Updated: 01-Feb-2002 NATO Review

Web edition
Vol. 39- No. 1
February 1991
p. 21 - 23

Security and energy in the post-crisis period

Jean-Claude Renaud,
The Secretary General's Special Adviser for
Economic Policy Affairs

When discussing the Iraqi situation, politicians sometimes refer to what they are already calling the post-crisis', this does not, of course, imply that they regard the crisis as resolved, but signifies their intention to create future conditions which will preclude the recurrence of any similar ordeal. Topics relating to this post-crisis include Iraq's future role in the region, the fate of the Palestinians, the Lebanon problem, relations between the West and the Arabs and so forth.

Among the problems to be dealt with in the post-crisis period, few people have mentioned energy or, more specifically, oil supplies. It is true that the word "oil" has been heard, but most observers are apparently content to note that the interruption of Iraqi and Kuwaiti deliveries (which had amounted to four million barrels a day) has been rapidly offset by increases in the production and deliveries from other suppliers, with, of course, Saudi Arabia in the front rank. To date, (1) the price per barrel has dropped back to around US$20. Once again, the forecasts made by the experts during the summer are wide of the mark, and it is fair to point out here that, while economic experts are often wrong, it is certainly the oil pundits who carry off the first prize for incorrect predictions, especially where prices are concerned.

It seems obvious that the problem of the security of energy supplies should be included in the list of questions to be considered within the post-crisis context. Such an investigation would concern oil, as the top priority, but should extend, if it is to be complete, to every aspect of fuel supplies, that is, it should cover all sources of energy and their complementarity: oil, gas, coal and nuclear energy, without neglecting, of course, alternative forms of energy and the rational use of the whole spectrum of these resources, which are too often wasted, especially in Central and Eastern Europe and the USSR.

The lesson of earlier crises

We are now experiencing the third oil crisis in 20 years. The first of these, in 1973, resulted in a quadrupling of the price of oil (US$4 a barrel at the start of the 1970s) which, while placing the product on a level with other raw materials, took the West totally by surprise and gave rise to serious economic consequences which it is unnecessary to recall.

The second crisis, in 1979, revealed the strength of OPEC which, at that time, accounted for some 80 per cent of supplies to the OECD countries. Luckily, it also demonstrated the West's ability to absorb the shock and its skill in devising a system for the rational use of energy resources, which, although somewhat neglected in recent years, is still operative -especially in a country like Japan. The result was that the ratio of increased energy consumption to economic growth, which had been 1 to 1 before the crisis, dropped to 0.6 to 1 shortly afterwards. At the same time, the Soviet Union and its allies continued to waste their resources, as though the crisis did not concern them. (2)

The third crisis, which began last summer, now poses the double problem of economic dependence and security of energy supplies. This applies not only to the West but, with the advent of a new European framework, to the whole of the industrialized world, plus, of course, those developing countries - the majority - which have no oil.

For a long time, it was believed that the Cold War implied a threat to the security of raw material supplies, accompanied by the feeling, substantiated or not, that the Soviet Union's policy towards the Arab world was aimed partially at exposing the West to the danger that its oil supplies from the Middle East might be cut off. These suspicions with regard to the USSR even generated tensions within the Alliance at a time when the Americans - it was in 1982 - were expressing worries about the security situation of some of the allies, following the signature of agreements with the Soviet Union for gas supplies to France and Germany.

What we see at present is that, even though the Soviet Union has apparently aligned itself with the rest of the international community, the threat to our supplies is not accordingly reduced. The essential source of the danger lies in our dependence on the Middle East, which is the main reservoir of crude oil, with 66 per cent of world reserves at an extraction price of less than US$4 a barrel and deliveries accounting for approximately 50 per cent of total consumption. Whatever form the post-crisis takes, this region will remain, for many years to come, an area of great instability. The prosperity and development of Europe, North America and the non-oil producing developing countries cannot continue to depend so vitally on the events arising in this part of the world.

