Gaza And Ukraine, Two More Wars Of A World Still Addicted To Oil

-Analysis-

MEXICO CITY — Crude oil is and will remain fundamental to the countries that produce it, where the sector often comes to occupy an outsized role in policymaking, squeezing out the societal needs that must be the priority of public policy.

Oil becomes, in other words, the energy and economic idol of states, pushing governments to take dogmatic and ideological decisions that in time turn their nation into a permanent rentier state — living off its natural assets and bereft of any semblance of a diversified, productive economy.

This is the situation of countries that earn the greater part of their revenues from exporting natural resources, but more typically reflects socio-political conditions in several super-wealthy states sitting on enormous hydrocarbon resources.

We might even say today that the Israeli-Hamas war is not political, religious or territorial, but is ultimately about the economics of energy. It is not unrelated to the vast revenues of the Arab oil producers and their undoubted impact on all socio-political dynamics in the Middle East.

The world has 55 chief oil and gas producing countries including 15 in Africa, 13 in the Middle East and North Africa, and 11 in the Americas. In wider terms, 148 countries have significant ties with oil production, either by earning something from crude sales or exporting fuel and derivatives or through involvement with a part of the extraction-to-sales chain.

One recent study has ranked oil-producing and trading countries in terms of oil dependency, qualifying a low level of dependence as oil revenues constituting between 4 and 19.99% of a country’s GDP, with fuel exports (refined products, derivatives) constituting up to 49.99% of all exports (as with Mexico, Vietnam or Egypt). After the medium and high dependency levels, it categorizes extreme dependency as oil revenues constituting no less than 20% of the country’s GDP and fuel exports, no less than 50% of all exports (Angola, Saudi Arabia, the Emirates, Iraq, Kuwait and Oman, among others).

Currently state-sector firms produce 55% of the world’s oil and gas, and most of those are poorly managed. This means that, without proper planning, public resources are wasted, corruption flourishes and production of oil ultimately does harm to the communities where the firms are based.

Hydrocarbon dependence

The study observed democratic deficiency in Middle East countries that spent oil revenues opaquely, focused more on the state than on society. This in plain terms means money spent on arms and state security, which in turn encourages the state’s existing reluctance to make any democratic or accountability advances for the benefit of the rest of society.

The finite nature of oil resources is already prompting shifts in states like UAE and Saudi Arabia.

Yet even here, the finite nature of oil resources is already prompting shifts in states like the United Arab Emirates and Saudi Arabia, which have acted to diversify their economies (promoting tourism and real estate investment for example), and alter foreign policy stances (forging ties with Israel) in a bid to create longer-term stability by peaceful means.

The world remains dependent on hydrocarbons then, both through demand and the sheer number of countries producing, transforming, refining and selling crude oil and related products to help keep their economies afloat. The annual Resource Governance Index, produced by the Natural Resource Governance Institute (NRGI), is a useful tool here, as it gauges the quality of resource management. The Institute is a non-governmental agency “committed to increasing transparency and accountability in the extractive sector” including mining, oil and gas, and evaluates global, regional and national policy-making in the energy sector.

The need for fossil fuels

Fossil fuels keep the world functioning to the tune of 250 million barrels a day. As they are likely to be dominant for some decades more, the NRGI has made recommendations on making good use of their revenues, which are of particular relevance to Mexico, where I work.

These include implementation of industry laws and policies designed to curb corruption and limit the impact of extraction on localities, boost oversight of high-risk areas for corruption like licensing or purchasing procedures, boost transparency and accountability concerning the sector’s climate impact and decisions taken on mining — as well as mining for the green transition. States should also encourage public debates and civil society contributions toward inclusive, fair and democratic energy transition processes.

We idolize oil, putting it at the heart of the economy and allowing it to cause wars that are attributed to politics, religion or culture. Let’s begin by stating this truth out loud.

The Gaza war and the invasion of Ukraine, reflect the hidden agendas of outside powers, with massive effects on civilian populations. And while the mindless addiction to oil continues, all of us around the world are accomplices.

*Pech is an engineer and energy-sector consultant in Mexico.