Wednesday, October 7, 2015

Supply Regions And Geopolitical Power

     In Jane Jacobs’s excellent book Cities and the Wealth of Nations, she devotes a chapter to the inherent economic vulnerability of the “supply region:” a locality whose economy is dominated by the export of a natural resource or an item that sits “low” on the structure of production (e.g., wheat). Probably the most succinct summation of that chapter is that in a supply region, you will not find large or economically important cities. The city, for all that it has its drawbacks, is the geographic engine that propels the advance of a region’s economy from agrarian to industrial and thence. Thus, a truly intelligent and honest economic planner (if there were such a thing) would view such an economy as a dead end, and would look for ways to encourage the gradual departure from natural-resource exportation in favor of more advanced economic activities.

     The Islamic Middle East is a classic supply region, with oil as the export item. Because of their low political state and the iron grip their rulers have on the petroleum-extraction industry, the nations of that region have never advanced to Industrial Era status. Moreover, it appears that, due to their ideological shortcomings, they never will. Their future will not be a happy one unless genuinely radical changes should occur in their political and religious institutions...which, as our British cousins would say, is Not Bloody Likely.

     But soft! What MIG through yonder window breaks? It is the East, and Vladimir Putin is calling the tune:

     Russia is a crippled power; its people are older and die younger every year, its wealth comes largely from exporting fossil fuels, and its military – despite the investments Putin has made – is a pale shadow of the mighty Red Army.

     Yes: Russia is a supply region. And Putin, who has been hailed variably as a “strong leader” and apparently commands great popularity among his subjects despite his autocratic ways, wants it to be an even bigger one:

     But the word "oil" is rarely seen in the discourse about Russia in Syria. "It's about oil" was a constant refrain (or accusation) in the debates over America's various engagements in the region. The truth is that, in the Middle East, it's always about the oil.

     Three facts motivate Putin. First, two regions utterly dominate world oil markets. The Middle East and Russia together ship 60 percent of all oil traded (45 and 15 percent, respectively). Meanwhile, American firms are by law prohibited from engaging in this vital global marketplace; more on this shortly.

     Second, oil matters. It provides 97 percent of the global fuel needs for all the engines that transport everything on land, sea and air. No viable substitutes exist at any price for liquid hydrocarbons at the scale society needs. And the world will consume more oil, not less, as far into the future as it matters for sensible policymaking.

     Finally, price matters. Here the U.S. has upset the apple cart. Entrepreneurs using new technologies have unlocked a shocking increase in oil supply. U.S. shale fields have recorded the fastest increase in oil production in history. As a result, crude prices have collapsed from north of $100 to south of $50 a barrel. The emerging consensus? Cheaper oil is the new normal.

     How does Syria matter? While it's no oil-producing powerhouse by OPEC standards, even Syria's paltry production accounted for 25 percent of that nation's economy (although ISIS now controls most of Syria's oil fields). But Syria is ideal transit territory for pipelines to European markets for oil or gas originating in Iraq and Iran.

     More important, given the build-up of Russian military men and materiel in Syria, is geography. Damascus is closer to Baghdad than Washington is to Boston, and not much further away from Riyadh than New York is from Chicago. Russia's military is now no longer deployed mainly on its Baltic borders but is in the world's premier petroleum neighborhood.

     A Martian viewing the geopolitical maneuvering of the past few months would be justified in concluding that Putin’s grand strategy is the conquest of OPEC, whether overt or covert, such that Russia’s supply-region economy might prosper despite the collapse in world oil prices. If Putin is aware that Russia’s economy will be inhibited from industrial and technological advancement by increasing its dependence on oil exports, he appears comfortable with it.

     As Jane Jacobs makes plain in her book, a supply region is economically a dead end. It cannot advance without reducing its dependency on natural-resource exports. But if its export is sufficiently important to the larger surrounding economy, it can attain an artificial prosperity supported by the funds its export earns. The only inevitable terminus would be the displacement of the export by some cheaper or otherwise preferable substitute...and when it comes to oil, nothing that exists today appears to fit that description.

