition of power I'll have serious doubts about any sort of conspiracy amongst TPTB.
If you look at our economy its setup to fail in about 2008 if thats the desired outcome. TPTB can pretty much at any point over the next year and a half send the economy into a tailspin if needed its that fragile. On the other hand they can probably keep it going for say six months or so after the election. The latest news seems to indicate that Bush and the Democrats will agree to string along the current Iraqi war. But this will do nothing to prevent public opinion from turning increasingly against the war.
I'm simply setting up the case that I feel that if we have a
real conspiracy with our neo-cons that they must act if they wish to consolidate power I think they will simply lose to much if the Democrats unwind all the work they have done to restart the military industrial complex and positioning for the coming resource wars.
Sorry for the convoluted reply but I want to make it clear that I'm simply not sure what the neo-cons plan. The moves of both Bush and the Fed indicate they are positioning for a coup if so I think they cannot accept a loss in 2008.
If I'm wrong then we have some of the stupidest leaders in history so its tough to decide which is worse.
One reason I'm not alarmed is I do believe that democracy will be suspended as peak oil progresses so its just a issue of timing. I think it will go very early. I'd love to see democracy rise up and handle the issues we face but its only as strong as its average citizen and thats not saying much in the US today. So the issue is who the masters will be and how much of a secret police force they will build up. I think the Democrats will be fairly benign but GW with unlimited power is scary.