Reducing carbon emissions is good for the planet and good for your lungs, but there's one group of countries that might not be so keen on green: those that rely heavily on oil and gas exports to run their economies. As the rest of the world gets closer to "Net Zero" in the coming decades, these petrostates will be in big trouble unless they diversify their economies — fast. So, how vulnerable are the world's top oil and gas producers to a low-carbon future? We look at how the treasuries of the 20 most hydrocarbon-dependent nations will fare over the next two decades under what the Carbon Tracker Initiative refers to as a scenario in which global demand for oil and gas will be much lower than today.
Ian Bremmer's Quick Take:
Hi everybody. It is the last day of the Trump administration. Most of you, probably pretty pleased about that. A majority of Americans, though not a large majority, but certainly a majority of people around the world. And given that that's a good half of the folks that follow what we do at GZERO, that counts to a majority. And look, I ought to be clear, when we talk about the Trump administration and their foreign policy legacy, "America First" was not intended to be popular outside of the United States. So, it's not surprising that most people are happy to see the back of this president. But I thought what I would do would be to go back four years after say, what are the successes? Is there anything that Trump has actually done, the Trump administration has done that we think is better off in terms of foreign policy for the United States and in some cases for the world than it would have been if he hadn't been there? And I actually came up with a list. So, I thought I'd give it to you.
I'm more than happy to be critical of Trump as need be, you all know, but it's at the end of the administration. And I'm an upbeat kind of guy, I thought it'd be nice to leave with some of the successes. And before I get into the list, let me be clear, there are, I think, three reasons why you get successes in the Trump administration. The first is that some of Trump's own impulses were actually right. I mean, the fact that he wanted to end wars, for example. That's generally speaking a pretty useful impulse that the foreign policy establishment just hadn't been able to get its head around. Secondly, whatever you think of President Trump himself, a lot of the members of his administration were capable, were professional and tried to do their jobs, and that actually comes through. And then finally, and perhaps this is most important, when you're running the most powerful country in the world, you get luckier because other countries, even if they don't like what you're saying or you're doing, recognize the consequences of not going along are really costly. And that helps any president become more successful than they otherwise would have been and certainly played to Trump's advantages over the course of his four years. So, let me go through the list and I'll start with what I think are the most important.
First on US-China policy and most importantly on technology. I mean, this had been really a non-issue or even in some cases, a fait accompli where most allies were mistrustful of the United States after the Snowden disclosures and looking to hedge towards a cheaper, faster rollout to Chinese 5G. And instead, you now have most of the world's advanced industrial economies deciding to work together on Western solutions for the next generation of data technologies and anything with a chip in it. That started with the Trump administration saying, "Chinese 5G is not okay. It's dangerous to US national security, dangerous for allies as well." That's probably their most significant success, and by the way, one that the Biden administration is completely aligned with. When Biden first threw his hat in as presidential candidate, he said, "What do you mean? China's not a significant threat. They're not a competitor. I mean, what are you talking about? It's all about Russia." Very quickly, Biden had blowback, realized that he was out of date on this stuff. He got up to speed and now the Biden administration is almost completely aligned with the Trump administration in their key aspects of China policy.
Secondly, the Abraham Accords, the normalization of Israel diplomatic relations with a series of Arab states, the UAE, Bahrain, Morocco, Sudan, other countries moving towards normalization. We see that with Oman, and we see it with even Saudi Arabia. This is a big deal, and it was a big deal that was basically a recognition on the part of the Trump administration that the geopolitics of the region had changed. Started with their first trip ever, when Trump became president, was to Saudi Arabia and Israel. Radically different from what other presidents would have done. Previous administrations, even Secretary of State John Kerry said, "Unless you do Israel-Palestinian peace, you will never get peace between Israel and other states." Actually, the Palestinian issue is becoming less important, the Iran issue much more so. Energy production in the region was becoming more problematic in terms of their national security. Prices were going down; the US had more influence. They used it. That was what allowed those countries to normalize that relationship.
Some trade wins. Most of the coverage of trade on the Trump administration has been about deficits and Trump wielding tariffs when he doesn't get what he wants. And admittedly, trade today is higher tax and more disrupted on balance than when Trump took office, but there have been significant successes. The most significant, I'd say two; KORUS, which is the South Korea-US trade deal. The US got South Korea to rewrite a lot of their own laws to satisfy Washington without the US having to give any major changes or having to go through Congress to gain approval. The USMCA, the new NAFTA is in many ways a smaller, less controversial piece of the Trans-Pacific Partnership that Obama couldn't get done and Trump then killed. It does make much more of the entirety of trade between the US, Mexico and Canada covered by a trade agreement, including things like data, intellectual property, services, it modernizes the relationship. You have the opening of a US-Kenya trade agreement. And for all of the flak that Trump got on calling African states shithole countries, it's interesting that he's only the second president that's ever opened a trade agreement with an important African country, especially because it helped stop their alignment with China and creates a new template for post-African growth and an opportunity act trade regime with Africa that the Biden administration will move on.
