Most of us understand that the real 21st century wars are economic.
Over the last few years we have seen this economic warfare manifest itself in the form of currency wars, whereby countries manipulate the value of their currency up or down in order to affect foreign trade. China for example is accused of artificially keeping the value of the yuan low in order to keep exports competitive. The U.S. responds by letting the value of the dollar slide, despite publicly professing a “strong dollar” policy.
Recently however, I believe we are in the middle of an energy war. I do not mean the kind where a country invades another for its oil reserves, but an energy war for control of market pricing and delivery: a conspiracy.
Firstly let me say I believe we are in the early stages of a profound shift in economic thinking and actions in the way nation states interact. We are moving away from conflict economics, which include things such as sanctions, trade barriers and general exclusion, toward economic clubs and consensus economics, based on inclusion, dialogue and general agreement, not to mention common sense.
In consensus economics, there is no need for large military involvement trying to centralize markets; instead what we have is decentralized markets based on mutual trust and agreement, markets where the best technology is matched with optimum resources on a partnership basis, and not on a political basis; essentially, the de-politicizing of energy.
Take the current situation in the oil market and the top two OPEC producers, Saudi Arabia and Iran. Now OPEC is supposed to be a club of oil producers designed for mutual benefit and discussion, in order to help with energy security. However, Iran and Saudi Arabia are in the middle of an energy war.
For the record, I am in the camp that believes that the oil market is currently way over supplied, and oil prices could collapse any day. And will. It is widely known that many large oil producers have been hedging their oil at prices well below $100 per barrel, which generally indicates they expect a large fall in the price of oil. There are fewer buyers to go around, so with the American imposed sanctions on Iran, Saudi Arabia, an American proxy, is using the situation to sell their excess oil on the market in place of Iran.
The conspiracy here is that they are doing it with the support and knowledge of Israel, because economically those two are aligned via their attachments to the U.S. market. Saudi Arabia has approximately 42% of all its wealth tied up in the U.S., while Israel has a larger contingent of companies on the NASDAQ stock index than most other countries (outside North America and excluding China). They are trying - in vain in my view - to protect their positions via conflict economics.
In the last week or so, Argentina has re-nationalized the former state oil company YPF from its current majority owner Repsol of Spain. The reason is the Argentinean government accuses Repsol of under-investing in YPF, resulting in a 22% decline in production over the last 10 years, a period which has seen Argentina’s demand rise 40%.
Less than a decade ago, Argentina was a net exporter of oil and gas, and today is spending billions on imported fuel. Argentina is risking everything by re-nationalizing, including being sanctioned by Europe for kicking out Repsol. Conflict economics is Europe’s tool of influence, even as Argentina has already begun talks with its South American neighbors to recapitalize and develop YPF, via consensus economics.
The latest big news is Egypt’s announcement it is halting the sale of gas to Israel. Egyptian gas accounts for 40% of Israel’s imports, yet Egypt is cancelling the contract, over pricing issues. The supply comes at below market price. The contract was agreed under the last President, Hosni Mubarak, who was ousted in a coup after 28 years of rule.
Perhaps Israel’s threats it might bomb Iran are starting to backfire and others in the region are calling Israel’s bluff. For the record, Israel has a lot of gas in the ground. Nevertheless, there will be rolling blackouts this summer in Israel, and some very unhappy citizens.
The noises coming from the recent negotiations between Iran and the 5+1 nations 10 day ago in Istanbul is positive. Consensus economics seem to be making progress. Perhaps Israel could buy gas from Iran? In exchange, Iran could use some of Israel’s technology in industry, or indeed the oil and gas sector. Perhaps as regional partners Iran and Israel could be much stronger, and certainly more secure, than as enemies?
Perhaps all the sanctions, nationalizations, and oil market conspiracies - which make up conflict economics around the world – will backfire spectacularly. Maybe the biggest winner from the current energy wars will be consensus economics.
Let’s hope so.
The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.