Hot Commodities

Hot Commodities: You Win Some, You Lose Some

By Ellen Scholl
Tuesday, June 14, 2016, 11:19 AM

Not a Drop to Share

In India, water levels are running low—so low that the Times of India reports that water will be cut off in parts of Mumbai on June 15 and 16. Thanks to consecutive years of below-average rainfall, inefficient groundwater management, and a water-thirsty coal industry, Quartz reports that India’s water woes go well beyond one bad monsoon season.

This is bad news for India’s farmers, most of who rely on water to do business. Writing in Foreign Affairs, Scott Moore reports that farmer suicides are on this rise. Of further concern, Moore points out that water is being used as a “political poker chip” in Indian domestic politics, as neighboring Indian states are forced to share dwindling water supplies. Beyond the domestic tussles, India’s reliance on international waterways may impact its relations with neighbors, including Pakistan.

While many point to the Indus Water Treaty, a two-decades old agreement between India and Pakistan, as a model of how shared resources like the Indus River can foster cooperation, others point to it as an agreement which is quickly being proven outdated by India’s modernization drive and the impacts of climate change on water supply.

In The Diplomat, Baba Umar writes that India and Pakistan are “locked in a bitter water conflict” over water supply in the disputed territory of Kashmir. While Umar acknowledges that the conflict is at present being waged by diplomatic means, he warns that rising tensions are leading to calls to revise the Indus Water Treaty, as the combination of energy needs, hydropower potential, and dwindling water resources grows increasingly dire.

Beyond the Indus, other transnational rivers India relies on lack multi-state governance institutions and rules, and Indian efforts to utilize an increasing share of water resources could spark tensions with China and Bangladesh. However, relief may be in sight—at least for now. Amid rising concerns, the Indian Meteorological Department predicted the coming monsoon season (June to September) could be above average—a short-term reprieve in what could increasingly become a long-term problem.

 

Gains and Losses

According to Oil Price, a natural gas plant in Fallujah previously under the control of the Islamic State has been retaken by Iraqi forces during the offensive to reclaim Fallujah. The advance on Fallujah marks the first time Iraqi forces have entered the city since the group took control in early 2014, and is part of a larger effort not only to retake the area, but to re-establish Iraqi government control, which includes infrastructure security and service provision.

The area is one of the terrorist group’s last strongholds in western Iraq, where it has lost control of much of its territory over the past few months. Iraq isn’t the only area where the Islamic State is under siege. The New York Times reports that U.S.-backed forces are advancing on Islamic State forces in Libya, where the group is reportedly fleeing their Sirte stronghold—which also served as a base or jumping off point to strike at nearby Libyan oil facilities.

According to the Wall Street Journal, the Libyan coast guard has retaken the Sirte port, while forces under the command of unity government defense minister Col. Mehdi al-Barghathi continue to advance. On the ground, the offensive is the work of two separate militias: the Misrata Brigade and the Petroleum Facilities Guard (PFG). The PFG has maintained control of much of Libya’s oil infrastructure, and winning their allegiance was a key victory for the new government, for which oil represents a crucial source of much-needed revenue.  

 

And More Losses

Following their previously-issued deadline for oil companies to leave Nigeria by the end of May, the so-called Niger Delta Avengers (NDA) claimed responsibility for blowing up the Eni oil pipeline last week. The incident followed attacks on pipelines belonging to the Nigerian National Oil Company pipeline and U.S. firm Chevron the same week.

The recent attacks come on the heels of escalating violence and dwindling oil production over the past few months. In response to the deteriorating situation, the Nigerian government has called for dialogue, and invited the group to talks with the government to discuss grievances. The Nigerian government has also ordered the military to cease or otherwise tone down operations in the Niger Delta to create room for dialogue in the meantime.

However, Bloomberg reports the group responded that it has no plans to participate in talks with the government. Despite the urging of former MEND militants, the group responsible for attacks on oil firms in the Niger Delta in the 2000s before reaching an amnesty agreement with the Nigerian government, to come to the table, the group instead replied that it may yet “review its earlier stance of not taking lives.”

In a press statement purportedly issued by the group, the NDA stated that there are “no new issues to put on the table for dialogue” and restated their “commitment to attack the interest of oil corporation and international refineries operators.” Furthermore, the group issued what is being called a “last warning” to seven governors, demanding the governors release pro-Biafran sympathizers being held in prison within three days.

 

When Animals Attack

As attacks on pipelines, oil facilities, and electric grids continue to spark fears of the security of critical infrastructure in the energy sector, recent events in Kenya illustrate the dangers of a different kind of threat to energy systems: monkeys.

Earlier this month, a monkey dancing on a transformer caused electricity to go out across Kenya. While the event was a boon for journalists (over) eager to take advantage of the opportunity for monkey business jokes, Brenda Shaffer at the Atlantic Council writes that such events are no laughing matter, and serve as “a reminder of the vulnerability of our energy infrastructure.”

Such events also underscore that while talks of terrorism or cyber attack may make headlines, far less glamorous glitches can leads to outages and disruptions, which come with their own set of security implications, particularly in already fragile or unstable countries or regions.

