The Oil Curse

The oil curse is a phrase probably invented by Westerners when they talk disparagingly about the oil-exporting countries of OPEC, which have kept oil prices high since 1973. Little do they know that they too, and in fact the whole world are under the same spell. The oil curse does not affect people the same way across the globe. It is seen differently depending on how your life is impacted. Let me try to give you a fuller picture.

The burning of combustible materials for heat, lighting, cooking, pottery, metallurgy, and later propulsion is a natural progressive development in human civilization. It all depends on the time when a certain discovery or technology arrives. Beginning with the easiest to fetch, the four ancient sources of energy are dead plants, wood, wax or oil for lighting, and later coal. Petroleum and natural gas did not come into the picture until the latter half of the 19th century.

The invention of the steam engine around 1780 marked the Industrial Revolution when mechanical power took over the muscle power of horses and humans. The steam engine relies on the external burning of coal to turn water into steam that is fed into the engine to push the pistons. It is a heavy and bulky machine, thus mainly suitable for trains, ships and factories.

During the 1850’s, the oil-burning internal combustion engine was invented, leading to the gradual demise of the steam engine. Because oil is lighter and more portable as a fuel, the internal combustion engine is suited for all kinds of transport. Besides ships and trains, the oil-burning autos and airplanes have risen to be an essential part of modern life. The oil industry and a delivery infrastructure have also developed for the supply of fuel. Since the modern economy requires a lot of energy and mobility to function, oil and the internal combustion engine have become the indispensable twin pillars to support our present way of life.

Note that the electric motor was also invented about the same time as the internal combustion engine, if not earlier. Why did it fail to capture even a small part of the transport sector? The reason is the poor portability of electricity despite being weightless. There was no battery to store enough electricity for the motor to run over a long distance. Battery technology was only in its infancy at that time. Furthermore, no technology was available to generate electricity effectively, such as solar, which depends on the modern technology of electronics that we have today but not then.

Therefore, since the Industrial Revolution, the world has been heading toward an age of heavy dependence on fossil fuels, especially oil. This dependency is so strong that it continues even when oil prices keep on rising, which makes it seem like an addiction. Worse, the dependency aggravates life further due to the following factors:
*Increasing world population.
*Rapid industrialization of populous countries like China and India, pushing up oil demands.
*Uneven geographical deposits of oil reserve.
*Uneven economic developments between oil exporting and consuming countries.
*Adverse effects of emissions from burning fossil fuels on people’s health, the environment, and believe it or not, the health of the planet and human civilization.

Increasing dependence on anything can easily turn into a curse if no effort is made to reverse the trend. Let’s see how the curse operates across different regions of the world:

For the oil exporting countries, the oil revenue is by far the biggest national asset to be controlled by the government or whoever is in power, such as the Saudi royal family, the Iranian theocracy, and Saddam Hussein and Hugo Chavez (before their death). When so much money is at stake, the economies of those countries turn into a distributive system obsessed with how to distribute the oil wealth rather than how to create talents and new wealth. Consequently, the manufacturing and other economic sectors are underdeveloped to the extent that most industrial and consumer products must be imported from abroad. Without significant manufacturing, the unemployment level is high especially among the young. In addition, sectarian conflicts flourish as a result of lopsided distribution of the oil wealth. For these countries, the oil curse is overdependence on oil production and unequal distribution of oil revenues.

The second group of countries are those whose oil curse is overdependence on oil consumption. The United States stands out as the biggest consumer among all industrialized countries. Before OPEC raised oil prices for the first time in 1973, the industrialized countries had been spoiled by cheap oil that fueled their economic growth. Now that they are being held hostage to high prices for so long, they still fail to kick the oil habit. Their manufacturing and transport industries are so dependent on oil that it will take decades to switch to alternative energy, which requires tons of money to develop. Moreover, the headwind is strong due to the roadblocks set up by the powerful fossil fuel industries, which love high oil prices to keep the profits flowing. In view of the great appetite for oil, the temptation exists for a big consumer to swallow an oil producer. The US-British invasion of Iraq in 2003 under the false pretense of weapons of mass destruction shows the desperate situation of the oil curse. The occupation has proven so costly that led to the eventually withdrawal of all foreign troops in 2013.

The third group of countries are those going through rapid economic development whose oil curse is not enough oil to sustain the present high rates of growth. China, India, and Brazil fit into this category because of their fast rising demands. You can easily see the aggressiveness of China in securing oil supplies from all over the world, especially in Russia, Iran, Saudi Arabia, Mexico, and Canada. On another front, China is pursuing alternative energy at a feverish pace. It now leads the world in wind and solar energy production. The electrification of its railroad is astounding as shown by the vast network of bullet trains, which rival those of Japan and Europe. As for Brazil, it is the second largest producer of the biofuel called ethanol derived from its sugarcane plantations. The government has successfully turned all motor vehicles into flex-fuel ones by mandating the blending of ethanol with gasoline. This group of countries can deal with the oil curse with little handicap. The reason is that they don’t have an established powerful oil industry standing in the way.

The fourth group of countries is the most unfortunate whose oil curse is but one out of many. This group comprises all the poor developing countries of Africa, South America and Asia, which together account for over half of the world’s population. Since oil prices are fixed by OPEC high enough to extract huge payments from the rich countries, the poor countries find themselves stuck with the high world prices. High oil prices lead to costly fertilizers, too, that these countries desperately need to grow more food. Overall, high oil prices create a vicious circle of underdevelopment, which is very difficult to break when energy costs are rising fast.

The fifth group comprises all the consumers around the world regardless where they live, who are conscious about health and the environment. To them, the oil curse involves: rising oil prices that cut into their pocket books; the polluted air they breathe from car and factory exhausts; and the damaged environment caused by the oil and associated industries. The biggest curse of all will come as a consequence of climate change that will reduce the world’s food supply above all else. Besides suffering from the above, this group is increasingly frustrated by the slow progress in the development of alternative energy. They are the great majority of people being hurt the most but have little recourse due to having a weak political voice.

What can be done? We are witnessing a progressive but very unbalanced development of human civilization that carries both good and bad consequences. Nevertheless, the oil curse is real and its effects are worldwide. Is it the fate of human society that we should accept? Absolutely not! Although oil dependence is a natural tendency influenced by discoveries and technologies, the oil curse can be overcome if we have the will. In this modern age, we already have various new technologies to break the spell, if only we have the will to invest and apply them. I’ll discuss what can be done to overcome the oil curse in a separate essay.

May 2013

This entry was posted in 21st Century, Economics/Politics, Environment, Game Changer, Inspiration. Bookmark the permalink.

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