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Oil, markets and revolution: the end of resource dependence as we know it

Reading time: 4 minutes

Over the course of human history, empires have toppled and kings have risen and fallen at the feet of one of the most disputed and valued resources on our planet: oil. The brief history of petroleum can be traced back to the 19th century, when the heralded discovery of the first oil field set the stage for the new oil economy. Soon, oil became so indivisibly connected to our economies and so inextricably linked to the survival of some regimes, that its value threatened to steal the limelight from gold.

Oil has played a central role in geopolitics for the past 120 years: countries have been formed due to discovery of petroleum within their borders, negotiation tables have been filled with discontent over the determination of national borders to accommodate for the desires of some unsatisfied state, and intervention in the national economy of a weaker state cursed with the gift of oil are only some of the events that have altered the course of history.

Stretching from Iran to Kuwait, to Saudi Arabia, the Middle East has been the heart of petroleum, beating almost 10 million barrels into the veins of the oil market every day. But apart from seemingly endless oil producer, it has also been the driver of recent crises in the foundations of the historically established geopolitical relationships of the world.

Soon after the “big boom” that followed the rapid injection of petroleum in the international market, states became dependent on oil: whole economies, like Mexico, Venezuela and Saudi Arabia, depended on oil exports for their national income. In the dawn of the new century, nations were already too caught up in the whirlwind of petroleum dependence to think of anything else. For some, this was the ticket that helped their national economic indexes mark a significant increase. And so, the 20th century came to be known as the era of oil.

However, markets seldom retain their stability for long periods of time and turbulences are bound to shake up the existing world order.

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Our societies are undergoing very rapid transformations, both internally and externally and natural resources lay at the heart of this chaos. The global energy economy is trying to shake off its dependency on hydrocarbon molecules and rely more heavily on cleaner forms of energy. The leap from fossil fuels to renewable sources of energy has been one of the primary concerns of the international market, now more than ever. Being faced with an unpredictable price war between leading petroleum-exporting countries, countries are called to adapt to the fast-paced economy and carve out a safety-net to uphold their national incomes.

Purveyors of petroleum exporting activities have been particularly worried for the past months: not only do they feel threatened by the continuously increasing demand for renewable and alternative sources of energy, but they are also considering the stability of their future in the market what with the destabilizing oil price war that sparked between Russia and Saudi Arabia, two leading OPEC members.

The Organization of the Petroleum Exporting Countries was faced with an existential crisis, due to the disastrous financial blow associated with the COVID-19 pandemic. The sharp fall in oil demand sparked scepticism among the OPEC allies, each of which progressively started backing away from the already wobbly partnership. Despite the deal between the two major players of the oil business, Saudi Arabia and Russia, the agreed level of oil production and exporting per day may still exceed the levels necessary to ensure the future of the oil market.

Unprecedented changes continuously take place in the international sphere and their impact is placed at the epicentre of political analysis. In the wake of the Coronavirus pandemic, much is undeniably under question. And along this massive movement of change and progress, the face of the oil business is also bound to experience irreversible changes. International movements calling for change and progress, such as globalization, are steadily being aligned with ongoing trends and this linkage is bound to have wide-felt implications.

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Continuous technological changes is the synonym of sudden bomb detonations in the international sphere: never-ending progress in the field of analytics, big data and artificial intelligence gives rise to fast-emerging sectors which engulf previously established markets and economies and threaten the existence of slowly adapting sectors. You may think that the energy sector has long stood its ground, unable to be wavered by any sudden alterations along the path of modern history. Well, this newly conceptualized globalization wave may be the end of natural resources as we knew them.

This dynamic transition from fossil fuels to cleaner sources of energy was mainly motivated by concerns for the climate. Experts sought after alternative energy sources, in their quest to ensure Earth’s future. And this is exactly what triggered the rapid evolution of a lower-carbon economy, as well as the surfacing of major energy Colossuses.

The falling costs of alternative sources of energy and the rapid market-penetration of electric vehicles (EVs) forced many scientists and analysts to raise the alarm of a fast-approaching market transition. What amplified concerns were rises in oil product prices that were independent of movements in crude oil prices, referred to as the OECD disease. Any reader might wonder why these changes are alarming, since the deviation from a less environmentally friendly economy is steadily being achieved.

Well, the trouble lies in the time variable: if this transition towards alternative energy sources occurs faster than the energy market anticipates, then the petroleum-rich regions will be direly affected. Uncertainty in the future of their oil business will impel politicians to take hastily thought-out steps in order to protect their national economy and domestic stability. This will signal an end to the future of international cooperation in the petroleum industry, which will drive OPEC members into conflict with one another. Despite the disastrous effects the end of their cooperation will have upon their individual economies, nationalism and insecurity will indicate the end of a long period of rocky cooperation.

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Increased geopolitical uncertainty at the heart of the Middle East has the potential to spiral out of control and engulf Europe and the US into a tangled ball of massive instability. The geopolitics of oil have been located at the epicentre of international relations and the international financial market. Any violent and rapid change puts their future in a precarious position.

The rise of renewables is evident in their wide production and use. Their cross-sectional introduction across all fields implies the end of the status quo of the energy market and the slow, progressive end of the oil industry. The lack of obstacles in the availability of alternative energy sources implies that this energy transition may be more feasible than expected.

Undoubtedly, people will still find things over which they will go to conflict: money, water, food. But petroleum? Maybe not so much. And perhaps, this transition will signal the end of oil-dominated politics, despite the fact that it will be a slow and perhaps painful one.


Dal cartaceo di maggio 2020

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