The Russia-Ukraine crisis isn't the only place where imperialism shapes global policy. Oil imperialism also plays a key and crushing role in limiting our ability to move the world to green energy, and improve human agency all around.
In March 2020, something unsettling transpired in the global economy. Okay, a few somethings. But while most of the world remembers the sweeping COVID-19 lockdowns, what happened between Saudi Arabia and Russia around oil production is not common knowledge. And yet, as Vladimir Putin has launched a military invasion of Ukraine, we cannot forget the outsized role that oil imperialism has long had in setting global agendas.
The “oil price war” of 2020 is an intricate economic tale—for more on that, read the Financial Times summary, “The ‘Oil War’ of 2020 Between Saudi Arabia and Russia,” or Foreign Policy‘s analysis. I want to explore why it’s so hard to enact critical national reforms in the face of environmental crises like global warming and climate change.
The short answer? Because “the oil factor” plays a huge role in foreign policy.
The economic backdrop, layman to layman
Market value is largely shaped by perceptions of abundance and scarcity, which are almost always artificially maintained. In energy markets like oil, countries weaponize abundance and scarcity. If you can secure the lion’s share of promising extraction sites, or if you can drastically change how much oil you’re producing here and now, you can flood or starve global markets. In the process, you can decide if another nation’s oil industry will provide value, or be a net loss.
And this has huge ramifications because of how our global economies function. Energy industries are tied up in much bigger financial and foreign-policy games. Banks bet on whether a given industry will do well, and that industry’s performance can determine whole countries’ credit ratings. And those credit ratings? They in turn decide how much investment capital countries can secure, to work on projects that will directly impact the welfare of their citizens.
(See where this is going?)
So what should you do if your country’s economy relies too heavily on an industry for which another country essentially sets the prices? Well, diversify, obviously. Except… where are you going to get the start-up capital to shift from, say, oil to green energy? If you’re already heavily invested in one industry, you need to be able to free up your holdings.
And that’s one thing a monopolizing country isn’t going to want you to be able to do.
Oil imperialism, from resources old as time
Let’s put three players on the board: Saudi Arabia, Russia, and the U.S. In 2014, the U.S.’s surging fracking industry (delicately described as “shale” in financial news) put it on the board as a major player in global oil. Concurrently, President Barack Obama levied sanctions on Russia after the annexation of the Crimean Peninsula, some of which were meant to cap Russia’s ability to secure better oil futures for its industry.
Then Saudi Arabia slashed oil prices by boosting local production, causing industry mayhem.
Now, financial reporting is pretty inconsistent on the why. Some think that Saudi Arabia just made a terrible mistake. Others think that it wasn’t keen on a new player on the scene, so it acted to try to make the U.S. oil industry unprofitable. Others think that Saudi Arabia and the U.S. were colluding to do Russia and other major players harm.
The “real” reason doesn’t matter for our purposes, though. What matters is that we remember that the world’s biggest war games aren’t being played with tanks and troops. They’re being played with energy reserves and futures.
The road to 2020’s crisis
In 2016, Saudi Arabia and Russia agreed to work together to limit production, so that the market dominance of shale could still translate into higher prices and better returns for investors.
But everything was so fragile. The strength of numerous state economies relied on the willingness of oil’s biggest players to stick to their gentlemen’s agreement. And then, in early 2020, an International Energy Agency forecast predicted a huge drop in the demand for oil, thanks to COVID. (China’s was already plummeting). Tighter limits on production had to be set, and fast, so that the shale market wouldn’t lose its value overnight. A meeting of OPEC, the world’s organization of petroleum exporters, was called.
And… the climate leading up to it wasn’t great. Fund managers started betting against U.S. oil, on the assumption that Saudi Arabia would pull out of the agreement, repeating the disaster of 2014, and the value of U.S. oil would crash. (These are called “shorts,” when you gamble that a company’s market value is going to tank. Nice stuff).
But, hey, at least there was some variety this time! Saudi Arabia was calling for OPEC members to reduce substantially, and non-member countries to do their part, too. Russia refused.
So, Saudi Arabia did, too. Both reneged on prior agreements and announced that they would be jacking up production levels again. The term “pissing contest” is often thrown around lightly, but these two countries crashed global oil markets overnight by declaring an intention to let oil flow in as much abundance as it could in their respective territories. Estimates suggest that some $20 trillion in oil-reserves value was wiped out. And why, at the end of the day? Because Russia saw oil-production caps as further political sanctions, or another way in which the U.S. stood to gain.
Key takeaways for the energy conscious
In my recent article, “Who’s afraid of an environmental crisis?”, I called for us to be better coalition-builders, to rally as individuals around a common cause. And I wrote specifically about corporations that benefit from cultural divisions that have us arguing amongst ourselves about climate change and individual responsibility.
That was the optimistic post. This is the pragmatic one.
Our problem with shifting to a green-energy economy is Herculean. Even smaller countries that want to break from oil are at the mercy of other countries that decide their economies’ current value. And those monopolizing countries (which include many players we didn’t get into today) are too busy using oil as leverage over one another. To try to keep other countries’ expansionism in check. To defend against other countries trying to keep them in check.
What’s happening in Ukraine right now is awful. But it would be a grave mistake to forget that we’ve been engaged in a war all along.
Worse still, we’re in an economic war that incentivizes countries to produce more than we need, doing further damage to our shared environment every time. And why? Simply to hold power on the world stage.
This is the challenge for environmental actors. And I have no easy answers.
Only the knowledge that we need countries to commit to, and then follow through on, economic reduction and diversification mandates. And that we’ll stand a better chance in the struggle if we recognize the common cause, and work more consistently together.