An Era of Energy Insecurity:
The Global Oil Market in its New Geopolitical Context
Dr. Pierre Noël
Electricity Policy Research Group (EPRG), University of Cambridge, United Kingdom
We are entering a new era of energy insecurity. This has been a key theme in energy discourse for a decade. It is a dominant theme in the United States – less so in Europe – but completely different in Asia. A move back to confidence is unlikely, but again, energy anarchy is equally unlikely.
The US repeats the mantra of energy independence and particularly independence from the Middle East. This is a result of both shocks and trends. The shocks include the 9/11 attacks – which have raised the desire to minimize contacts between the US and the Middle East – the spike in oil prices in past decades, as well as the aftermath of Hurricane Katrina and the BP oil leak in the Gulf of Mexico. The trends that contribute to energy insecurity include the following: international oil companies are no longer renewing their reserves; demand from emerging economies is potentially enormous; and the impact of global climate change and the lack of coordinated international action in this regard are leading to an energy crisis of an entirely new nature.
These minor trends are magnified by some long-term structural trends. First, there is a scarcity of oil in the context of a rapid increase in global energy demand, with new oil discoveries not keeping pace with rising consumption. Second, there is a change in the geo-diversity of global energy supplies, with production being increasingly concentrated in the Gulf region. The result of this concentration is a real price of oil which tracks the market share of Middle East producers. This is key to the new energy order — power is being returned to OPEC. Third, demand growth in the developing countries has been drastically underestimated. When the changing geopolitical character of consuming nations is calculated realistically, it is clear that Asia will assume greater prominence in the oil market.
The US must recalibrate its energy policies, especially in the Middle East. There is also a great deal to be gained from cooperation between the US and China. It is possible to bring emerging markets into the international energy cooperative, which means that energy security will not collapse into anarchy.
China has integrated into the oil market very smoothly. It is relying entirely on the market for day-to-day oil supplies as well as for its acquisition of strategic reserves. It has not, despite government involvement, militarized its oil supplies. This suggests that the US and China are learning to cooperate to achieve joint energy security.