     Ronald Reagan won the Cold War for the United States by outspending the economically moribund Soviet Union. A poker player would say that he raised the stakes so high that the Soviets had to fold. But should Putin’s Russia acquire effective control over Middle Eastern oil, it will enable him to “stay in the game” for at least a couple of decades longer. There will be sufficient funds for him to expand Russia’s military, though perhaps not back to the level of the Soviet armed forces of the Eighties...and this will be going on as the United States, Russia’s sole significant counter-power, steadily reduces its military might and overall ability to project power to levels not seen since the post-World-War-I demobilization.

     Something to think about for those who hold that “we’ve got no business meddling in the Middle East.”


Weetabix said...

As usual, I tend to sidetrack on smaller items.

If a supply region can only advance economically by departing from natural resource exportation, what happens when all supply regions advance?

The word "sustainable" has been metastasized by the left to mean something else, but advancing all supply regions away from natural resource exportation doesn't seem to be sustainable long-term in the real sense of that word.

Maybe we need to look toward stewardship models. Although, I suppose that as the supply regions came into shorter supply, demand would make their economics more supportable. Hm.

Scott said...

If a supply region can only advance economically by departing from natural resource exportation, what happens when all supply regions advance?

Strong economic incentives to improve material efficiency. :) Also, growing economic prosperity & stability.

Allen Nightingale said...

I sometimes wonder when or if we will awaken to the folly of the mercantilist mentality that drives the urge to empire. Must we agree with or dictate at gunpoint the political or religious beliefs governing those with whom we trade?

All empires have followed a similar progression of ascent and decline/collapse. Ours is not exempt. If we are to dictate the political organization governing the peoples with which we trade, the inevitable reckoning is likely to exceed even our considerable capabilities. Indeed, the evidence is overwhelming us. From the cost in blood and treasure we are burdened with a debt which now exceeds $18 trillion and increases exponentially. The loss of our liberties has already exceeded the extent which drove our forefathers to the extremity of secession from a mercantilist empire.

Col. B. Bunny said...

I view Russia's interest in Syria (which is in the Middle East) as much more limited to its wanting to preserve its naval base there. Yes, Mr. Putin is doubtless coordinating with Iran and its Hepzibah ally. But . . . and it's a big but . . . controlling anything in the M.E. would require a substantial military presence, an alliance with Iran, or a combo of both. That is an order of magnitude of recklessness that I don't see that Putin exhibits AT ALL. The Russians exhibit a great deal of caution when all is said and done which is in mighty contrast to the Chinese fire drill that American foreign policy is and has been. Zbigniew's Playhouse on a world scale. To say we've thrown our weight around in the post-Soviet world is an understatement and the money we've wasted in half vast military adventures thousands of miles from our shores is pathetic. We have been the proverbial loose cannon.

Too, too many nations have an interest in M.E. oil. Any Russian moves to threaten those interests would be the equivalent of taking a stick to a hornet's nest.

U.S. domestic foreign policies are determined by cowardice, weakness, lunacy, or some kind of globatlist/warmist/Agenda 21/UFO uber conspiracy. Ditto for Europe from what I can tell. Putin and the Chinese do well by way of contrast.

I don't care for the modern practice of demonizing Russia (not your style, I hasten to note). And if we had a smidgin of confidence in our own free market system (much crippled by the thinking that cripples all socialist countries) we might be more of an example to Russia and Europe still and harness the power of entrepreneurs to make Russia into something other than a supply area. Instead, we are stuck in a "Game of Thrones" time warp.

A sad alternative that has not been considered, at least not out there in public, is where the world takes over Middle Eastern oil and removes oil profits from the hands of savages in service to the most monstrous doctrine in all of recorded history, not counting feminist gender theory, of course. It's absurd that the civilized world has fawned over scum for decades and allowed them to distort our societies.

Col. B. Bunny said...

Here's a PS, Francis. From GoV today, this headline:

“Putin has been extremely concerned about the expansion of radical Salafism and Wahhabism into Russian heartland, potentially affecting the ideology of the growing number of Russian Muslims.”

More evidence of Putin's limited objectives.