By Sonny Atumah
Petroleum in this discourse is the lifeblood of industrial and emerging nations. The least developed countries that are tagged: the Third World is not spared from petroleum as energy resource. Petroleum here includes crude oil, natural gas and bitumen.
Oil and gas are the most important energy source for electric power in industries, offices and homes as well as fuel for vehicular, air and maritime transportation.
Since the 1950s oil and gas have been the world’s most important and valuable commodities and constitute a major source of income for governments that control their production and distribution. Little wonder the possession of petroleum is of high security concern globally. Petroleum as energy has become a major source of conflict globally. Many conflicts are struggles for control over oil as a source of national income. Petroleum as energy has become an instrument of tact, strategy and politics globally.
China is the largest oil importer and the second largest economy globally. With about 25.7 billion barrels of proven oil reserves,China imports about 70 percent of its crude oil. China’s strategic oil reserve has risen from 191 million barrels in 2015 to 800 million barrels in 2019.China is desperate to make large purchases of oil and gas supplies from Russian, Africa, and the Middle East for the nation’s growing energy requirements.
With tensions in the Middle East which is China’s largest suppliers of crude boosting domestic oil and natural gas production becomes imperative to reduce its dependence on imports. The United States as the biggest economy in the world, has found temporary relief to become the number one oil producer in the world displacing Russia and Saudi Arabia using its shale oil. President Donald Trump’s America First Energy Policy is not relenting in making the United States to be energy independent although analysts say it may last for about five years before it plateaus. But they also believe that who controls oil and gas resources translates into geopolitical clout and economic vulnerability for others.
Since oil provides the main source of energy for advanced industrial economies, an oil crisis can endanger economic and political stability in the global economy. Two major post World War II oil crises have made net oil importers to take issues of oil very seriously. The first oil crisis of 1973/74 was the embargo by OPEC that quadrupled the price of a barrel of crude to US$12.
It was a reaction by Arab members of OPEC in retaliation for Western support of Israel against Egypt and Syria in the Yom Kippur War of 1973 and in response to a persistent decline in the value of the U.S. dollar, the denominated currency for oil sales, which had eroded the export earnings of OPEC states. It made countries to restructure their economies to reduce dependency on oil. Again, the Iranian Revolution of 1978/79 caused another major oil crisis.
The Iran-Iraq War from 1980 to 1988 worsened the situation with a high level of instability in the Middle East. Iraq had claimed territories inhabited by Arabs, the Southwestern oil-producing province of Iran called Khouzestan. The oil industry was affected and with large loss of output prices spiked. In 1981, the price of oil had up toUS$32 per barrel. But by 1983, major capitalist economies had adopted more efficient methods of production, with crude oil oversupplied in the global market.
A Professor of Peace and World Security Studies at Hampshire College in Massachusetts, Michael Klare, believed that in these conflicts, the fighting though driven by long-standing historic antagonisms, also anchored on energy. For China, the disputed South China Sea is a domestic source of energy for to use whatever means necessary to secure it. The South China Sea has about 210 billion tons of oil and 16 trillion cubic meters of natural gas. Because others, including Vietnamese, Japanese and Filipinos, also seek to exploit these oil and gas reserves, clashes seem almost inevitable. Russia’s annexation of Crimea meant Russia doubled the offshore territory it controls in the Black Sea, which has billions of barrels of oil and vast reserves of natural gas.
It deprived Ukraine of the possibility of developing these resources. In Iraq, Syria and South Sudan, the conflicts are fueled by the desire to control valuable oil and natural gas assets. In these countries, there are external involvements in the form of direct intervention, proxy war arms transfers, or economic assistance. And that is happening in the Middle East. It does extend to instability in major oil producing countries like the OPEC.
Instabilities associated with sanctions, oil infrastructures attacks and supplies cut off in oil-producing countries have affected Nigeria, Venezuela, Iraq, and Iran, and they affect oil prices. Oil prices directly affect the prices of goods produced from petroleum. When we consider that there are up to 6000 byproducts and derivatives from petroleum one can appreciate how oil price movements affect goods and services in an economy.
When oil price increases, it can depress the supply of other goods because they increase the costs of producing them. Higher oil prices tend to make production more expensive for businesses. Therefore on the aggregate level, oil price increases may tend to increase inflation and reduce economic growth. Far more than an ordinary trade commodity, oil is a determinant of well-being and international power for those who possess this important energy resource.