Incidents of petroleum fuel being used as political tool by producing countries are not new phenomena in global affairs. Arab oil embargo of 1973 was the most significant event in this regard, where Arab producers perceptibly used energy as a political tool, by cutting down vital fuel supply, against the nations that have supported Israel in the Yom Kippur war
. Subsequently, oil price across the world quadrupled dramatically affecting global economy in general and economies of many import dependent countries in particular. Despite a variety of policy initiatives adopted by the global community to contain any such future oil shock, many import dependent countries continue to face the threat of supply interruption, primarily due to the emerging energy nationalism in many resource rich nations. Unlike such events of energy shortages, which were by and large the outcome of conflicts among countries, some of the recent incidents of energy shocks could be attributed to this rising energy nationalism of producing economies. While this phenomenon is all set to pose serious challenges to the supply security of certain countries, it opens a new corridor of opportunities to some other energy-voracious economies.
One of the recent events which gained significant attention in the global energy arena is the Russia-Ukraine natural gas issue and the subsequent energy supply disruption faced by Europe, which is a major energy consumer bloc traditionally depending on supply from Russia. Though the issue was presumably originated from the price row between the two countries, Moscow’s action can be seen as a follow up of its assertive domestic energy industry policy, where Kremlin has been trying to bring the country’s petroleum sector largely under its control. Today, 30 percent of Russian energy production is directly controlled by the government and it also insists that not less than 50 percent of energy industry must belong to the state. While some observers believe that such government intervention to renationalize the Soviet petroleum sector is necessary since many private petroleum companies are not serving national interest, many see this move as Russia’s efforts to reemerge as a great power in the international arena, using its energy industry. Venezuela is another country which has been extensively using ‘energy power’ to promote its nationalist interests in the global affairs. While Venezuela is increasingly becoming a target region for Asian consumers, the country’s anti-American policy projects a serious energy security threat to Washington. Experts believe, if ever the bilateral relations between US and Venezuela sour, that would have significant impact on American energy industry not only due to Washington’s import dependency but also due to Caracas’ ownership of more than 6 percent of the US petroleum refining industry. Unlike Russia and Venezuela, Iran which has the second largest natural gas reserves in the world, only after Russia, has a different story to say. Threat of implementing ILSA (Iran Libya Sanctions Act) and the ongoing nuclear issue notably reduced its energy market ambitions over the past few years. But, it is quite likely for Iran to pursue its nationalist interests in the global energy market as soon as the country reaches a position to market its energy reserves independently.
What is the main cause of energy nationalism? During the past many years demand for petroleum fuels have significantly increased in the global market, primarily due to the increasing domestic consumption and import of many economies. Despite the vulnerability of energy market to various threats leading to supply disruptions, the global demand has been increasing. Hence the major factors which contribute to rise of energy nationalism in the producing countries are undeniably the increase in worldwide energy demand and the steep hike in petroleum price. Interestingly these factors have offered unprecedented prospects for economic development in energy rich countries, paving way for their search for power and independence in decision making in the international affairs. On the other hand, the Gulf War, War against terrorism and the subsequent events in global politics have contributed to certain level of apprehension among many countries. Many observers have also drawn parallels between America’s worldwide energy search and the US led coalition’s intervention in Persian Gulf politics. Apart from these factors, ideological perceptions, historical animosities, greater economic ambitions and national interests of energy rich countries have also contributed to the rise of energy nationalism.
Whose energy interests are at stake if these countries pursue energy nationalism? To certain extent, energy security challenges emerge from such events would be universal in terms of risks, and its impacts may not have any boundary specification. Despite this fact, certain countries are to benefit while many would loose depending on the nationalist interests of the energy producing countries and their market ambitions. While many major western energy consumers might find energy nationalism of Russia or Latin American nations a potential threat to supply security, many Asian consumers would benefit to a certain extent especially due to their potential to be the long term reliable consumers of imported energy. Russia’s supply diversification, its shifting focus from western market to eastern market would unavoidably benefit the major Asian consumers, which have already made their presence in Russia’s Far Eastern energy market. Besides, energy sector in Latin America, Africa, and Central Asia also offer enormous opportunities for energy voracious countries in the global east. At the same time, energy nationalism would have far reaching implications on global economy irrespective of countries or regions and their vulnerability to supply shocks. In this regard, alternative energy technologies and nuclear power for producing electricity need to be promoted in order to address the potential challenges of supply threat, which emerge from energy nationalism of producing countries.
