It’s the Oil, Stupid!

 THE WAR IN Iran has put to bed two popular myths: the decline of America and the death of fossil fuels. Just as America remains, by some distance, the world’s only superpower, fossil fuels remain, by a long distance, the leading source of energy for the world. No matter how this war ends, Trump has already won.

Donald Trump did not come to power promising foreign wars, but he did come to power with the promise of Drill Baby Drill. At the turn of the century, the US was import-dependent on oil and gas. Today, it is the world’s biggest producer and energy-independent. Trump wants to take it a step further and establish energy dominance.

Trump is no fan of the climate change argument. He has been quite explicit in his rejection of renewable sources of energy. However, you don’t need to be a climate denier to realise that renewable energy is nowhere close to replacing oil and gas as a source of energy. It hasn’t even managed to put coal out of business. There are structural limitations in renewables. Because it cannot be effectively stored, it must be supplied to a grid as it is generated. However, globally—and this is now emerging as a serious challenge in India— there doesn’t exist a sophisticated enough distribution system to evacuate the renewable energy that is currently being generated—leave aside future generation. Without a quantum leap in storage, renewables will stall.

At the other extreme of Trump, the climate proponents oversold the energy transition, at least its pace. Green hydrogen, the holy grail of clean fuel, which would cure the ills of “hard to abate” energy-hungry industries, like steel and service sectors like aviation and freight, has seen more setbacks than progress. Many countries and companies (including some of the oil majors) took their eye off the fossil fuel ball and went all in to invest in renewables. As oil prices cross $100 per barrel, some of those decisions may be met with stern reflection. Scorecard: Trump 1, Energy transition 0.

Trump’s foreign interventions are more likely motivated by his goal of energy dominance than an altruistic desire to bring freedom to the oppressed. In Venezuela, which holds the largest reserves of oil, the intervention was quick and transition smooth. America’s awesome military capability was put to incredible use in neatly abducting the sitting president of a sovereign country from a military base. Once Nicolás Maduro’s followers and successor agreed to let the US control their country’s oil, they were allowed to stay in power.

In Iran, which has the third-largest reserves of oil after Venezuela and Saudi Arabia, America once again displayed its awesome military might to decapitate the entire Iranian leadership. However, Iran isn’t Venezuela. It has a much more entrenched state and specialist armed forces which exist to guard the revolutionary cause. Without US boots on the ground, it is a battle of American air might against Iran’s homemade drones.

But even a protracted battle serves Trump’s purpose. As oil prices rise beyond $100 per barrel, all net importers of oil suffer. Which is the largest net importer of oil in the world? China—the only rival in Trump’s Make America Great Again project, which imports 70 per cent of its oil requirement. If Trump eventually gets control of Iran’s oil, he will have huge leverage over China. And while he fights for it, China’s economy will suffer from higher prices and uncertain supplies. China tried to flex its muscles on its rare earths monopoly. Trump used chips to bargain. Now, he has gone beyond chips and flexed on oil. Scorecard: Trump 2, China 1.

Trump has made no secret of showing off America’s sole superpower status to the rest of the world. Fundamentally, control over resources is the raison d’etre. He wanted Greenland for its minerals. Canada too. In his worldview, not being self-sufficient in critical minerals is a weakness. And he is right.

For India, which is hugely import-dependent across the board in oil and gas and minerals, and will bear the brunt of soaring prices, there are lessons to be learnt. Secure your resources. For the sake of prosperity and power.