The Next Big Race

After nuclear arms, is energy next?

The nuclear arms race offered the advantages of simplicity and clarity of purpose as an organizing principle of geopolitics—along with the obvious disadvantage of the potential death of all mankind by incineration. Its evil stepbrother the military-industrial complex similarly helped reduce the multifaceted and complicated issues of economic growth and government priorities to black-and-white, us-versus-them constructs.

Lamenting the passing of (intentional) nuclear holocaust as the governing concept of international relations and the global political economy is misplaced. But, at the very least, the nuclear arms race was a lot more straightforward than its emerging post-Cold War successor: the energy race. It’s a similarly brutal zero-sum game, but one characterized by an ever-shifting web of opportunistic, cross-cutting allegiances that make the nuclear world order appear pleasantly tidy and predictable by comparison.

Governments have long been preoccupied with securing energy sources, most notably oil and natural gas. After all, energy is a foundation of modern society: Economies fail and governments fall if there’s not enough energy to ensure that the lights work or that factories can continue to make widgets.

The struggle between global energy haves and have-nots is nothing new—1970s oil shock, anyone? But in recent years, a range of factors has shoved access to energy up the geopolitical agenda of many countries, supplanting the nuclear arms race as the dominant driver of geopolitics.

First—and most obviously—Big Oil in the White House, the second Iraq war, and the related unrest in the Middle East have all accelerated the process of energy access becoming a geopolitical survival of the fittest. The United States is by far the world’s largest energy consumer, yet it is making no real effort to reduce energy consumption. Meanwhile, the prospect of continued unrest in the Middle East—due in no small part to the activities and attitude of the U.S. government—suggests that the overall level of energy prices will be significantly higher for years to come.

On another front, unabated growth in energy demand is exerting ever-greater pressure on energy supplies. The rate of energy demand growth, at 2 percent per year, has slowed sharply since the 1970s. But demand is growing from an ever-larger base, since global energy consumption has roughly doubled since 1970.

Importantly, China is now the world’s second-largest consumer of petroleum products (behind the United States) and accounts for around 40 percent of growth in global oil demand. China risks political meltdown—in conjunction with a stalling economy—without sufficient energy to continue to create new jobs to keep its population employed. Recent blackouts of factories in some areas have underscored the dire necessity of maintaining supplies, says geopolitical commentary Web site And this is just the beginning: While the typical American uses 25 barrels of oil per year, the Chinese average is 1.3 barrels. So, there’s lots of room for growth if even just a few baubles of American-style energy-intensive conspicuous consumption—think SUVs, heated baby-wipe dispensers, and electric can-openers—make headway in China.

Russia is another key factor. While its nuclear arms arsenal still commands attention, the resounding defeat of the Soviet Union in the Cold War created the need for the severely maimed Russian bear to find a way to be, if not a world power, at least relevant. Russia’s geopolitical backyard has shrunk to the size of a suburban lawn, with even Ukraine—a back stoop if there ever was one—recently pulling up stakes. And with a gross domestic product the size of Florida’s, Russia is in many ways an economic gnat.

But Russia is an elephant in terms of energy, which may well be its path to regaining a scrap or two of pride. The country is the world’s second-largest oil exporter (and the largest non-OPEC exporter). Through natural gas (and soon, oil) giant Gazprom, the Russian government controls around one-third of global natural gas reserves, more than twice the amount of No. 2, Iran. And the recent de facto nationalization of Yukos Oil Co. demonstrates the determination of the Russian government to increase its control over the energy industry, which will be employed as a potentially very sharp and heavy tool of international relations. “Gazprom will come to represent economically something that Russia now lacks militarily—the capacity to project influence beyond Russian borders,” remarks Internet intelligence company

The American fixation on oil, increasing global energy demand—from China in particular—and Russia’s search for redemption are just a few of the factors that have triggered a global scramble to secure access to energy sources. Within the past few months, Chinese oil company CNOOC was rumored to be interested in buying Unocal, the ninth-largest American oil company. Chinese oil interests have been chasing, or have already secured, energy assets in Sudan, Kazakhstan, Iran, Peru, Syria, Indonesia, Russia, Gabon, Tunisia, Ecuador, and elsewhere. Indian Oil and Gas Corp. was salivating over buying a chunk of Yukos. Gazprom has been hobnobbing in North Korea, Venezuela, Mexico, China, and Japan as part of its effort to extend its dominance. And then there’s the specter of the United States turning large tracts of the Middle East—which has the world’s largest oil reserves by far—into its own private oil well.