The war on ISIS. I mean, there's no question that the Islamic state came to an end as a territorial unit with local governance following an aggressive and effective Trump campaign to incapacitate the organization and weaken its threat to the US and allies. The war was started under Obama, ISIS had lost about half of its territory in Iraq, a little bit less than that in Syria before Trump's inauguration, but the Trump administration actually ramped it up. They've really been defeated as a consequence. Also, let's not forget the US killing of former ISIS head, Abu Bakr al-Baghdadi, was a big symbolic win also under the Trump administration.
Mexico immigration. Believe it or not, for all of Trump's talk about building the wall on the border with Mexico, that Mexico was to pay for, which was always a big joke, no, instead, President Trump did get a wall built. He got much tighter security on Mexico's Southern border. He threatened Mexico with heavy tariffs if they didn't close the Southern border and effectively police illegal immigrants, and they did. There were decades of problems on this issue and President AMLO, Lopez Obrador took significant political and economic costs at home to police their border more effectively with Central America. Within six months, border flows into the United States were down over 50%, actually a pretty big deal. Kind of funny it's not one Trump ever talked about because he was always so focused on the wall, that was a big part of his campaign with the US Southern border.
OPEC. I would say that given that the US energy production has been so much higher under Obama and then under Trump, Trump was able to weaponize the American relationship with OPEC's strongest members, Saudi Arabia, like no other president. That meant that OPEC was more responsive to Trump's complaints of oil prices being too high early in the administration, and also got to that big, historic really, oil cut agreement among the COVID dislocations that was in no small part due to pressure from the White House.
I mentioned at the beginning the fact that Trump talked about wanting to end wars in Iraq and Afghanistan. You did see continued drawdown of troops in both of those countries and a foreseeable end to the Afghanistan war, the longest war in American history. Controversial decisions, but let's be clear that the foreign policy establishment said that if that was going to happen, you would have outside players monopolizing these power vacuums, taking over. That didn't happen. No one player has done that. And it also makes the pivot to Asia much more feasible when the United States is less bogged down in the Middle East.
International organization victories. I mean, the US has left a lot of organizations under Trump. That gets a lot of attention. I would mention that a meaningful one is the World Intellectual Property Organization, where the US and China were in a direct fight over its future. And the Trump administration actually cultivated alliances, isolated China, helped get a Singaporean as the new director general over a Chinese candidate, it gives a lot more influence to the US in an area that actually matters, especially the future of technology and governance for corporations going forward. Had a very successful US led World Bank funding round that was orchestrated by David Malpass, who runs that organization. And I'd also mentioned a fight in the International Atomic Energy Agency, where the Trump administration got the preferred American candidate in, which especially matters given the need to get more support after the US pulled out of the Iranian nuclear deal, they got it from the IAEA.
A number of US allies did get stronger, relationships with the US under Trump, things that we talk about a fair amount. Brazil under Bolsonaro, India under Modi, and the new Indo-Pak agreement, which you'll see continued under Biden. Certainly, Israel under Netanyahu who had been more deteriorated somewhat under Obama. And the Gulf Arabs. I'd also mentioned Poland in that list.
NATO cost sharing. Despite the fact that Trump said he was opposed to NATO in rhetoric, the reality was the Trump administration continued to push for NATO countries to pay more in defense. They were doing more under Obama and they did even more under Trump. That direction will likely continue.
I'd mentioned Sudan. It's hard to say that all of this is just the United States because there were a lot of countries that were looking for influence after Omar al-Bashir was no longer in power, but the Trump administration did help to push back an effort by the Sudanese military to sweep aside civilians and worked with both inside and outside actors, including the UN to help ensure democratic transition that has a real shot at success after decades of dictatorship.
So, if you put it all together, there is a list of things that the Americans got done in foreign policy under the Trump administration. And four years out, and we don't have to deal with him as president anymore, it's nice to look back and say it wasn't all horrible. I'm willing to do that. Maybe it brings us tiny bit closer together. So, there it is. We've now got President Biden and I'll see you all real soon.
What We’re Watching: The politics of ESG, the priorities of “Renewable China”, and the Big Losers in all of this
The future of ESG: Global investor interest in supporting sustainable companies has soared in recent years. But how do you define "sustainable"? One widely used criteria is ESG, which stands for "environmental, societal, and (corporate) governance." The catch, however, is that there still isn't a uniform definition of ESG criteria and regulation across different markets. For example, the EU and the US — home to the largest financial markets in the world — still disagree on the basic question of whether pension funds can classify or not. Meanwhile, outside of these two markets and some parts of Asia, the concept of ESG is relatively scarce in much of the developing world. So, what about China, where the sustainable investment market remains virtually untapped? If the Chinese join the party, it could be a game-changer. The larger the ESG market, the more lucrative it can be — and the better that is for society and the planet. But that means that the world's three largest economies, which hardly see eye-to-eye on anything these days, will have to agree on common standards for global ESG investment to truly take off. We're watching to see if and how that might happen.
