In July, I spoke at a London conference with the gloomy title "Darkest Before the Dawn." That darkness hung over the meeting, as economists and strategists, both behind the podium and in the audience, detailed the growing international anxiety over America's financial crisis and its potential impact on global markets. Nevertheless, most of them seemed convinced that better days are coming.
As a political scientist, I fear the dawn may be farther behind the horizon than some expect, as four emerging trends pose broader and deeper challenges to the international order than we've seen in several decades.
The first of these drivers of long-term change involves energy. In 1990, the world consumed about 66 million barrels of crude oil per day. By 2007, that number had climbed to 86 million. The U.S. Energy Information Administration projects that by 2030, daily demand will soar to 118 million barrels. As energy consumption soars in developing countries like China and India, supply is struggling to keep pace.
The problem is not that the world is running out of oil. It's that future supplies will come increasingly from politically less stable parts of the world—the broader Middle East, the Caspian Sea basin, and West Africa. These regions are especially vulnerable to political turmoil, terrorist and insurgent attacks, war, government collapse, and other serious threats.
And, of course, the sixfold increase in oil prices since 2002 has empowered the governments of some oil- and gas-exporting states to use their newfound market leverage as a political weapon. Political leaders in Russia, Iran, Venezuela, and others already use their hydrocarbon wealth to pick political fights. High prices allow even marginal energy exporters like Sudan and Burma to resist international pressure for political reform.
Finally, as energy becomes an ever more precious commodity, the governments of developing states are micromanaging their energy policies by investing in national energy champions, state-owned companies that give government officials near-complete control of the country's most valuable natural resources.
The largest energy companies in the world today are state-owned firms like Saudi Aramco, Gazprom (Russia), CNPC (China), NIOC (Iran), PDVSA (Venezuela), Petrobras (Brazil), and Petronas (Malaysia). The leading multinationals—Exxon Mobil, Chevron, BP, and Royal Dutch Shell—produce about 10 percent of the world's oil and gas and hold just 3 percent of its reserves.
Collectively, national oil companies now own more than three-quarters of all crude oil reserves. The men who run them answer to political bureaucrats, not shareholders. That's a big problem for supply growth, because some of these state officials divert profits toward political projects (or line their own pockets) instead of reinvesting them in efforts to find new reserves and to build the pipelines needed to bring them to market.
The effects of all these risks can increase the prices that consumers pay for energy, weighing on growth in America, Europe, and Japan. They can embolden governments like Iran's to pursue high-risk political strategies—like aggressive development of a nuclear program—secure in the knowledge that energy exports will generate plenty of cash and help the country resist international pressure for change. Few governments around the world want a nuclear Iran. But the country's energy customers won't support sanctions that might cost them access to badly needed oil and gas supplies.
The second shift in the international balance of power is a related one. The growth of state capitalism, particularly in China and the Middle East, gives authoritarian governments with opaque political systems and large amounts of cash unprecedented levels of political and economic influence.