Oil and geopolitics. The role of hydrocarbons in the current geopolitical framework and on future world geopolitical arrangements.


The role of oil ( and hydrocarbons in general ) on world geopolitical dynamics is well known. It can be said that since the period following World War II ( although in truth, the mechanization of the more advanced industrialized countries imposed a significant consumption of hydrocarbons as early as the first decade of the 20th century ) the control and exploitation of oil resources have been at the center of every geopolitical consideration of the various states of the world. This is because the world economy and production processes saw an increasing use of hydrocarbons at the expense of other sources of energy such as coal (widely used throughout the 1800s). But also because so-called first world countries (i.e., Western industrialized countries) did not have large reserves of it and even when they did (such as the United States with its rich Texas deposits) they still did not produce enough to meet domestic market demand. All this resulted in a geopolitical dynamic aimed at controlling the production areas of the precious raw material and especially the Persian Gulf region where, as is well known, the largest oil output in the world is still concentrated.Hence the geopolitical synergies that have seen “special alliances” between the world’s great powers and states in the Middle East region ( think of the relations between the US and Saudi Arabia and those between Russia and Iran since the Islamic revolution of 1979). Control of the Middle East area has required the constant presence of the armies and fleets of the great powers in order to control the production and transit of the precious raw material ( of particular importance is the Strait of Hormuz where almost 40 percent of the world’s exported oil still transits). Oil also represented a formidable geopolitical weapon in the confrontation between the US and USSR after World War II. It was in fact the 1985 oil price collapse (resulting from a Saudi-agreed-upon increase in Saudi output in order to destabilize foreign exchange revenues and thus Russian finances) that economically disrupted the Soviet Union to the point of bankruptcy in the early 1990s.Moscow had to surrender to market power since it had ( and still has today ) an economy heavily dependent on the export of raw materials. Oil, on the other hand, saved the U.S. from bankruptcy in 1971 ( as a result of which the gold standard established by the Bretton Woods agreements 27 years earlier was abandoned ) at the moment when De Gaulle demanded repatriation of French gold stored in the United States of America. The U.S., fearful that other geopolitical partners might make the same request, canceled the convertibility of the dollar with gold (which had been established by the Bretton Woods agreements in 1944, precisely to give maximum credibility to the U.S. currency and thereby make it the world reserve currency in place of the pound sterling) but, in order to guarantee the financing of the U.S. debt and the credibility of the dollar, required its allies to trade commodities (and especially the most important raw material, oil) in the U.S. currency. This was so that their allies would still accumulate dollar reserves and allow those proceeds to be reinvested in U.S. debt, guaranteeing the U.S. of A. a safe and continuous flow of money into U.S. Treasury-issued public debt.With the petrodollars the U.S. saved itself from virtually certain bankruptcy since, they likely lied about the extent of their gold reserves ( as collateral for U.S. currency ) and their actual ability to convert the entire mass of dollars in circulation with the precious metal. After such circumstances began the dominance of fiat currency ( not pegged to any real underlying asset ) and the ever-increasing printing of money with no intrinsic value. Such historical digressions are necessary to understand how oil has been much more than fuel for automobiles and fuel for industry in the post-World War II world.. It has been (given its tremendous importance in the world economy) a real geopolitical weapon. A weapon that has spawned wars and fueled conflicts of all sorts and that , alas, has been at the center of real international intrigue.


In the contemporary world, oil (and hydrocarbons in general) still represents by far the most important raw material in the world economy. Not least by virtue of the increase in world GDP resulting from the staggering economic growth that has occurred in developing countries in recent years. Consider, for example, the economic growth of China and India in recent years. But also that of Brazil and Indonesia (countries that are among the most populous in the world and still have substantial population growth). So the world will still be hungry for oil for many years to come. And its demand will remain high for a long time to come. But ,in all likelihood, the precious raw material will be more important to Eastern economies than to Western ones. In fact, in both America and Europe, a race has begun to disengage from oil and natural gas as a result of recent geopolitical developments pitting NATO and Russia ( Europe’s largest supplier of hydrocarbons until Russia’s invasion of Ukraine began on Feb. 24, 2022) against each other militarily.In America such enfranchisement has already begun over a decade ago thanks to the hydraulic fracturing revolution and shale oil extraction. Such developments have “gifted” the U.S. effective independence from Middle Eastern hydrocarbons, reason why the Middle East has lost interest in U.S. strategic interests. Europe, on the other hand,in a desperate attempt to make itself independent of Russian raw material supplies, has initiated a prodigious rush to convert its industrial production to alternative energy sources (wind and solar, as well as a temporary return to coal as a substitute for Russian oil and gas) that should progressively reduce, at least in the intentions of the Brussels establishment, the use of hydrocarbons in European production processes. As a result, a disengagement of the West from the Middle East geopolitical framework has begun, which ,as a result of this, is redefining itself according to the new economic and geopolitical interests that have unveiled in the past year. The new agreement between Iran and Saudi Arabia on the restoration of diplomatic relations between the two largest countries in the Middle East is an expression of this.Agreement that sees Saudi interests prevail over the U.S. geopolitical will regarding the geopolitical situation in the Middle East region. The agreement was desired and favored by Beijing precisely in an anti-American function, and there is no doubt that it clearly and unequivocally redefines the geopolitics of the Middle East in favor of Beijing and Moscow and to the detriment of the West. The West which, by virtue of its energy autarkic aspirations, is shattering the “petrodollar system” as it had taken shape from 1971 until the present day. If in fact Saudi Arabia and the Persian Gulf monarchies begin, as now seems quite evident, to sell their hydrocarbons in currencies other than the dollar will they still continue to finance the U.S. national debt ? Why should they continue to “prop up” the United States of America if the latter is no longer a relevant trading partner in this part of the world ? And what consequences will this have for the immense amount of debt created in the West and its continued refinancing ? Million dollar question. And to which, at the moment, no certain answer can be given. What is certain is that the changes awaiting humanity in this first part of the 21st century are truly epochal.The allocation of Middle Eastern capital also appears very relevant by virtue of the fact that the freezing of Russian assets in the West (applied as a result of the invasion of Ukraine) has led to a huge outflow of “Eastern capital” from Western banks and dollar-denominated financial assets (subject to seizure in case of diplomatic and geopolitical complications with Washington). We are talking about a figure of about $400 billion. And it is perhaps just the beginning of a process that is likely to last for years and see a complete loss of confidence in the Western financial system.


From what has been written above, it is clear that the importance of oil is not only related to the functionality of our automobiles or the production of the petrochemical industry (think plastics). Oil has had, and still has, a truly impressive geopolitical relevance. It has generated wars ( and therefore deaths) and has always been at the center of any geopolitical consideration of the world’s major geopolitical entities. And even today when there is so much talk of energy transition there is no glimpse, in truth, of the day of the end of the era of the precious raw material. That will certainly come one day. But that day is certainly not today. And, in all likelihood, it won’t be tomorrow either.

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