Monday, December 8, 2008

Global Trends 2025: Winners/Losers in Post-Petroleum World

We believe the most likely occurrence by 2025 is a technological breakthrough that will provide an alternative to oil and natural gas, but implementation will lag because of the necessary infrastructure costs and need for longer replacement time. However, whether the breakthrough occurs within the 2025 time frame or later, the geopolitical implications of a shift away from oil and natural gas will be immense.

  • Saudi Arabia will absorb the biggest shock, as its leaders will be forced to tighten up on the costs of the royal establishment. The regime could face new tensions with the Wahabi establishment as Riyadh seeks to promote a series of major economic reforms—including women’s full participation in the economy—and a new social contract with its public as it tries to institute a work ethic to accelerate development plans and diversify the economy.
  • In Iran, the drop in oil and gas prices will undermine any populist economic policies. Pressure for economic reform will increase, potentially putting pressure on the clerical governing elite to loosen its grip. Incentives to open up to the West in a bid for greater foreign investment, establishing or strengthening ties with Western partners—including with the US—will increase. Iranian leaders might be more willing to trade their nuclear policies for aid and trade.
For Iraq, emphasis on investing in non-oil sectors of its economy will increase. The smaller Gulf states, which have been making massive investments designed to transform themselves into global tourist and transport hubs, are likely to manage the transition well, bolstered by their robust sovereign wealth funds (SWFs). Across the Arab world, SWFs are being deployed to develop non-oil sectors of the economy in a race against oil as a diminishing asset.

Outside the Middle East, Russia will potentially be the biggest loser, particularly if its economy remains heavily tied to energy exports, and could be reduced to middle power status. Venezuela, Bolivia, and other petro-populist regimes could unravel completely, if that has not occurred beforehand because of already growing discontent and decreasing production. Absent support from Venezuela, Cuba might be forced to begin China-like market reforms.

Early oil decline states—those exporters which had peaked or were declining as is currently the case with Indonesia and Mexico—may be better prepared to shift the focus of their economic activities and diversify into non-energy sectors.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Global Patriot said...

While I admit to not owning a crystal ball, I must challenge the assumptions presented.

If you research the reality of oil supply vs. consumption vs. time it takes to implement alternatives you will realize that oil prices will not collapse.

Quite the opposite will occur, as demand outstrips the ability to supply. We will see $200 to $300 oil long before 2025.

Chief said...

Haven't oil prices already collapsed? Demand will not necessarily have to outstrip supply, especially if there is a prolonged global economic slowdown. I would agree that oil prices will trend upwards (probably in wild jumps and falls) for the long term until suitable alternatives are discovered and implemented. About six months ago I would have agreed that we were on our way to $200-300 oil in a few I have no idea. Note that I believe low oil prices do not necessarily mean good times, in fact, most likely just the opposite. In order for it to reach those heights, someone has to be able to afford it at that price.