CIAO DATE: 02/05/08
The National Interest
What Resource Wars?
David G. Victor
Full Text
RISING ENERGY prices and mounting concerns about environmental depletion have animated fears that the world may be headed for a spate of “resource wars”—hot conflicts triggered by a struggle to grab valuable resources. Such fears come in many stripes, but the threat industry has sounded the alarm bells especially loudly in three areas. First is the rise of China, which is poorly endowed with many of the resources it needs—such as oil, gas, timber and most minerals—and has already “gone out” to the world with the goal of securing what it wants. Violent conflicts may follow as the country shunts others aside. A second potential path down the road to resource wars starts with all the money now flowing into poorly governed but resource-rich countries. Money can fund civil wars and other hostilities, even leaking into the hands of terrorists. And third is global climate change, which could multiply stresses on natural resources and trigger water wars, catalyze the spread of disease or bring about mass migrations.
Most of this is bunk, and nearly all of it has focused on the wrong lessons for policy. Classic resource wars are good material for Hollywood screenwriters. They rarely occur in the real world. To be sure, resource money can magnify and prolong some conflicts, but the root causes of those hostilities usually lie elsewhere. Fixing them requires focusing on the underlying institutions that govern how resources are used and largely determine whether stress explodes into violence. When conflicts do arise, the weak link isn’t a dearth in resources but a dearth in governance.
Feeding the Dragon
RESOURCE WARS are largely back in vogue within the U.S. threat industry because of China’s spectacular rise. Brazil, India, Malaysia and many others that used to sit on the periphery of the world economy are also arcing upward. This growth is fueling a surge in world demand for raw materials. Inevitably, these countries have looked overseas for what they need, which has animated fears of a coming clash with China and other growing powers over access to natural resources.
Within the next three years, China will be the world’s largest consumer of energy. Yet, it’s not just oil wells that are working harder to fuel China, so too are chainsaws. Chinese net imports of timber nearly doubled from 2000 to 2005. The country also uses about one-third of the world’s steel (around 360 million tons), or three times its 2000 consumption. Even in coal resources, in which China is famously well-endowed, China became a net importer in 2007. Across the board, the combination of low efficiency, rapid growth and an emphasis on heavy industry—typical in the early stages of industrial growth—have combined to make the country a voracious consumer and polluter of natural resources. America, England and nearly every other industrialized country went through a similar pattern, though with a human population that was much smaller than today’s resource-hungry developing world.
Among the needed resources, oil has been most visible. Indeed, Chinese state-owned oil companies are dotting Africa, Central Asia and the Persian Gulf with projects aimed to export oil back home. The overseas arm of India’s state oil company has followed a similar strategy—unable to compete head-to-head with the major Western companies, it focuses instead on areas where human-rights abuses and bad governance keep the major oil companies at bay and where India’s foreign policy can open doors. To a lesser extent, Malaysia engages in the same behavior. The American threat industry rarely sounds the alarm over Indian and Malaysian efforts, though, in part because those firms have less capital to splash around and mainly because their stories just don’t compare with fear of the rising dragon.
These efforts to lock up resources by going out fit well with the standard narrative for resource wars—a zero-sum struggle for vital supplies. But will a struggle over resources actually lead to war and conflict?
To be sure, the struggle over resources has yielded a wide array of commercial conflicts as companies duel for contracts and ownership. State-owned China National Offshore Oil Corporation’s (CNOOC) failed bid to acquire U.S.-based Unocal—and with it Unocal’s valuable oil and gas supplies in Asia—is a recent example. But that is hardly unique to resources—similar conflicts with tinges of national security arise in the control over ports, aircraft engines, databases laden with private information and a growing array of advanced technologies for which civilian and military functions are hard to distinguish. These disputes win and lose some friendships and contracts, but they do not unleash violence.
Most importantly, China’s going-out strategy is unlikely to spur resource wars because it simply does not work, a lesson the Chinese are learning. Oil is a fungible commodity, and when it is sourced far from China it is better to sell (and buy) the oil on the world market. The best estimates suggest that only about one-tenth of the oil produced overseas by Chinese investments (so-called “equity oil”) actually makes it back to the country. So, thus far, the largest beneficiaries of China’s strategy are the rest of the world’s oil consumers—first and foremost the United States—who gain because China subsidizes production.
