Datt
Devangshu
Datta is a retired chess player and gambler with an abiding
interest in technology, science fiction and the state of the world. His life
revolves around his pet cats and the need to keep them well nourished.
As an 11-year old, I remember my father cursing at breakfast
as he digested the 110 per cent overnight rise in the price of petrol (from
77 paisa to Rs 1.65 per litre) along with his morning cuppa.
That was 1973, when OPEC flexed its muscles for the first time. That hike
after the Yom Kippur War triggered the worst inflation in independent India’s
history. In 1979, oil prices jumped again when the Shah of Iran was ousted and
the Ayatollahs took US embassy staff hostage.
Since 2003, the world has been coping with another oil crisis. This time,
high crude prices are compounding the problems for governments struggling against
the threat of Islamic terrorism.
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These two issues - high crude prices and Islamic terrorism – make it
easy to construct Doomsday scenarios of global recession and massive terrorist
strikes.
The bottom-line is that the world must find cures for its oil addiction and
combat terrorism.
But the silver lining in the cloud of rising oil prices might just be a decline
in Jihad. Terror might actually be easier to control if oil prices continue
to go north. In other words, if the world is focussed on bringing down high
oil prices, it is likely to find collateral solutions to the problems of terrorism
since the two are inextricably linked.
Combating oil addiction means developing alternative energy sources. Many
proven technologies exist, but they need to be commercially viable for implementation
on much larger scales.
The scramble for alternate energy has been predicted, and has been going on
in fits and starts-- for decades. Peak Oil theorists say that it must occur
whenever global oil production peaks and starts declining. The current circus
in Iran-Iraq may have triggered it a little early.
As more resources are thrown into alternatives, viable large-scale solutions
will be found. Once a larger share of the global fuel mix consists of alternates,
the price and importantly, the political leverage, of oil will dwindle.
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Once that inflexion point is hit, the networks of radical Islamic terrorism
will lose much of their effectiveness. The terror networks are fuelled by oil
revenues and the political leverage oil exporters enjoy. A drop in oil revenues
is bound to hit Jihadi funding and the political clout enjoyed by the nations
which export it.
The progression drawn above is not obvious.
Black Gold
Oil is a necessary commodity. Demand rises with prosperity. When prices rise,
everyone tightens their belts and continues to buy oil. Prices are driven by
small supply changes. Given under-supply, price rises quickly. In over-supply,
prices drop just as fast.
Right now, the supply-demand situation is no tighter than last year. But prices
have risen over 150 per cent. This has been caused by two fears.
One: Short-term supplies may be unpredictably disrupted by trouble in Iran-Iraq.
Two: Long-term demand from resurgent India and China will cause a supply shortfall.
Peak Oil Theory suggests that after global crude production peaks sometime
between 2015-2030 (according to various models), it will decline rapidly. But
demand will rise to around 150 per cent of current levels by 2030. This will
prompt moves to alternates.
In the short-term, supplies could be disrupted by tensions in the triangular
Iran-Iraq-US relationship. Between them, Iraq and Iran hold well over 20 per
cent of known global reserves. If that supply is taken off the market, peak
oil will trigger sooner.
After the 2003 invasion of Iraq the assumption was that the US would spruce
up the crippled infrastructure and take Iraqi production back to the 1990 levels
of 3.5 million barrels a day worth of exports. Sanctions after the Kuwait invasion
had pushed production below 1 MBD by 2003. Five years post-invasion, Iraq is
still at just 2 MBD. Iraq’s neighbour Iran is in an eyeball-to-eyeball
confrontation with the US. If the tensions explode, Iranian exports would be
disrupted.
Even if Iran-Iraq tensions are eased by the next US president, and that is
a very big if, the second fear remains. Supplies may anyhow be outrun by demand.
As China and India have grown, so have the demands of 2.45 billion people for
oil. Many peak oil theorists feel that “Chindia” could trigger an
excess of demand over supply quite soon.
Alternatives
Possible alternatives to oil and gas include wind, water and solar power as
well as fuel-cells, alcohol, bio-diesels and nuclear energy. Proof-of-concept
is available in all cases, and many of these alternatives have already been
deployed on large scales. It’s a question of commercial viability rather
than basic science. Triple-digit oil prices should act as a spur to accelerate
the process of developing massive economies of scale.