It’s almost as if everyone is forgetting the first lesson of kindergarten: Share with others. When private companies control energy reserves, they sell into the world market for oil, where the highest bidder in a market environment takes home whatever he can buy. The ongoing high-stakes game of energy reserve capture-the-flag, though, is being played under very different winner-take-all rules.

What’s the rush? The earth’s supplies of energy remain copious, and new technologies are making greater volumes of reserves accessible. But the costs of tapping those pools of energy are increasing, and economies of scale are decreasing. And countries dependent on imports are increasingly aware of their vulnerability. For example, Persian Gulf oil producers enjoy a near-monopoly position in the Asian oil market and as a result are able to charge a so-called “Asian premium” of as much as $4 (or around 8 percent at current prices) per barrel of oil. Many Middle Eastern oil producers are unwilling to be locked into long-term contracts, anticipating a general uptrend in prices. And as the price of energy has risen—oil hit 30-year highs in 2004, while the price of natural gas also appreciated sharply—it’s made more economic sense to search out sources that are relatively more difficult and expensive to tap. So, energy importers looking for security and stability of energy supply are, ironically, increasingly moving into some of the least-secure and least-stable parts of the world.

One consequence of the ongoing energy land grab is a slow but inexorable tectonic shift in global political structures. In highly simplified terms, Cold War politics resulted in two main teams of client states who relied on their captains for protection and for weapons. But there’s far less stability in the new energy race, where the captains—the energy haves—have significant leeway to choose who’s on (and who’s off) their side.

While the nuclear arms race was dominated by two big powers, the kings of the mountain in this new paradigm are far more numerous and include many remote and low-profile countries that will send amateur political scientists scurrying for the atlas. And figuring out who has the upper hand at any given moment isn’t quite as straightforward as a warhead or submarine tally. Stepping into someone else’s area of influence—say, Chinese oil officials chatting up Canadian oil producers to assess the possibility of exploring the country’s oil sands—involves a plane flight and a few meetings, not a Cuban Missile Crisis-style international confrontation.

And the ultimate threat in this race isn’t instantaneous death. Will the post-Cold War nuclear option involve, say, flipping a switch that turns off a pipeline or keeping oil tankers in their home port, throwing the would-be recipient economy into a chilly and dark chaos?

Other geopolitical shifts brought about by the evolving energy race are more subtle. Germany, which imports 35 percent of its oil and 40 percent of gas from Russia, has in recent months become a cheerleader for Russian interests through, for example, keeping quiet about abuses in Chechnya and implicitly facilitating the dismemberment of Yukos—issues that, until recently, would have been the source of considerable friction. The German government is clearly focused on ensuring the long-term cooperation of Russia to supply it—not to mention the rest of Europe—with energy. The situation for countries with less international political and economic sway than Germany, like former Soviet states in Central Asia that sometimes have difficulty making payments to Gazprom, already involve gas supply cutoffs and could well get worse.

Energy is also at the crossroads of the simmering conflict with Iran, one of the largest vendors of oil to China—which is suspected of selling missile technology to Iran. And in January, India initialed an agreement to import gas and oil from Iran. Needless to say, neither India nor China is likely to stand by idly if the United States decides that Iran is the new Iraq.

It wasn’t so many centuries ago that access to spice trade routes, or control of the wool market, defined the global balance of economic power. Although the race for energy resources to win a military upper hand is nothing new—Japan’s fate in World War II, for just one example, was sealed when its access to fuel was disrupted; and uranium is certainly a type of fuel—but energy may be assuming center stage as the next paradigm of geopolitical power. And it’s an archetype that’s here to stay.