The decline of oil’s empire

Tamsin Carlisle

• Last Updated: May 31. 2008 11:51PM UAE / May 31. 2008 7:51PM GMT

Running dry: The Western world can no longer take for granted the abundant supply of affordable energy that has sustained its economy. Courtesy Aramco

If the soaring crude price has shown anything, it is that a paradigm shift is under way in the global oil industry: the Western world can no longer take for granted the abundant supply of affordable energy that has sustained its economy and living standards in the past.

So much is obvious from the dramatic run-up in prices that has shaken markets and energy consumers to their cores. Yet reasons for such rapidly shifting perceptions about the state of world energy supplies are far from evident, even to oil industry insiders.

In Empires of Oil, Duncan Clarke, the veteran global energy consultant, seeks to provide a coherent model for understanding the multiple forces that are shaping and changing the world of oil exploration and production – and putting the squeeze on Western oil interests. Drawing lessons from history, he likens the global oil industry to the 15th century Florence of Niccolo Machiavelli; the Western dominated “old order” of oil he compares to the Roman Empire as it passed its zenith and fell into decline.

Through the prism of his Machiavellian analogy, Clarke sees the world of modern oil as fundamentally similar to “the labyrinthine world of the Medici court in Florence”, from its interwoven power games and business interests, its secrecy and statecraft, to its periodic feuds with rival statelets. On this foundation he imposes the overarching idea of competing oil empires, that is, major spheres of political and commercial interest related to oil that are uncomfortably pushing against each other as they seek to maintain or establish hegemony. According to Clarke, the Roman Empire was eroded by internal rivalry and barbarian forces at its gates and in much the same way the US and corporate dominated Western “empire of oil” is under threat.

This analogy applies to geographically numerous upstart rival oil empires, including a resurgent Russia seeking nationalist control over its vast energy resources, an economically emboldened China intent on using its state oil companies to lock up global energy assets, oil-rich Islamic powers increasingly opposed to the spread of Western cultural and political ideology, and neosocialist Latin oil states. The more amorphous “barbarian” forces – Clarke insists the word is not meant pejoratively – include a plethora of environmentalist, humanitarian, religious, political and antiglobalisation groups. In one way or another, they oppose what they perceive as corporate oil’s agenda, most working from within the Western societies in which oil companies and their shareholders are mainly domiciled.

What follows is a masterful far-reaching analysis of the scope and nature of the emerging threats to Western and corporate oil interests, leading to the inevitable conclusion that the old order of oil is in retreat: as US influence wanes, once dominant Western oil companies increasingly are finding their access to foreign oil reserves restricted or denied, while they grapple with ever more onerous regulatory environments.

We all know how the Roman Empire ended: in an irreversible collapse, with the destruction of its ancillary technologies and institutions. Religious fundamentalism rose to fill the intellectual vacuum, leaving a fragmented and fractious Europe mired in economic stagnation for centuries.

Could something similar happen in the modern world? If Clarke’s “empires” analogy is accurate, then there must be a risk of less oil available to the world at higher cost. After all, there is no doubt that corporate oil is unparalleled in its skill at finding and producing crude reserves at competitive cost. One only has to take a cursory look at the numbers: according to the International Energy Agency, international oil companies hold just 28 per cent of the world’s oil reserves but are responsible for 50 per cent of production, while national oil companies produce the same from 72 per cent of global reserves.

In a world where state-owned oil interests are elbowing out corporate oil, this cannot bode well for global oil supplies.

Surprisingly, Clarke stops short of jumping to this conclusion, although he warns that corporate oil will have to overhaul its strategies to survive.

There are perhaps good reasons for such caution, one being that his empires analogy seems strained in places.

One problem is that Clarke attempts to apply it in at least two disparate ways, drawing parallels between the declining Roman Empire and fading US hegemony on the one hand, and with corporate oil and even individual oil companies on the other. While the first comparison has been made before and to some extent holds up to analysis, the second does not. Neither individual oil companies nor the über-entity of corporate oil clearly possess the attributes of extreme size, military power and far-reaching cultural influence normally ascribed to empires. At most, oil companies resemble independent fiefdoms, tolerated in the larger sociopolitical milieux within which they exist only as long as they can forge symbiotic relationships. Moreover, oil companies are intensely competitive and seldom form stable alliances, so that corporate oil lacks the unity of purpose that gives an empire its monolithic quality.

Perhaps sensing the model’s limitations, Clarke switches to a different analogy in a fascinating section in which he analyses the cultures and strategies of the five biggest international oil companies, comparing them to the five most sought after big game species roaming the African savannah. Like the elephant, rhino, lion, leopard and buffalo, each company has distinct strengths, weaknesses and strategies. And like these creatures, each company faces potent threats to its survival.

So what does the future hold for Big Oil? Clarke does not tell us and his model makes no clear predictions. What he does provide is an incisive analysis of the oil industry’s past and present, and the predicaments it now faces.

tcarlisle@thenational.ae