Until recently, the strategy of going out for oil looked like a good bet for China’s interests. But, despite threat-industry fear-mongering, we need not worry that it will continue over the long term because Chinese enterprises are already poised to follow a new strategy that is less likely to engender conflict. The past strategy rested on a trifecta of passing fads. One fad was the special access that Chinese state enterprises had to cheap capital from the government and by retaining their earnings. The ability to direct that spigot to political projects is diminishing as China engages in reforms that expose state enterprises to the real cost of capital and as the Chinese state and its enterprises look for better commercial returns on the money they invest. Second, nearly all the equity-oil investments overseas have occurred since the late 1990s, as prices have been rising. Each has looked much smarter than the last because of the surging value of oil in the ground. But that trend is slowing in many places because the cost of discovering and developing oil resources is rising.
And the third passing fad in China’s going-out strategy is the fiction that China can cut special deals—such as by channeling development assistance to pliable host governments—to confer a durable advantage for Chinese companies. While there is no question that the special deals are rampant—by some measures, most of China’s foreign assistance is actually tied to natural-resources projects—the Chinese government and its overseas enterprises are learning that it is best to avoid these places for the long haul. Among the special havens where Chinese companies toil are Sudan, Nigeria, Chad, Iran and Zimbabwe—all countries where even Chinese firms find it hard to assure adequate stability to reliably extract natural resources.
As China grapples with these hard truths about going out, the strategy will come unstuck. It won’t happen overnight, but evidence in this direction is encouraging. China already pursues the opposite strategy—seeking reliable hosts, multiple commercial partners and market-oriented contracts—when it secures natural resources that require technical sophistication. China’s first supplies of imported natural gas, which started last year at a liquefied natural gas terminal in Shenzhen, came from blue-chip investments in Australia, governed by contracts and investments with major Western companies. With time, China will shift to such arrangements and away from the armpits of governance. At best, badly governed countries are mediocre hosts for projects that export bulk commodities, such as iron ore and raw crude oil. These projects, however, are least likely to engender zero-sum conflicts over resources because it is particularly difficult to corner the market for widely traded commodities, as China has learned with its equity-oil projects. Resources that require technical sophistication to develop tend to favor integration and stability, rather than a zero-sum struggle.
Pernicious Rents
THE SECOND surge in thinking about resource wars comes from all the money that is pulsing into resource-rich countries. There is no question that the revenues are huge. OPEC cashed $650 billion for 11.7 billion barrels of the oil it sold in 2006, compared with $110 billion in 1998, when it sold a similar quantity of oil at much lower prices. Russia’s Central Bank reports that the country earned more than $300 billion selling oil and gas in 2006, about four times its annual haul in the late 1990s. But will this flood in rents cause conflict and war?
There is no question that large revenues—regardless of the source—can fund a lot of mischievous behavior. Iran is building a nuclear-weapons program with the revenues from its oil exports. Russia has funded trouble in Chechnya, Georgia and other places with oil and gas rents. Hugo Chávez opened Venezuela’s bulging checkbook to help populists in Bolivia and to poke America in ways that could rekindle smoldering conflicts. Islamic terrorists also have benefited, in part, from oil revenues that leak out of oil-rich societies or are channeled directly from sympathetic governments. But resource-related conflicts are multi-causal. In no case would simply cutting the resources avoid or halt conflict, even if the presence of natural resources can shift the odds. Certainly, oil revenues have advanced Iran’s nuclear program, which is a potential source of hot conflict and could make future conflicts a lot more dangerous. But a steep decline in oil probably wouldn’t strangle the program on its own. Indeed, while Iran still struggles to make a bomb, resource-poor North Korea has already arrived at that goal by starving itself and getting help from friends. Venezuela’s checkbook allows Chávez to be a bigger thorn in the sides of those he dislikes, but there are other thorns that poke without oil money.