Renewable China: The world's second largest economy pollutes — a lot. But China has also in recent years emerged as a leader in renewables investment. Why? One reason is that Beijing is increasingly worried about the security of its massive oil imports. Much of those come from the Middle East, where China has relied for decades on the US to provide security. But now that the US itself is a leading oil producer, Washington is less interested in the region, making China more vulnerable to supply disruptions there. At the same time, China's heavy reliance on coal-fired energy plants has poisoned China's air and water, and even stoked unrest. All of this has prompted the Chinese government to become, in recent years, an industry leader in the development of renewables like solar and wind power technologies. China is also the world's largest maker and buyer of electric cars. One big thing to watch here is how much China cooperates with other economies -- particularly the US. Are we headed for a world where the two largest economies are green tech rivals or partners?
Those who see red in a greener world: The sustainability revolution is undoubtedly good for the planet and, as we've seen, for financial investors too. But spare a thought for those who have the most to lose in all of this: oil-exporting economies. Even before the coronavirus pandemic kneecapped global demand for oil — briefly sending prices into negative territory — they faced big challenges. The shale oil revolution in the US had whittled away American demand for foreign crude. Emissions reduction and renewables policies in the US, China, and Europe were undercutting long-term demand for what the Saudi Arabias, Russias, Nigerias, Venezuelas, and Iraqs of the world sell. In these countries, oil delivers more than two thirds of export earnings and is the bedrock of the budget. Over the next decade, oil exporters have tough choices to make about how to diversify their economies. Demographic pressures make the problem especially acute in the Middle East and Africa: in Saudi Arabia and Nigeria, for example, more than two thirds of the population is under 30. Even when oil prices were high, the energy industry wasn't going to provide enough good jobs for them. Countries with bigger rainy day funds, like Saudi Arabia or Russia, may have more time to figure this all out. But what of cash-strapped Iraq or economically-wrecked Venezuela?
Why did oil prices go negative last week?
That was really quite a day on Monday. So, you saw WTI crude go into negative price territory. As you can imagine, the demand for oil has dropped dramatically. We're not driving as many cars. We're not flying as many airplanes. And so, that decline in demand means that oil is piling up in storage. That price drop also was likely exacerbated by an expiring futures contract and it basically capped off three straight weeks of losses in oil.
What is the difference between WTI and Brent crude?
That is a common question. Those are the two most popularly traded grades of oil. Brent stands for Brent North Sea Crude and WTI stands for West Texas Intermediate. And it basically just tells you where that oil is coming from. So, the Brent is produced in the North Sea and it serves as the oil benchmark for Middle East, Africa and European oil. WTI is the oil benchmark for North American crude. Now, there's been commentary around the fact that Brent seems to be less susceptible to some of these storage issues you've been hearing about. It's a waterborne contract, whereas WTI is landlocked. So, there's a finite amount of storage and it's much more difficult to get that oil in and out of the region.
Are religious tensions rising in Sri Lanka?
They certainly are now on the back of almost 300 people killed in terrorist bombing attacks - Christians by Muslims - worst attacks we've seen since the Civil War. There has been more extremism. There's been more Buddhist extremism over the past years as well. Social media technology making it easier to align, to coordinate, to organize. But I wouldn't have said that Sri Lanka was more vulnerable to this sort of thing than a lot of other countries out there. I do think if the government is unable to respond very strongly, the potential for this to lead to reprisals of course is really significant.
Will tighter sanctions on Iranian oil increase gas prices in the US?
Yeah it will for two reasons. First of all because the Saudis and others in the Gulf, on the American side, have to actually ensure that they are pumping enough oil to make up for whatever comes off from Iran but also because when you're squeezing Iran that much economically the markets are also going to price in the potential that you end up with confrontation between Iran and the Saudis, between Iran and the Israelis, Iran the United States and that they leave the nuclear deal. I don't think that's actually going to happen. In the near-term, prices are going up.
What's the most important thing to watch for at China's Belt and Road form this week?
Well, 37 heads of state, I would say watch for to what extent it looks like China is acting like the global leader and how many major leaders out there treat the Chinese with more deference than they treat the Americans. Always interesting to watch. That's the balance of power these days. It's in Beijing it's in the United States. See where it goes.
And go deeper on topics like cybersecurity and artificial intelligence at Microsoft Today in Technology.