China's alternative to an American addiction

Last week saw the launch of BP’s Statistical Review of World Energy, a rich seam of energy industry stats that journalists, analysts and academics will spend many hours mining for nuggets of data that support their chosen narratives. The Financial Times led with “China becomes leading user of energy” – hardly a revelation to even the most casual industry observer, though undoubtedly a pleasing melody to those in the US who point to the rise of the Middle Kingdom as a reason to forestall domestic action on climate change.

Noteworthy in BP’s latest tome is that crude oil remains the number one source of energy, contributing just over one-third of the global total. In terms of growth, China again leads the way, increasing its consumption by 860 000 barrels a day, or 10.4% over the previous year. Of course, in per capita terms, China’s oil consumption pales in comparison to the world’s largest economy: at 2.5 barrels per person a year, the average Chinese citizen consumes nine times less oil than its American counterpart. Nevertheless, China’s growing thirst for oil represents a direct threat to US economic supremacy. America may have been the first – and remains by far the largest – oil addict in the global village, but as others increase their appetite for the drug – the supply of which is increasingly concentrating in the hands of a relatively few volatile countries – the US must eventually face the prospect of weaning itself. The only plausible alternative is to brace for military conflict.

An urban legend goes that early in 2003 while Bush, Cheney and Rumsfeld fumbled around the Oval Office for a catchy moniker with which to rally the nation ahead of their planned invasion, they came up with “Operation Iraqi Liberation” – an obvious riff on the Iraq Liberation Act signed into law by Clinton in 1998. Just in time, one sharp-eyed White House aide piped up that the initials spelled “OIL”, which was possibly too brazen even for the Bush administration. With that, “Liberation” was dropped in favour of “Freedom”. Mission accomplished.

As a thought experiment, let us suspend our voices of cynicism for a moment and imagine – as the urban legend would have us do – that the US-led invasion of Iraq was chiefly concerned with securing oil, specifically the world’s third largest reserves after those sitting beneath the deserts of Saudi Arabia (uncomfortable allies) and Iran (sworn enemies). Indeed, the number one oil-consuming nation on Earth – reliant on imports for roughly two-thirds of its annual demand – has a strong vested interest in the affairs of the Middle East petrostates. The Carter Doctrine leaves little room for doubt: the Persian Gulf region is vital to the interests of the US and will be protected “by any means necessary, including military force”. Put simply, without cheap transport fuels moving people and goods across the urban sprawl and vast interstate network – themselves products of the nation’s now dwindling domestic petroleum bounty – the American economy grinds to a halt.

Perhaps Jimmy Carter’s 1980 State of the Union speech was nothing more than Cold War posturing, designed to make the Soviets think twice before extending their Afghanistan incursion further westwards to the oil fields of the Gulf. Taking Carter’s words out of their historical context is unfair; America wouldn’t really go to war over another nation’s natural resources, would it? Dick Cheney provides a clue when, during his stint as chief executive of Halliburton – shortly before assuming the vice-presidency under Bush Jnr – he addressed an Institute of Petroleum conference in London: “Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy. The [first] Gulf War was a reflection of that reality.”

As the occupation of Iraq winds down (US troops are supposed to withdraw by the end of this year) we might well ask ourselves: was it worth it? In 2008, economist Joseph Stiglitz put the true cost of the Iraq war to the US at about $3 trillion; more recently he concluded this figure was probably too low. For the sake of the exercise, we will avoid hyperbole and assume the original estimate of $3 trillion puts us in the right ball park. Is that a lot? To provide a sense of scale, consider that since the invasion kicked off in March 2003, the US has burned through roughly 60 billion barrels of oil at a cumulative cost of about $3.5 trillion. That’s an extraordinary amount of money literally going up in smoke – it’s remarkably close to Stiglitz’s estimated cost of the war – but we are no closer to assessing whether the US will get a decent payback.

Donald Trump’s recent suggestion to simply take the oil as compensation for the cost of the invasion makes sense from a narrowly-defined financial perspective. According to BP’s latest data, Iraq’s oil reserves measure 115 billion barrels, which would keep the US ticking over for 16 years at current rates of consumption. Translated into dollars at today’s oil price, Iraqi reserves are worth some $12 trillion, not including the cost of development. Now it starts to look more interesting: that represents a four-fold return on the investment! Except of course that Trump’s proposition – a bit like a burglar justifying the theft of your home cinema system as recompense for the outlay on his crowbar, eye-mask, striped T-shirt, and hessian sack bearing the word “Swag” – is morally reprehensible to any right-minded human being.

Setting aside grand larceny, perhaps another way to think about it is this: how else could the US have spent $3 trillion to address its eye-watering dependence on oil, simultaneously the cause and the result of decades of foreign policy negligence? It is remarkable to ponder that for every man, woman and child in the US a whopping $10 000 could have been invested in measures to avoid oil consumption, such as developing the type of safe, clean, efficient and effective mass transit solutions that many European and Asian citizens enjoy, or investing – as China has – to establish a world-leading electric vehicle industry that by its nature is independent of oil, and by its far-sightedness will probably eat America’s lunch in the coming decades.

Instead, during the 8 years of the war, US citizens set fire to some 1.15 trillion gallons of motor gasoline, much of it in obese “sports utility vehicles” with fuel economy ratings that should be a source of national embarrassment and would have finished Detroit were it not for the federal bailouts of 2008. It was only fair: Washington was complicit in the predicament that Motown found itself in after years of profiting from feeble business-as-usual energy policy, while Beijing was busy plotting a domestic automotive industry based on electricity. The astounding fact is that while it remains political suicide for a US administration to consider a meaningful tax on gasoline – thereby encouraging more frugal driving habits – it is politically acceptable to place at risk the lives of young American soldiers in the Middle East in order to secure flows of the very oil that it is impossible to tax back home.

Impossible to tax transparently, that is. The $3 trillion cost to the American taxpayer of projecting military force in Iraq translates to a phantom tax of $2.69 on every gallon of gasoline consumed in the US since 2003 – effectively doubling the average pump price to more than $5 a gallon over the period of the war. To put it another way, if instead of agreeing to invade a sovereign state Congress had slapped a 100% tax on gasoline back in 2003, its citizens would be no worse off financially and the federal coffers would have been boosted rather than drained to the tune of $3 trillion. With most Europeans already paying north of $8 a gallon of petrol and diesel, it is both difficult to sympathise with the American motorist and easy to appreciate why Europe’s automotive fleet is twice as efficient as that on the other side of the North Atlantic.

Of course, all of this is simply a thought experiment based on the notion that Operation Iraqi Freedom was all about the oil. To swallow that, you would have to believe the words of every US president since Lyndon Johnson, one by one gravely warning of the national security implications of dependence on foreign oil, while successively failing to offer any plausible means of addressing it beyond securing more resources at home and abroad.

For the majority of global citizens living in the developing world, a straightforward question demands a straightforward answer: should we seek to emulate the oil-drenched model of economic development pursued by America and its allies for the last century and a half, thereby embracing a doctrine of expensive military interference in faraway desert lands? Or might China – for all its shortcomings and pressing development challenges – offer a less dystopian vision of the future? Returning to the BP Statistical Review we discover that not only has China surpassed the US in total energy consumption, it is also now the world’s leading generator of carbon-free electricity from wind turbines. With its planned 45 000km of high speed rail by 2015, burgeoning renewable energy sector and more than 120 million electric bicycles plying Chinese roads today, it is for good reasons that we are increasingly refocusing our attention from west to east.