As we see, what matters is not just money but how it is used. While Al-Qaeda conjures images of an oil-funded network—because it hails from the resource-rich Middle East and its seed capital has oily origins—other lethal terror networks, such as Sri Lanka’s Tamil Tigers and Ireland’s Republican Army, arose with funding from diasporas rather than oil or other natural resources. Unlike modern state armies that require huge infusions of capital, terror networks are usually organized to make the most of scant funds. During the run-up in oil and gas prices, analysts have often claimed that these revenues will go to fund terror networks; yet it is sobering to remember that Al-Qaeda came out in the late 1990s, when oil earnings were at their lowest in recent history. Most of the tiny sums of money needed for the September 11 attacks came from that period. Al-Qaeda’s daring attacks against the U.S. embassies in Kenya and Tanzania occurred when oil-rich patrons were fretting about the inability to make ends meet at home because revenues were so low. Ideology and organization trump money as driving forces for terrorism.
Most thinking about resource-lubed conflict has concentrated on the ways that windfalls from resources cause violence by empowering belligerent states or sub-state actors. But the chains of cause and effect are more varied. For states with weak governance and resources that are easy to grab, resources tend to make weak states even weaker and raise the odds of hot conflict. This was true for Angola’s diamonds and Nigeria’s oil, which in both cases have helped finance civil war. For states with stable authoritarian governments—such as Kuwait, Saudi Arabia, most of the rest in the western Gulf, and perhaps also Russia and Venezuela—the problem may be the opposite. A sharp decline in resource revenues can create dangerous vacuums where expectations are high and paltry distributions discredit the established authorities.
On balance, the windfall in oil revenues over recent years is probably breeding more conflict than would a crash in prices. However, while a few conflicts partly trace themselves to resources, it is the other pernicious effects of resource windfalls, such as the undermining of democratic transitions and the failure of most resource-reliant societies to organize their economies around investment and productivity, that matter much, much more. At best, resources have indirect and mixed effects on conflict.
Climate Dangers
THE THIRD avenue for concern about coming resource wars is through the dangers of global climate change. The litany is now familiar. Sea levels will rise, perhaps a lot; storms will probably become more intense; dry areas are prone to parch further and wet zones are likely to soak longer. And on top of those probable effects, unchecked climate change raises the odds of suffering nasty surprises if the world’s climate and ecosystems respond in abrupt ways. Adding all that together, the scenarios are truly disturbing. Meaningful action to stem the dangers is long overdue.
In the United States over the last year, the traditional security community has become engaged on these issues. Politically, that conversion has been touted as good news because the odds of meaningful policy are higher if hawks also favor action. Their concerns are seen through the lens of resource wars, with fears such as: water shortages that amplify grievances and trigger conflict; migrations of “climate refugees”, which could stress border controls and also cause strife if the displaced don’t fit well in their new societies; and diseases such as malaria that could be harder to contain if tropical conditions are more prevalent, which in turn could stress health-care systems and lead to hot wars.
While there are many reasons to fear global warming, the risk that such dangers could cause violent conflict ranks extremely low on the list because it is highly unlikely to materialize. Despite decades of warnings about water wars, what is striking is that water wars don’t happen—usually because countries that share water resources have a lot more at stake and armed conflict rarely fixes the problem. Some analysts have pointed to conflicts over resources, including water and valuable land, as a cause in the Rwandan genocide, for example. Recently, the UN secretary-general suggested that climate change was already exacerbating the conflicts in Sudan. But none of these supposed causal chains stay linked under close scrutiny—the conflicts over resources are usually symptomatic of deeper failures in governance and other primal forces for conflicts, such as ethnic tensions, income inequalities and other unsettled grievances. Climate is just one of many factors that contribute to tension. The same is true for scenarios of climate refugees, where the moniker “climate” conveniently obscures the deeper causal forces.