Published in 'Oil Gas and Energy Law Intelligence', Vol 5, Issue 2, April 2007
Nandakumar J, Visiting Research Fellow, Japan Institute of International Affairs, Tokyo.
. Subsequently, oil price across the world quadrupled dramatically affecting global economy in general and economies of many import dependent countries in particular. Despite a variety of policy initiatives adopted by the global community to contain any such future oil shock, many import dependent countries continue to face the threat of supply interruption, primarily due to the emerging energy nationalism in many resource rich nations. Unlike such events of energy shortages, which were by and large the outcome of conflicts among countries, some of the recent incidents of energy shocks could be attributed to this rising energy nationalism of producing economies. While this phenomenon is all set to pose serious challenges to the supply security of certain countries, it opens a new corridor of opportunities to some other energy-voracious economies.
One of the recent events which gained significant attention in the global energy arena is the Russia-Ukraine natural gas issue and the subsequent energy supply disruption faced by Europe, which is a major energy consumer bloc traditionally depending on supply from Russia. Though the issue was presumably originated from the price row between the two countries, Moscow’s action can be seen as a follow up of its assertive domestic energy industry policy, where Kremlin has been trying to bring the country’s petroleum sector largely under its control. Today, 30 percent of Russian energy production is directly controlled by the government and it also insists that not less than 50 percent of energy industry must belong to the state. While some observers believe that such government intervention to renationalize the Soviet petroleum sector is necessary since many private petroleum companies are not serving national interest, many see this move as Russia’s efforts to reemerge as a great power in the international arena, using its energy industry. Venezuela is another country which has been extensively using ‘energy power’ to promote its nationalist interests in the global affairs. While Venezuela is increasingly becoming a target region for Asian consumers, the country’s anti-American policy projects a serious energy security threat to Washington. Experts believe, if ever the bilateral relations between US and Venezuela sour, that would have significant impact on American energy industry not only due to Washington’s import dependency but also due to Caracas’ ownership of more than 6 percent of the US petroleum refining industry. Unlike Russia and Venezuela, Iran which has the second largest natural gas reserves in the world, only after Russia, has a different story to say. Threat of implementing ILSA (Iran Libya Sanctions Act) and the ongoing nuclear issue notably reduced its energy market ambitions over the past few years. But, it is quite likely for Iran to pursue its nationalist interests in the global energy market as soon as the country reaches a position to market its energy reserves independently.
What is the main cause of energy nationalism? During the past many years demand for petroleum fuels have significantly increased in the global market, primarily due to the increasing domestic consumption and import of many economies. Despite the vulnerability of energy market to various threats leading to supply disruptions, the global demand has been increasing. Hence the major factors which contribute to rise of energy nationalism in the producing countries are undeniably the increase in worldwide energy demand and the steep hike in petroleum price. Interestingly these factors have offered unprecedented prospects for economic development in energy rich countries, paving way for their search for power and independence in decision making in the international affairs. On the other hand, the Gulf War, War against terrorism and the subsequent events in global politics have contributed to certain level of apprehension among many countries. Many observers have also drawn parallels between America’s worldwide energy search and the US led coalition’s intervention in Persian Gulf politics. Apart from these factors, ideological perceptions, historical animosities, greater economic ambitions and national interests of energy rich countries have also contributed to the rise of energy nationalism.
Whose energy interests are at stake if these countries pursue energy nationalism? To certain extent, energy security challenges emerge from such events would be universal in terms of risks, and its impacts may not have any boundary specification. Despite this fact, certain countries are to benefit while many would loose depending on the nationalist interests of the energy producing countries and their market ambitions. While many major western energy consumers might find energy nationalism of Russia or Latin American nations a potential threat to supply security, many Asian consumers would benefit to a certain extent especially due to their potential to be the long term reliable consumers of imported energy. Russia’s supply diversification, its shifting focus from western market to eastern market would unavoidably benefit the major Asian consumers, which have already made their presence in Russia’s Far Eastern energy market. Besides, energy sector in Latin America, Africa, and Central Asia also offer enormous opportunities for energy voracious countries in the global east. At the same time, energy nationalism would have far reaching implications on global economy irrespective of countries or regions and their vulnerability to supply shocks. In this regard, alternative energy technologies and nuclear power for producing electricity need to be promoted in order to address the potential challenges of supply threat, which emerge from energy nationalism of producing countries.
Published in 'Oil Gas and Energy Law Intelligence', Vol 5, Issue 2, April 2007
Nandakumar J, Visiting Research Fellow, Japan Institute of International Affairs, Tokyo.
