High oil prices to fund expansion, buy stability

November 11. Central Asia Newswire

by Martin Sieff

High oil prices to fund expansion, buy stabilityThe following is the first of a three-part series examining the effects of projected strong oil prices on Central Asia.

It’s official: Oil prices will hit a plateau of more than $100 per barrel by 2015 and base prices will double to between $160-$180 per barrel by 2035.

That was the forecast published Wednesday by the Paris-based International Energy Agency (IEA). And as a British Broadcasting Corporation (BBC) commentator quickly pointed out, what the IEA was really doing was saying as clearly as possible that the days of cheap energy are over.

The implications of this assessment are enormous, and are particularly momentous for Kazakhstan, Turkmenistan and Uzbekistan – the three major energy-exporting powers of Central Asia.

This IEA policy assessment effectively confirms the wisdom, and predicts the success, of Kazakhstan’s most important national economic policies:

– Kazakhstan’s gamble to rapidly expand its oil production capabilities.

– Its decision to join Russia in a new customs union that was widely criticized in the West.

– Its huge investment in high-tech, industrial and agricultural development and expansion over the next 20 years in its 2030 plan.

All of these programs risk floundering spectacularly if some major global economic recession or other dislocation causes the price of oil to come plunging down rapidly for long periods of time. That would even be even more the case if future U.S. administrations could actually translate the repeated rhetoric of American energy independence into reality.

But the IEA clearly came to the conclusion that this isn’t going to happen.

A guaranteed high platform for global oil prices is also more than good news for neighboring Uzbekistan and Turkmenistan: It is virtually a guarantee of social and political survival to them.

Both nations have populations with much lower standards of living than Kazakhstan’s. And it is a particular challenge to raise the standard of living in Uzbekistan, which President Islam Karimov this year affirmed as a major national priority.

That is because Uzbekistan has the largest population in Central Asia – almost double that of Kazakhstan’s – crowded into a far smaller area. Also, the continued strong state regulations and control of major economic institutions remains a major barrier to the kind of rapid economic expansion Kazakhstan has enjoyed next door.

Uzbekistan and Turkmenistan also have good reason to feel threatened by the growing instability and threats of civil war – and even worse, chaotic anarchy – threatening to develop in neighboring Kyrgyzstan and Tajikistan.

However, continued high and rising global oil and energy prices will give the governments in Ashgabat and Tashkent the crucial checkbook power they need to buy and distribute enough food to their people, keep wages stable and subsidies high.

Modern history throughout the Middle East, southern and Southeast Asia and other parts of the world repeatedly documents that as long as governments can retain that financial power, with enough confidence and competence to use it, they can keep their populations happy, or at least relatively content.

The IEA projection appears soundly based and looks likely to hold, whatever the fluctuations and crises yet to come in international financial markets.

That is because, as the report pointed out, China and India are both rapidly growing in population, industrial capacity and hunger for oil. And they both have the financial and trading resources to buy what they need.

World population is now already over 6.8 billion and climbing rapidly towards 7 billion. On current projections, by 2035, when the IEA-projected global oil prices reach $160-plus per barrel, there will be 9 billion people in the world. A century earlier, in 1930, there were only 2 billion.

How are those people going to be fed? Norman Borlaug’s famous “miracle” strains of wheat and rice that banished the specter of famine for generations from Asia must gulp down enormous quantities of fertilizer to survive and flourish. And chemical fertilizer requires enormous inputs of hydrocarbons.

Therefore, even if all land and air transportation were to be magically freed from their dependence on oil in the next 25 years – and they won’t be – the human race will still need more of it than ever just to feed itself.