The center of gravity of power is shifting relentlessly from the West. The most successful cars are made in Japan. The power of the purse is shifting to less profligate countries like Singapore, and petro-powers like Kuwait. Manufacturing has gone to China. Energy is in the hands of Saudi Arabia, Russia and others.
Much of this shift affects the legendary Big Oil companies, which are being pummeled from all sides.
Now comes another hit. Until now, even if they couldn’t control the resources, at least they could buy the oil and natural gas and earn the markup from lucrative finished products. But the world’s petro-powers are no longer satisfied earning hundreds of billions of dollars from the mere sale of $100 oil. They want the entire profit chain from their oil and natural gas — from power generation, retail sales at the pump, refining and chemical-making.
To the degree this happens, it takes away the daily bread of the oil companies, and shifts more power into the hands of the petro-powers. They have even more money to influence global finance, buy up pieces of the Western economies, and if they so desire — as Russia does — to sway political events.
Two pieces in today’s New York Times go into this topic. One, by Peter Goodman and Louise Story, talks about the purchase of pieces of the economy. The story is decent as a survey, but makes a common mistake by evaluating these purchases in the context of the entire economy, and thus diminishing their importance.
The more relevant context is within industries and slices of industries, for instance in banking and specifically investment banking. As we’ve discussed on this blog previously, some investment bankers predict that so-called sovereign wealth funds — the investment arms of these cash-rich states — will eventually outright control the global finance sector.
In the second piece, Jad Mouawad talks about the aspirations of Saudi Arabia. The article describes a giant new petro-chemical complex under construction in the Saudi city of Rabigh, and the king’s idea to build six new industrial cities. This is all on reliant on $100 oil, which makes one suppose that the kingdom will do all it can to keep prices right about there.
