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''Economic Brief: Fallout from Energy Trends''

Recent economic forecasts point to the emergence of new energy players on the global scene. Russia, though never fading completely from the world scene, is coming back with a new marketing brand as an energy supplier. Venezuela is catching world attention by its open defiance of the United States. The Central Asian states of Kazakhstan and Turkmenistan, and the Caspian littoral republic of Azerbaijan, have become key to energy diversity long sought by the West. Iran, too, can openly threaten the West and affect world energy and futures markets by using energy as a geopolitical weapon. In and of itself, these trends are nothing new -- OPEC used oil as a successful geopolitical tool in the 1970s, profoundly affecting the global economy. Today's major investment trends and calculations point to the accumulation of vast capital earned from oil sales in states that lack the developed, diversified economies of countries dependent on oil.

Notwithstanding its growing oil revenues, Russia has not yet recovered economically from the near-absolute destruction of its economy in the 1990s; Saudi Arabia is only now trying to diversify its oil-dependent economy; and Venezuelan leader Hugo Chavez is using his oil money to buy influence in South America and weapons from around the world. Nigeria, another major oil supplier, has a mismanaged economy that generates poverty and internal dissent, threatening the very source of its earnings. The positive exceptions, at least for now, seem to be new oil "barons" Azerbaijan and Kazakhstan, whose diversified economies are managing the major influx of hard currency. Time will tell, however, if such management can lead to overall economic growth and not to a short-lived spike in earnings.

What is not clear, however, is the very fate of the countries that seem to be riding high on the ever-increasing wave of oil and gas demand. Current trends in major industrialized states point to the steady emergence of alternative energy technologies such as coal, hydrogen, solar power, ethanol and nuclear energy. At the same time, as the demands for oil and natural gas are hitting new highs, the United States, Western Europe, India, China and Japan are investing major financial and political capital into developing alternatives to paying higher prices at the pump. At this point, the situation is reaching a make or break point: China's hyper-growth can be sustained if energy prices do not get out of control. The same trends are observed in the United States and India. If the U.S. energy market, the largest in the world, is indeed a barometer for world trends and directions, then major energy exporters have about 10-15 years in which they should make major economic transformations.

Currently, the U.S. Congress is grappling with a host of energy issues -- energy will be a major deciding factor during fall's elections in the United States, possibly altering the shape of both the House and the Senate and having a potential impact on domestic and foreign policy. Major resolutions have been introduced that ask for investment in ethanol fuel and massive research and development funding for hydrogen and fuel cell technologies. These resolutions have highlighted the importance of domestic oil reserves as well as technologies like solar and wind energy. Unlike the 1970s and 1980s, when similar trends were visible in the U.S. economy, these initiatives will not fade away with the inflow of more cheap oil. With China and India demanding more oil, no cheap "black gold" remains anymore to once again flood the markets and remove the "threat" of alternative energy.

Today, this is a major election issue and constituents and politicians will continue to demand greater resources for these energy trends. A certain period of time will be necessary to introduce and incorporate these technologies, and then there will be an irreversible trend of lowering oil and gas prices and revenues. Major Gulf exporters such as Saudi Arabia are not prepared for the impending collapse in energy prices, and neither is Iran, Nigeria, Venezuela or Russia.

A major economic precedent exists in the United States that can help predict the impact of changes in energy markets. After the oil shocks of the 1970s, Japanese carmakers won a greater share of the most lucrative automotive market in the world. By making smaller vehicles that did not use much fuel compared to their American competitors, companies like Toyota and Honda forever changed the face of the global automobile market. Today, Toyota is steadily gaining on the largest carmaker in the world, General Motors. Were it not for the energy crises of 1973 and 1979, it is doubtful that Japanese carmakers would have been able to claim such success in the United States.

Today's worries over energy supply and demand is heralding the use of new energy sources to fuel the largest economy in the world. These technologies will have just as a profound effect on world energy markets as smaller, more compact Toyota and Honda sedans had on U.S. consumer trends. While global demand for oil and gas is hitting a new high, the reverse trend is not far off. This trend will have a shocking effect on energy exporters if they do not adequately prepare their economies for the impending changes.



The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of inquiries@pinr.com. All comments should be directed to content@pinr.com.

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