The dangers of disease have caused particular alarm in the advanced industrialized world, partly because microbial threats are good fodder for the imagination. But none of these scenarios hold up because the scope of all climate-sensitive diseases is mainly determined by the prevalence of institutions to prevent and contain them rather than the raw climatic factors that determine where a disease might theoretically exist. For example, the threat industry has flagged the idea that a growing fraction of the United States will be malarial with the higher temperatures and increased moisture that are likely to come with global climate change. Yet much of the American South is already climatically inviting for malaria, and malaria was a serious problem as far north as Chicago until treatment and eradication programs started in the 19th century licked the disease. Today, malaria is rare in the industrialized world, regardless of climate, and whether it spreads again will hinge on whether governments stay vigilant, not so much on patterns in climate. If Western countries really cared about the spread of tropical diseases and the stresses they put on already fragile societies in the developing world, they would redouble their efforts to tame the diseases directly (as some are now doing) rather than imagining that efforts to lessen global warming will do the job. Eradication usually depends mainly on strong and responsive governments, not the bugs and their physical climate.
Rethinking Policy
IF RESOURCE wars are actually rare—and when they do exist, they are part of a complex of causal factors—then much of the conventional wisdom about resource policies needs fresh scrutiny. A full-blown new strategy is beyond this modest essay, but here in the United States, at least three lines of new thinking are needed.
First, the United States needs to think differently about the demands that countries with exploding growth are making on the world’s resources. It must keep their rise in perspective, as their need for resources is still, on a per capita basis, much smaller than typical Western appetites. And what matters most is that the United States must focus on how to accommodate these countries’ peaceful rise and their inevitable need for resources. Applied to China, this means getting the Chinese government to view efficient markets as the best way to obtain resources—not only because such an approach leads to correct pricing (which encourages energy efficiency as resources become more dear), but also because it transforms all essential resources into commodities, which makes their particular physical location less important than the overall functioning of the commodity market. All that will, in turn, make resource wars even less likely because it will create common interests among all the countries with the greatest demand for resources. It will transform the resource problem from a zero-sum struggle to the common task of managing markets.
Most policymakers agree with such general statements, but the actual practice of U.S. policy has largely undercut this goal. Saber-rattling about CNOOC’s attempt to buy Unocal—along with similar fear-mongering around foreign control of ports and new rules that seem designed to trigger reviews by the Committee on Foreign Investment in the United States when foreigners try to buy American-owned assets—sends the signal that going out will also be the American approach, rather than letting markets function freely. Likewise, one of the most important actions in the oil market is to engage China and other emerging countries fully in the International Energy Agency—which is the world’s only institution for managing the oil commodity markets in times of crisis—yet despite wide bipartisan consensus on that goal, nearly nothing is ever done to execute such a policy. Getting China to source commodities through markets rather than mercantilism will be relatively easy because Chinese policymakers, as well as the leadership of state enterprises that invest in natural resource projects, already increasingly think that way.
The sweep of history points against classic resource wars. Whereas colonialism created long, oppressive and often war-prone supply chains for resources such as oil and rubber, most resources today are fungible commodities. That means it is almost always cheaper and more reliable to buy them in markets.
At the same time, much higher expectations must be placed on China to tame the pernicious effects of its recent efforts to secure special access to natural resources. Sudan, Chad and Zimbabwe are three particularly acute examples where Chinese (and in Sudan’s case, Indian) government investments, sheltered under a foreign-policy umbrella, have caused harm by rewarding abusive governments. That list will grow the more insecure China feels about its ability to source vital energy and mineral supplies. Some of what is needed is patience because these troubles will abate as China itself realizes that going out is an expensive strategy that buys little in security. Chinese state oil companies are generally well-run organizations; as they are forced to pay the real costs of capital and to compete in the marketplace, they won’t engage in these strategies. The best analog is Brazil’s experience, where its state-controlled oil company has become ever smarter—and more market oriented—as the Brazilian government has forced it to operate at arm’s length without special favors. That has not only allowed Petrobras to perform better, but it has also made Brazil’s energy markets function better and with higher security.
