East Asia, North America

North Korea in the Next Five Years

The Korean War, fought from 1950-1953, was a result of two earlier wars in the 1940s: the US-Japanese War, which ended with the destruction and occupation of Japan in 1945, and the Chinese Civil War, which ended in a Communist victory (and Nationalist retreat to Taiwan) in 1950. With the Communists and Americans as the only powers in East Asia following these wars, the Korean peninsula was split in two, each side taking a piece for itself.

When the US triumphed over the Soviet Union around 1990, many expected the North Koreans to fix their broken ties with South Korea.  That this did not occur was partly the result of inertia, partly the result of Kim Il Sung’s living until 1994, and partly the result of the 1997 East Asian financial crisis, which kept the South Koreans too poor to want to bear the cost of investing in North Korean infrastructure or labour.

It was also partly the result of a miscalculation on behalf of North Korea in 1987, twenty-four months before the Berlin Wall came down. Seeking to ruin the South’s first-ever Olympics in 1988, the North blew up a commercial airplane. It was by far the deadliest attack on the South since the armistice began in 1953. South Korea’s anger and mistrust of North Korea as a result of this deed persisted during the ’90s.

When the 21st century arrived the situation changed again.  The US, after having fought the bulk of its four major 20th century wars in East Asia—in the Philippines, WW2, Korea, and Vietnam—shifted its focus elsewhere in 2001. This shift was mainly a result of US wars in Afghanistan, Iraq, and Libya. To a lesser extent, it has also been a result of recent Russian interventions in Georgia, Ukraine, and Syria .

In East Asia, meanwhile, China’s GDP surged, while Japan’s continued to stagnate like it had in the ‘90s. Between Chinese growth,  Japanese stagnation, and US distraction, East Asia became again a two-power region: those powers being the United States and China. But this may now be ending. In the years ahead, East Asia is likelier to become either US-dominated again, like it was in 1990s, or balanced between three separate powers: the US, China, and Japan. The two-power status quo could remain in place, but is hardly certain to do so.

In a one-power or three-power region, the powers involved may have less to gain from the continuation of poor relations between North and South Korea. There will be much less reason to split Korea in two, as it has been for 67 years now, when East Asia as a whole is not split between two major powers, as it is today.

The move to a US-dominated East Asia, or a US-China-Japan-dominated East Asia, is likely for three reasons:

First, the US has been drawing down from the Middle East. It had 150,000 soldiers fighting in Iraq and Afganistan in 2011, but now has fewer than 15,000.  Unless it decides to wholly reverse this process — Trump has announced the addition of 4,000 soldiers to Afghanistan, but that is a far cry from the Obama-era surge—the US will have the ability to focus on other regions, like East Asia, more than it could during the 2000’s.

Second, China’s GDP growth has slowed, from 10-15 percent growth during the 2000s to 3-7 percent (depending on whether you believe its official growth rate, 6.7%) last year. In order to keep up with 2.5 percent US growth, China must grow around 4 percent. China’s challenge in doing this is that its labour is now much dearer and older than it used to be, while its resource wealth, most notably its coal, has led to pollution.

China may struggle to keep up with US power. As it is, the US economy is an estimated 1.6 times larger than China’s. The US-Canada-Britain-Australia alliance, meanwhile (which, unlike China itself, more or less speaks a single language) has a GDP 2.2 times larger than China’s. The US GDP alone is larger than that of East Asia as a whole.

Third, the economy of Japan, which today is an estimated 37 percent as large as China’s and 18 percent larger than Germany’s, is likely to benefit from the crash in oil and other natural resource prices that began in mid-2015. Unlike China, Japan has few resources of its own, and so depends on imports to fuel its economy.

relative trade northeast asia

While Japan’s aging population continues to be a challenge — Japan’s largest age cohorts are 40-45 year olds and 65-70 year olds — it may be able to address the challenge via a combination of robots, cheap energy to power robots, and a labour force dominated by highly skilled 50-80 year olds. Japan is already planning to advance its robotic prowess in the near term: it wants to showcase them at the 2020 Tokyo Olympics.

Japan’s robot drive is likely to have consequences not just for the Japanese economy, but also for the Japanese military. Japan has already begun to rebuild its military of late, first in response to China’s rise and then in response to Donald Trump’s rhetoric that US allies should “stop freeloading, and pull their own weight”.  Already today the Japan ranks 8th in military spending, despite devoting just one percent of its GDP to it. Should Japan double this, to reach the 2 percent of GDP that France and Britain spend, it would then become the third largest military spender in the world, and move far ahead of the next largest, Russia. (Were Japan to spend 5 percent of GDP on its military like Russia does, it would move far ahead of China).