For those concerned about the security risks posed by animal antics, there is a surprising amount of information out there on prevention. For those concerned with the welfare of the perpetrator, while the monkey (a vervet, according to the New York Times) caused a nearly three-hour disruption in energy and internet services around the country, the monkey survived and is in good health, according to the Facebook page of KenGen Kenya.

 

All Road Lead To…

Europe, apparently.

As speculation—and in some corners apprehension—of China’s geopolitical ambitions and pursuant security implications abounds from India to the South China Sea to Central Asia, Keith Johnson reports in Foreign Policy that Chinese expansion may have another intended geopolitical target. As China continues to make energy deals with countries from Russia to Turkmenistan to the Czech Republic, it's One Belt, One Road project is reaching ever westward.

Johnson points out that Chinese investment in Britain’s energy sector was enough to earn the former a red carpet welcome in the UK last year. However, it is not just western European countries in China’s crosshairs—Instead, Forbes reports that Chinese investment in Albania is on the rise, including through the purchase of controlling rights in two Albanian oil fields, some of the largest onshore fields in Europe.

This could put countries like Albania, an EU candidate country, between Chinese economic influence and European infrastructure needs and regulatory regimes. Albania is one of the many countries which will be crisscrossed by the Trans Adriatic pipeline, a European Union project of Common Interest which began construction last month. Or it could provide much needed investment to fund energy infrastructure projects in Europe which many say are needed to boost energy security on the continent.

However, while much is being made of this investment in Europe, there is little consensus on whether this is cause for concern or merely a new (and in some cases welcome) investment trend. Authors Philippe Le Corre and Alain Sepulchre have more on the question in their new book, China’s Offensive in Europe. You can get the short version in this Brookings audio event.

As many turn to focus on China’s new investment activities along the New Silk Road, it is worth considering how Chinese investment elsewhere, particularly in energy, has fared. Writing in Foreign Affairs, Alice Su has more on how Chinese influence is seen from the vantage point of South Sudan, where Chinese control of southern oil interests predates the country’s creation and is but one example of China’s “Going Out” strategy to secure energy supplies to feed growing demand.

 

What to Watch For

 

Something Old, Something New

Energy, and the ensuing geopolitical ramification of its production, transportation, and consumption, are not new. However, Thomas Cunningham at the Atlantic Council argues that the specific foreign policy challenges stemming from new kinds of energy and energy transitions are.

Cunningham argues that new forms of energy, including non-fossil alternatives and renewables, will come with their own set of foreign policy challenges, as will efforts to mitigate and adapt to the consequences of climate change. Furthermore, the implications of a more modern, digital, and interconnected energy system, while not yet fully clear, certainly will come with a new set of dilemmas.

While Cunningham looks to the future, others continue to contemplate the energy and foreign policy challenges past and present. Writing in Foreign Affairs, Leif Wenar points to oil as the root of threats to stability—particularly in oil-exporting states. Wenar argues that a complex problem like the oil curse has a simple solution: stop trading with oil-funded autocrats.

According to Wenar, over the last four decades the greatest threats to Western security have emanated from unaccountable oil-exporting states. Thus, depriving these states of resources which lend them their “unaccountable power” would decrease their ability to coerce the west and their capacity to co-opt their own people. His proposal: make the purchase of oil from dictators illegal and promote the principle of “popular resource sovereignty” by which natural resources belong not to the rulers but to the ruled. Wenar holds that trade based on principle, rather than pure profit, would help create an oil market for the 21st century.

At the root of both arguments are common questions whose answers will unfold in the coming decades: are we moving away from oil, and if so what does this mean for current oil producers and future energy security? Will the transition off of hydrocarbons, however rapid or painstaking, be an orderly one, or one which turns geopolitics upside down?

For those who want answers sooner rather than later, these questions were taken up by the Global Agenda Council on the Future of Oil and Gas. You can check out their thoughts on what happens when oil demand peaks and the future of hydrocarbons here. Meanwhile, Nick Butler argues in the Financial Times that despite the group’s premonitions, the transition beyond hydrocarbons will not be an orderly one.

 

Private Party

Talking transitions, Butler also predicts the energy sector is in for a wave of privatization. According to Butler, low energy prices and falling revenue could prove the impetus for restructuring, the most high-profile example of which being the announced privatization of part of Saudi Aramco. While this may be a boon for banks and the mergers and acquisitions business, it could also have security implications as state-owned companies are opened to investors, potentially increasing transparency, and weakening—if ever so slightly—the ties that bind resources and regimes.

While potential privatization could be more superficial than structural, any opening of former national champions could have implications for what Jenner Harris and Robert Blackwill call geoeconomic power (or according to their provocative title of their recently-released book, the ability to wage “War by Other Means”). According to the authors, the ownership of energy resources by state governments has experienced a resurgence in recent years, allowing states to “enlist energy or commodities to help with all sorts of geopolitical needs.” However, a wave of privatizations could slowly reverse this trend--and erode this geoeconomic power.

While most states may not be seriously considering the sell off option yet, continued economic hardship could force their hand—and companies formerly serving as bastions of geopolitical power must also answer to new masters.

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