Beyond patience, the West can help by focusing the spotlight on dangerous practices—clearly branding them the problem. There’s some evidence that the shaming already underway is having an effect—evident, for example, in China’s recent decision to no longer use its veto in the UN Security Council to shield Sudan’s government. At the same time, the West can work with its own companies to make payments to governments (and officials) much more transparent and to close havens for money siphoned from governments. Despite many initiatives in this area, such as the Extractive Industries Transparency Initiative and the now-stalled attempt by some oil companies to “Publish What You Pay”, little has been accomplished. Actual support for such policies by the most influential governments is strikingly rare. America is notably quiet on this front.
With regard to the flow of resources to terrorists—who in turn cause conflicts and are often seen as a circuitous route to resource wars—policymakers must realize that this channel for oil money is good for speeches but perhaps the least important reason to stem the outflow of money for buying imported hydrocarbons. Much more consequential is that the U.S. call on world oil resources is not sustainable because a host of factors—such as nationalization of oil resources and insecurity in many oil-producing regions—make it hard for supply to keep pace with demand. This yields tight and jittery markets and still-higher prices. These problems will just get worse unless the United States and other big consumers temper their demand. The goal should not be “independence” from international markets but a sustainable path of consumption. When the left-leaning wings in American politics and the industry-centered National Petroleum Council both issue this same warning about energy supplies—as they have over the last year—then there is an urgent need for the United States to change course. Yet Congress and the administration have done little to alter the fundamental policy incentives for efficiency. At this writing, the House and Senate are attempting to reconcile two versions of energy bills, neither of which, strikingly, will cause much fundamental change to the situation.
Cutting the flow of revenues to resource-rich governments and societies can be a good policy goal, but success will require American policymakers to pursue strategies that they will find politically toxic at home. One is to get serious about taxation. The only durable way to rigorously cut the flow of resources is to keep prices high (and thus encourage efficiency as well as changes in behavior that reduce dependence on oil) while channeling the revenues into the U.S. government treasury rather than overseas. In short, that means a tax on imported oil and a complementary tax on all fuels sold in the United States so that a fuel import tax doesn’t simply hand a windfall to domestic producers. And if the United States (and other resource consumers) made a serious effort to contain financial windfalls to natural-resources exporters, it would need—at the same time—to confront a more politically poisonous task: propping up regimes or easing the transition to new systems of governance in places where vacuums are worse than incumbents.
Given all the practical troubles for the midwives of regime change, serious policy in this area would need to deal with many voids.
Finally, serious thinking about climate change must recognize that the “hard” security threats that are supposedly lurking are mostly a ruse. They are good for the threat industry—which needs danger for survival—and they are good for the greens who find it easier to build a coalition for policy when hawks are supportive. Building a policy on this house of cards is no way to muster support for a problem that requires several decades of sustained effort. One of the greatest hurdles in the climate debate—one that is just now being cleared, but will reappear if policy advocates seize on false dangers—has been to contain the entrepreneurial skeptics who have sown public doubt about the integrity of the science on causes and effects of climate change.
The false logic now runs in both directions. Not only will climate change multiply threats by putting stress on societies, but a flood of articles warns of new territorial conflicts as warming opens the formerly ice-bound Arctic for exploration. Russia recently planted a flag on the seabed at the North Pole. In fact, the underlying causes of this exploration rush are ambiguous property rights and advances in undersea drilling that are unrelated to climate change. A similar pattern unfolded in the 1950s in Antarctica, which led to a standoff of territorial claims and no real harm to the region, no production of usable minerals and no resource wars.
The real dangers lie in the growing risk that climate change could be a lot worse than the likely scenarios, which could create severe and direct harm to societies that is much more worrisome than the indirect and remote risk of climate-induced resource wars. Yet politicians give more attention to imagined insecurities from climate change and rarely talk about climate as a game of odds and risk management. They talk even less about the resource war that nobody should want to win—mankind’s domination of nature. For the real losers in unchecked climate change will be natural ecosystems unable, unlike humans, to look ahead and adapt.
David G. Victor is a professor of law at Stanford Law School and the director of the Program on Energy and Sustainable Development. He is also a senior fellow at the Council on Foreign Relations, where he directed a task force on energy security. A frequent writer on natural resources policy, he is the author of The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming (Princeton University Press, 2001) and the co-editor of Natural Gas and Geopolitics.