Even if Japan does not re-emerge, East Asia might not remain a two-power region. Rather, China could fall behind the US sufficiently that, in effect, it will be a one-power region again, like it was in the 1990s. US power is rising not only due to its withdrawal from the Middle East, but also because its rivals, most notably Russia, are being hurt by the fall in resource prices. As in the ’90s — when oil prices were at all-time lows — cheap oil works in the US’s favour. And if US power in the region does rise, the North Koreans might be less willing to resist its demands.

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Source: http://gypsyscholarship.blogspot.ca/2013/06/bye-bye-north-korea.html

There is an additional reason for improving relations between the North and South: it may benefit the South’s economy.  Unlike in the 1990s, South Korea is now a relatively wealthy country. Yet because of its rapid growth, it has become dependent on imports of natural resources and exports of manufactured goods. South Korea has been importing resources mainly from the Middle East, and exporting mainly to China.

The Middle East, however, remains unstable. Qatar, for example, the world’s largest LNG exporter, sells more to South Korea than to any other country. But Qatar is now in open conflict with Saudi Arabia. Uncertainty of this kind threatens South Korea’s GDP growth. In addition, as China tries to shift from coal to gas, and as Japan tries to shift from human labour to fuel-powered robots, South Korea may have to deal with rising competition from its own enormous neighbours when importing fossil fuels from the Middle East.

Similarly, South Korean exports have been limited by the slowing Chinese economy. China accounts for a quarter of all South Korean exports, more than the US and Japan combined. South Korea has also been hurt by its own success: its labour is no longer so cheap like it was in previous decades, when it was still a poor country.  For these reason, South Korea has already grown more slowly in the past two years that at any time since 1997 (excepting the global financial crisis in 2009).

These economic troubles are occuring at a bad time for the South. South Korea will host the the first-ever Winter Olympics in continental Asia this year. It wants the world’s perceptions of itself—namely, that it is a remarkable country, with remarkable companies like Samsung and remarkable economic prospects in general—to endure. It also does not want the North to cause trouble this time, as occured in 1987.

Trading with North Korea could help address both these concerns. North Korea has an extremely cheap, Korean-speaking labour force; a labour force that includes cousins, and in some cases even siblings, of the South’s. It represents a potential Korean-speaking market for South Korean exports, both of media and manufactured goods. It even, if ties improve enough, offers opportunities in tourism. And it offers access to natural resources. The North Koreans are rich in coal; the South Koreans are top coal importers. More importantly, the North offers a land route by which South Korea can access resource-rich Manchuria and Siberia.

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It is possible, of course, that the Korean issue will be addressed by war rather than by trade. In the past year alone, the US has prepared for such a war. It is also possible that the North will not be addressed at all; that the tyrannical staus quo will endure. But for the reasons outlined above, I believe reconciliation is the most likely, and the status quo the least likely.

Dennis Rodman, who played on the the 1990s Chicago Bulls (Kim Jong Un’s favorite basketball team) has lately met with Un. Do not be suprised if Rodman’s Celebrity Apprentice co-star, Donald Trump, follows suit.

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North America

Talking Trade With Trudeau and Trump

NAFTA stands for the North American Free Trade Act, but President Trump does not. After campaigning on a promise to repeal the Act, then adapting his position to that of merely supporting the Act’s renegotiation, Trump recently announced that he would no longer tolerate the status quo arrangement for American imports of dairy and forestry products originating from Canada.

Proposing, on April 24, to add a 24-percent tariff on US imports of Canadian softwood lumber, Trump kept up the pressure on Canada the following day, tweeting “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”.

Watch! indeed: the value of the Loonie fell sharply the week of the tweet, as investors worried how Canada will fare when it comes to the broader renegotiation of NAFTA Trump continues to promise.

Trump’s targeting of Canada in this way is not likely to have been random. Nor was it entirely economic in its intention. Rather, Trump brought up the issue in order to prove his anti-NAFTA bona fides to his political base, yet in a way that manages to avoid the hairier subjects associated with NAFTA’s other signatory, Mexico, such as immigration, racism, or The Wall.

Trump has admittedly been careful to direct attention to goods of lesser importance, like dairy products and softwood lumber, rather than to Canada’s key exports of oil (from Alberta) and auto parts (from Ontario). Still, he has been far tougher on Canada—at least in his rhetoric—than has any other recent president. To use a Trumpian phrase: Canada has now been put on notice.

Obviously, this may worry Canada’s Prime Minister, Justin Trudeau. Elected with a rare majority government in 2015, Trudeau’s “political honeymoon” now finally seems to be nearing its end. The NAFTA/Trump issue was just one of four indications of this to occur this spring. The other indications were the election of a new federal opposition leader, Conservative Andrew Scheer, on May 28; the expectation of an NDP-Green minority government forming following an election in British Columbia in May; and the continuing decline in oil prices that has occured thus far in 2017.