Guaranteeing the security of energy supplies

The setting-up of a new energy order should be one of the results of the discussions which will follow the present crisis, and should be - why not? - the "peace dividend" earned by all those countries which, as members of the United Nations, have opposed the Iraqi aggression. This is tantamount to saying that the system must encompass every country, whether it be developed or less developed. An order of this kind should incorporate the following features:

  • The price of oil will have to be stabilized at a reasonable level compatible with the economic development of the consumer countries as well as of the producers or potential producers. A reasonable price would be understood to be a price which enables the development needs of the producer countries - including those like the United States and the USSR where the reserves are expensive to extract - to be reconciled with the unimpeded growth of the consumer countries, including the poorest (at the moment, a reasonable price would be around US$20725 a barrel). This objective calls for close and permanent collaboration between OPEC and the IEA, (3) in the United Nations between the developed and developing countries, and, of course, with the oil companies. Collaboration of this kind seems to be a self-evident need, but it is more difficult to implement than it might seem, since it demands that the energy policy of many countries be reviewed. This is particularly true of the United States, which has, for years, unsuccessfully sought to reconcile the essential requirements of its economy, founded on cheap energy, with the constraints linked to the high cost of exploration and the exploitation of its large oil resources.

  • At the same time, we shall have to concern ourselves more with sources of energy. The use of gas, large reserves of which exist outside the Middle East (North Sea, USSR and Africa) will have to be developed, although this calls for more complex and costly installations than oil. It will also be necessary to develop the use of nuclear energy, notwithstanding the unhappy memories of the Three Mile Island accident in the USA and the Chernobyl catastrophe in the USSR. Some countries are more prone than others to the anti-nuclear reflex. Pending an abatement of the opposition to this form of energy, transfers of electricity from one country to another could help towards a partial solution of the problem. Lastly, systematic energy-saving efforts must be made in all countries, and especially in the ex-socialist and developing countries. It should be noted that there is no better evidence of the bankruptcy of the central-planning system than the wastage of resources and the extent of environmental pollution (due to fuel combustion) which are far in excess of such problems faced by the capitalist regimes.

  • The resources generated by a reasonable price of that one of Saddam Hussein's arguments is energy, and of oil in particular, should, of course, be used for the economic development of the countries concerned. It should not be forgotten based on the low price level imposed by thinly populated countries like Saudi Arabia and the Emirates, considered alongside densely populated countries such as Iraq and Iran (or Nigeria, Mexico, etc). He forgets, admittedly, to say that most of the income available to him was spent on the purchase of military materiel, but his argument carries a certain amount of weight all the same. Finally, the new system should clearly tend to avoid any violent variation, upwards or downwards, in energy prices.
The outlook

To counter such a project, the sceptics will claim that similar endeavours relating to other raw materials have proved unsuccessful, and that plans to stabilize basic commodity prices have all too often proved to be nothing more than themes raised in speeches to the United Nations or in the North-South dialogue. However, against these criticisms, the following points may be made:

  • Unlike coffee, cocoa, tropical timbers and other products, oil is a factor essential to the economic development of every country.

  • Unlike many other basic commodities, some of the largest oil deposits are located in sensitive areas. In the case of rare metals, for example, deposits are shared between the USSR and South Africa - countries which admittedly have problems, but smaller than those in the Middle East.

  • Oil and gas deposits are distributed between developing and developed countries; this should facilitate joint examination as some developed countries are simultaneously significant producers and major consumers (e.g. the USA, USSR and the UK).

It is, no doubt, outside the Atlantic Alliance's remit to address these problems directly, but to the extent that its members are involved in a number of international developments currently under way, they will have their contribution to make to a debate which should henceforth be in the forefront of their minds. Some years ago, the Soviet Union suggested to the Economic Commission for Europe - a United Nations organ - that a pan-European energy conference should be held. For various reasons, this suggestion came to nothing. Why, then, should it not be added to the conference programme being formulated within the framework of the Conference on Security and Cooperation in Europe (CSCE)? Examination of this question should be helped by the initiatives recently taken within the European Community aimed at the setting-up of a European energy space (Lubbers Plan), now published under the title, European Charter on Energy, which would associate the 12 Community members, EFTA and the ex-COMECON countries, including, of course, the Soviet Union, which would be the recipient of large-scale technical and financial assistance enabling it to develop its declining output of oil (5.8 per cent of world reserves). Proceeding from this platform, consideration could later be given to other geographical areas, including the Middle East.

What is certain is that, in the coming years, energy security will be one of the components of world stability, whatever the aftermath of current events in the Gulf. And the only means by which this security can be assured is by diversifying supplies so as to avoid an excessive dependence on one specific region and one particular form of energy.

(1) End January 1991.
(2) It should be noted that, under a system which has only just been abolished, the Soviet Union supplied to its COMECON partners large quantities of oil at a price equivalent to the average price over the five previous years, payments being made in "transferable" roubles.
(3) The International Energy Agency, which includes all the OECD member countries except France, which is preparing to join.