For argument’s sake, let us assume that alternate sources replace 10
per cent of the world’s petro-consumption over the next 5-6 years. The
political implications of that could be staggering.
An oversupply of 10 per cent would cause drastic crude price reduction. Around
the 10 per cent substitution-level, it would become obvious that alternates
were viable on scales that made a difference.
Brazil for instance, has been able to successfully (that means profitably)
substitute petrol with ethanol even at crude prices of $30/ barrel. It consumes
more ethanol than petrol. The US also tripled its bio-diesel and ethanol production
in 2007. If the world finds global alternates that work at $30/ barrel price
equivalents, OPEC loses its pricing power.
Political Leverage
More importantly, oil-exporters lose the unique leverage arising from exclusive
control of a key commodity. The clout of states like Iran, Saudi Arabia, and
Libya disappears. Many OPEC members will make profits at even $30/ barrel or
less since crude from Iran, Iraq and Saudi Arabia costs less than $5/ barrel
to extract.
But oil-exporters will not enjoy the same political immunity they now do. To
take an example, South Africa generated plenty of hard currency through its
gold and diamonds. But the Apartheid Regime was pressured out of existence in
a way that OPEC regimes have never been.
The political leverage of oil has aided in the creation of terrorist networks.
Importers treat oil-exporting regimes with kid gloves. Questions are rarely
asked about where the money goes for fear that oil flows will stop. Nations
like Israel, which are certainly capable of taking a hardline with terrorists,
have been restrained due to the political leverage that oil bestows.
Most of the 9/11 hijackers were Saudis, as indeed is Bin Laden. But the US
has never contemplated action against the Kingdom. Instead, President George
W Bush has gone hat in hand begging Riyadh to increase production.
Quite apart from outright terrorist organisations, money flows into support
the global networks of <i>madrasas</i> through an alphabet soup
of charitable institutions. <i>Madrasas</i> provide the cannon fodder
for the terrorist networks. Much of the financial support comes from the earnings
and remittances of expat workers. Here too, the fount is oil revenues.
If OPEC’s profits dwindle and its political leverage is reduced, the
funding will drop significantly while the political pressure to shut the taps
off will also increase. That would mean smaller, less well-funded networks.
If funding for Madrasas also dropped, there would be fewer resources available
to put economically-disadvantaged young men through indoctrination that exhorts
them to kill innocent strangers. Perhaps in order to remain funded, these institutions
could be persuaded to review the more extremist component of their syllabi as
well?
Network Theory
Al Qaeda and its clones are flat networks, which has caused severe problems
for security establishments. Governments are geared to fighting conventional
wars against pyramidal guerrilla organisations. In a pyramid, taking out the
top man is effective.
This doesn’t work with a flat network where any given node is less important
than the total number of nodes. The power of a flat network is easily understood
from analogy. With 10 phone connections, the total no of one-to-one conversations
is 45 (ignoring initiation). If the network is multiplied in size by 10, with
100 phones, the number of possible conversations grows to 4950.
A network strengthens exponentially as it grows. This has been the Al Qaeda’s
strength, and it could be its weakness. Because a network also declines in strength
exponentially if the numbers reduce. That could happen if the stream of recruits
is reduced in volume.
Curing the oil-addiction will not end the problems, of course. It will also
bring other problems in the wake as there are always associated dangers with
any new technology. The politics of nuclear power and its associated dangers
are well-known. Ethanol and bio-diesel production has resulted in Amazon rain-forest
degradation and led to soaring global food prices as maize and hops are diverted
to the fuel market.
But at the prevailing crude prices, the world has little choice. It will have
to find alternate sources that are not controlled by a small cartel of undemocratic
regimes. That process will also cause collateral damage to terrorist networks
and make the jihad problem much more tractable.
In 2003, trader and best–selling author Nassim Nicholas Taleb said that
in 10 years time, crude would be either $300/ barrel or less than $30. But he
didn’t know which.
At the lower end of that range lies potential salvation. At the other end lies
global depression and anarchy.
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