Of these, the price of oil is likely the most troubling sign for the Canadian economy, and by extension for the approval ratings of Trudeau. West Texas Intermediate crude oil prices crashed in mid-2015, hitting lows of 26 dollars a barrel in February 2016 but staying mostly within a range of 40-55 dollars since then. They began 2017 at 54 dollars, and remained there until mid-April. However in recent weeks they have fallen again, so that as of this writing (June 21) they are at just 43 dollars a barrel. The Western Canadian Select oil price, which is the price that Canadian oil tends to sell at, is barely over 30 dollars. This does not bode well for the Canadian economy.

The biggest political news in Canada, meanwhile, has been the victory of the new Conservative leader, Andrew Scheer. Scheer narrowly (and quite unexpectedly) defeated Quebec MP Maxime Bernier at the Conservative Party convention, and so will now replace the party’s interim leader Rosa Ambrose as Canada’s leader of the opposition.

The impact of Scheer’s victory is likely to be twofold. First, Trudeau now finally has to face a real political opponent in parliament, rather than a mere interim leader as he has faced until now. This may draw some media attention away from political narratives created by Trudeau, instead giving his Conservative opponents some more air time. Indeed, Trudeau may now no longer be the only golden boy in Ottawa. Scheer is just 38, seven years younger than Trudeau.

The second impact of Scheer’s victory is that, unlike Trudeau, Scheer is not from Quebec. Bernier, who had been expected to beat Scheer, would have been the first Conservative leader from Quebec since Brian Mulroney, who was Prime Minister from 1984 (the year Trudeau’s father left office) until 1993.

In every election since then, the Conservatives have trailed behind the Liberals, NDP, and Bloc Quebecois in Quebec. This is not a trivial fact: Quebec is home to 23 percent of Canada’s population, and tends to vote for home-grown politicians. Given that Quebec has tended to be anti-Conservative, and western Canada pro-Conservative, Scheer’s victory over Bernier could mean that the next national election in Canada will be decided in Ontario. This fact could influence Trudeau and the Liberals during NAFTA negotiations, given that Ontario depends far more on trade with the United States than do any of the other Canadian provinces (apart from New Brunswick).

The month of May also saw a shakeup in Canadian politics at the provincial level. In British Columbia, the third largest of Canada’s ten provinces, the incumbent Liberal government failed by just one seat to hold on to a majority government. The NDP and Green parties have now announced that they plan to form a minority government in BC instead. This announcement has already had consequences for Trudeau, as the new provincial government is not expected to support the planned expansion of Kinder Morgan’s Trans Mountain pipeline from Alberta to BC’s coast.

Indeed the BC election, which was held on May 9, just a few weeks before Kinder Morgan held what it had expected to be the fourth largest IPO in Toronto Stock Exchange history, caused Kinder Morgan’s stock to plunge. If Alberta cannot export its fossil fuels to world markets via BC, then it will probably remain more dependent on sending them to refineries in the United States. Obviously this would be likely to reduce Canada’s leverage in any trade negotiations with the US.

If and when these negotiations do occur, it is difficult to know what the details of any new NAFTA agreement will be. Canada is obviously at a disadvantage relative to the US when it comes to trade negotiations. Not only is the Canadian economy much smaller than that of the US, and more dependent on trade with the US than the US is dependent on trade with Canada, but Canadian politics are also—contrary to popular wisdom—more internally divided than those of the US.

To give only one relevant example of this, there is the division between Canada’s provinces in to the extent to which they depend on US trade. The value of Ontario’s trade with the US is equal to an estimated 49 percent of Ontario’s GDP. In contrast, in Canada’s other major provinces — Quebec, BC, and Alberta — trade with the US accounts for just 23, 16, and 31 percent of GDP.

With these figures varying so widely, it could be difficult for Trudeau to present a unified front during negotiations. On the other hand, the political interests of the US are global in scope, so the US cannot afford to spend as much of its political capital haggling with Canada as Canada can afford to devote to haggling with the US. Thus it is always difficult to know which country holds the more leverage in the Canadian-American relationship.

What is obvious, though, is the importance of the relationship. Canada may appear small when compared to its southern neighbour, but it is the tenth largest economy in the world, and has growth prospects that out-rival most other wealthy economies. The US and Canada have the second largest trading relationship in the world, trailing only (for now) trade between the US and China.

Now that they are both finally settled into office, it will be fascinating to watch how these two countries’ utterly different leaders, Trudeau and Trump, will steward and steer this relationship going forward.

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Europe, Middle East, North America, South Asia

Trump and the Turks

Evaluating American-Turkish relations in light of Trump’s recent trip to the Middle East and the diplomatic isolation of Qatar, a Turkish and American ally

As Donald Trump returns from his first international tour as US president, one thing that stands out is, as usual, the difference between his and Barack Obama’s approach to diplomacy. Whereas Obama’s first Mideast destinations were Turkey and Iraq, Trump’s were Saudi Arabia and Israel, a country Obama did not even visit until his second term in office.

