This has a lot to do with the unrest in Nigeria, but also with the production loss after the hurricanes in the Gulf of Mexico, the decline in Iraq since the 2003 war, and the decline in Venezuelan output since 2002.
Clearly, the Chinese need the resources, but I don’t think they want to clash with the industrial world which happens to be the market for their goods.
We are living in a different world now. You can see it everywhere in international relations: It was noteworthy that, after his visit to Washington, the Chinese president’s next stop was Saudi Arabia.
We experienced similiar fears in the 1880s, at the end of World War I and II. And we ran out in the 1970s.
The Russians are turning east to the Chinese – to the Europeans’ surprise. It always seemed to me that the relationship between Russia and China would shift from being based in Marx and Lenin to being based in oil and gas.
The bulk of extra supplies that could be put into the market come from two places. One, they come from other Persian Gulf suppliers, of which Saudi Arabia is at the top of the list.
People always underestimate the impact of technology. To give you an example: In the 1970s the frontier for offshore development was 200 meters, today it is 4,000 meters.
If a war started, the oil price probably would go up, as you said, maybe $5, $6 a barrel until you saw other oil from the extra supplies that are available elsewhere coming into the world, into the market.
First, we have to find a common vocabulary for energy security. This notion has a radically different meaning for different people. For Americans it is a geopolitical question. For the Europeans right now it is very much focused on the dependence on imported natural gas.
So the major obstacle to the development of new supplies is not geology but what happens above ground: international affairs, politics, investment and technology.
The starting point for energy security today as it has always been is diversification of supplies and sources.
But that’s not enough: To maintain energy security, one needs a supply system that provides a buffer against shocks. It needs large, flexible markets. And it’s important to acknowledge the fact that the entire energy supply chain needs to be protected.
But eventually it’s a question of access: Getting access to fields is on top of the oil companies’ agenda. We see a substantial build-up of supply occurring over the coming years.
In a couple of years, the Chinese will be seen as regular participants in international industry. Their companies have to report to shareholders as well as to the Chinese authorities. They need to make money, they have to be efficient.
The North Sea was supposed to run out in the 1980s. Then in the 1990s. And now production is still on-line.
The other are the strategic, so-called strategic stocks that the United States and the other Western industrial countries have, which could put in as much as four million barrels a day of oil into the market pretty quickly.
I think the producers, for the most part, don’t want to see prices skyrocket because that will only create problems for them down the road and would also be a, you know, would be a very serious shock for a world economy that can’t afford serious shocks right now.
But the key thing is that Iraq, while it’s got very large oil reserves, has marginalized itself as an oil exporter and these days its exports are only about one tenth that of neighboring Saudi Arabia.