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Krugman: The Great Illusion

Paul Krugman, New York Times
So far, the international economic consequences of the war in the Caucasus have been fairly minor, despite Georgia’s role as a major corridor for oil shipments. But as I was reading the latest bad news, I found myself wondering whether this war is an omen — a sign that the second great age of globalization may share the fate of the first.

If you’re wondering what I’m talking about, here’s what you need to know: our grandfathers lived in a world of largely self-sufficient, inward-looking national economies — but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.

Writing in 1919, the great British economist John Maynard Keynes described the world economy as it was on the eve of World War I. “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth … he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world.”

And Keynes’s Londoner “regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement … The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion … appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”

But then came three decades of war, revolution, political instability, depression and more war. By the end of World War II, the world was fragmented economically as well as politically. And it took a couple of generations to put it back together.

So, can things fall apart again? Yes, they can.
(14 August 2008)

Conflict in Georgia threatens U.S. effort to secure access to Central Asian energy

Jad Mouawad, International Herald Tribune
When the main pipeline that carries oil through Georgia was completed in 2005, it was hailed as a major success in the U.S. policy to diversify its energy supply. Not only did the pipeline transport oil produced in Central Asia, helping move the West off its dependence on the Middle East, but it also accomplished another American goal: It bypassed Russia.

U.S. policy makers hoped that diverting oil around Russia would keep it from reasserting control over Central Asia and its enormous oil and natural gas reserves, and would provide a safer alternative to Moscow’s control over export routes that it had inherited from Soviet days. The tug-of-war with Moscow was the latest version of the Great Game, the 19th-century contest between Imperial Britain and Czarist Russia for dominance in the region.

A bumper sticker that U.S. diplomats distributed around Central Asia in the 1990s summed up Washington’s strategic thinking: “Happiness is multiple pipelines.”

Now energy experts say that the hostilities between Russia and Georgia could threaten U.S. plans to gain access to more of Central Asia’s energy resources in a year when booming demand in Asia and tight supplies helped push the price of oil to records.
(14 August 2008)

Georgia Conflict – Open Thread #4

Gail the Actuary, The Oil Drum
Russia has won in the conflict in Georgia, and we are in the process of sorting out what happens next. Various ones have written what they see happening.
(15 August 2008)
Article headlines and discussion among peak-oilers at TOD. -BA

The bear’s Achilles heel

Charles Grant, Guardian
… Russia has much more to lose from a period of frosty relations with the west than either the Americans or the Europeans.

Russia’s Achilles heel is its economy. This has been growing fast, at over 7% a year. Wealth has spread out from the energy companies and the government, helping to create a prosperous middle class. But the economy remains dangerously dependent on energy and raw materials. Russia has very few high-tech industries, its record on innovation is appalling, it has too few small and medium-sized companies and its service industries are backward.
(15 August 2008)

Petropolitics at heart of Russia-Georgia clash

David R. Francis, Christian Science Monitor
Oil-pipeline routes, market leverage make struggle a ‘battle for energy.’

In both geopolitical and economic terms, the United States appears a loser in the Russia-Georgia conflict.

If the pipeline crossing Georgia, bringing approximately a million barrels of Caspian oil a day to the West, remains shut down for much longer, it could result in higher oil prices.
… The 1,100-mile Baku-Tbilisi-Ceyhan (BTC) pipeline provides only about 1 percent of the global demand for oil. But, as Prof. Michael Klare of Amherst College notes: “There’s not a lot of spare [crude oil] capacity” in the world.

In the long-running struggle for control of Caspian oil and gas and influence in the ex-Soviet states of that region, the clash has been a blow to US clout.

“The Russians come out of this as winning this round,” says Professor Klare. “They are the power brokers in this part of the world…. But there will be more skirmishes to come.”
(18 August 2008)

Georgia Pipeline is New Strait of Hormuz as Putin Expands His ‘Energy War’

Energy Tech Stocks
The world has a new Strait of Hormuz, a choke point for oil that could send the global economy into a sudden tailspin.

That’s what the Russian incursion of Georgia really means. The pipeline running through Georgia capable of bringing 1.2 million barrels a day of Azerbaijani oil to the West can be taken hostage by Russian tanks anytime Vladimir Putin snaps his fingers.

Putin declared “energy war” against the West in 2006 when he snapped his fingers and temporarily cut off Russian natural gas to neighboring Ukraine, after first raising the price by 400%. That sent all of Europe into a panic, given the continent’s dependence on Russian natural gas. Now comes Georgia, gateway to the West for vitally important Central Asian oil.
(15 August 2008)

Klare: Russia-Georgia Conflict Fueled by Rush to Control Caspian Energy Resources
(text, audio, video)
Juan Gonzalez and Amy Goodman, Democracy Now!
JUAN GONZALEZ: Three [years] ago the United States helped open a 1,000-mile-long pipeline that connected Azerbaijan to Turkey, running through Georgia. The pipeline was designed specifically to bypass Russia. More oil and natural gas pipelines are scheduled to be built in Georgia.

Michael Klare is the author of thirteen books, including Blood and Oil and Resource Wars. His latest book is Rising Powers, Shrinking Planet: The New Geopolitics of Energy. He is the defense analyst for The Nation and the director of the Five College Program in Peace and World Security Studies at Hampshire College in Amherst. He joins us this morning.

Welcome to Democracy Now!, Michael.

MICHAEL KLARE: Good morning.

JUAN GONZALEZ: Well, talk to us about the pipelines and the energy aspect that has received almost very little attention in all the coverage of the Russian-Georgia conflict.

MICHAEL KLARE: Well, I believe that this is what really underlies the conflict, and it has to do with the fact that the US has eyed the Caspian Sea, which lies just to the east of Georgia, as an energy corridor for exporting Caspian Sea oil and gas to the West, bypassing Russia. And this was the brainchild of Bill Clinton, who saw an opportunity, when the Soviet Union broke apart, to gain access to Caspian oil and gas, but he didn’t want this new energy to flow through Russia or through Iran, which were the only natural ways to export the energy.

So he anointed Georgia as a bridge, to build new pipelines through Georgia to the West. And it was he who masterminded the construction of the BTC pipeline, which is now the outlet for this oil, with new pipelines supposedly following for natural gas. And he chose Georgia for this purpose and also built up the Georgian military to protect the pipeline, and Russia has been furious about this ever since. And I think that’s the reason that they have clung so tightly to Abkhazia and South Ossetia ever since.
(15 August 2008)
Contributor Joseph Neri writes:
A rare glimpse in American media at the geopolitical energy issues underlying the contest to control oil resources around the world, in this case the Caspian oil reserves bound for Europe.