Trump’s trip also included stops in Brussels, Sicily, and the Vatican in Rome. Along with Saudi Arabia and Israel, these represent four of the five most significant allies of the US within the Middle East/Eastern Mediterranean region: Italy, Israel, the Saudis, and the EU.

The fifth ally, which appears to have been snubbed, is Turkey. The Turks were not honoured with a stop during Trump’s first trip to the region, as they were during Obama’s.

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Turkey failing to make it onto Trump’s travel itinerary might seem to be of little  significance, if it were not for the flurry of unpleasant events involving the Turks and Americans that have occured this same month.

First, there was the meeting of Erdogan and Trump at the White House on May 16, which lasted a mere 22 minutes and was complicated by the announcement, less than a week before the meeting, that Trump would be approving a Pentagon plan to arm the YPG, a Syrian Kurdish militia that the Turkish government views as a terrorist group.

That meeting was then marred also by a public brawl that occured in Washington on the  day it was held, which pitted Erdogan’s security detail against protestors who, according to the Turkish government, were supporters of the Kurdistan Worker’s Party (PKK).

Later in the week, Turkish military planes repeatedly violated Greek airspace—a point of friction between two NATO countries occurring directly ahead of the NATO summit that Erdogan and Trump attended in Brussels.

If this was not enough, the week also saw the Flynn/Trump/Comey affair dominate the news cycle — and the word “impeachment” bandied about in Congress for the first time —  which followed the admission by Michael Flynn a week earlier that he had previously been on a Turkish payroll.

Meanwhile, Trump has used his trip in the Arab world to endorse the idea of forming an “Arab NATO”; an alliance between Saudi Arabia and Egypt that, unlike the real NATO, would exclude the other, comparatively liberal and democratic Sunni power in the region: Turkey.

Now, just a week after Trump’s return home, Saudi Arabia and Egypt have led a move to politically isolate Qatar, the country which is Turkey’s primary ally within the Gulf region.

The Price of Oil

The root of all this unpleasantness is America’s growing concern that, if energy prices continue to stay low for a sustained period, and if Turkey’s oil-exporting neighbours like Russia, Iran, and the Gulf Arab states are weakened as a result, Turkey could become formidable enough within the region to risk cracking down on US allies — starting with the Kurds.

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Nominal GDP

Turkey has, thus far, been relatively happy to work in a cooperative fashion with the Iraqi Kurdish groups, who are America’s primary Kurdish allies in the region. Turkey imports Iraqi Kurdish oil, has fought on the same side as the Iraqi Kurds against ISIS, and uses its relationship with Iraqi Kurds to gain leverage over Iranian-allied Iraqi Shiite groups.

Regarding Kurds in Turkey and Syria, however, the US and Turkey are in disagreement. Though the US has already partially conceded the point on Kurds in Turkey — the US continues to list the PKK as a terror organization, just like Turkey does — it has nevertheless been alarmed by the Turkish government’s treatment of political parties in Turkey that are supported by many Kurds, notably the HDP.

In Syria the conflicting interests of America and Turkey are even more explicit: America is now working in conjunction with the YPG, a group Ankara views as terrorists.

At this point, because Erdogan seems to have consolidated his power domestically, with recent victories in the Turkish constitutional referendum in April, in the failed coup attempt in July 2016, and in the general election of November 2015, he may now increasingly turn his sights to areas beyond or adjacent to Turkish borders, in Iraq, Syria, and Turkey’s own Kurdish regions.

Thus, with Trump snubbing Turkey on his first foreign trip, and with the flurry of events involving Turkey and the US that have surrounded the trip, it appears that the US and Turkey may be in the process of aggressively haggling over the details of their alliance against shared rivals like ISIS, Al Qaeda, Assad, and Hezbollah. The twin issues they have to work out are how much of the burden against these Middle Eastern forces the Turks will bear, and how tough the Turks can be with Kurdish groups—notably those in Syria.

The Price of Loyalty 

Of course, we have no way of knowing how the details of these issues will be worked out, or even whether the US really will be willing to abandon the Kurdish militias to the Turks. But we can guess. Turkey seem more likely than not to accept the burden of fighting in Iraq and Syria, and the US more likely than not to abandon the Kurds in Syria and Turkey.

But (I will continue to guess) the US and its allies will extract two more conditions in return for their abandonment of the Kurds: Turkish cooperation within both Cyprus and Gaza.

In Gaza, although Israeli leader Benjamin Netanyahu publicly apologized for the Mavi Marmara flotilla incident, Turkey has become a key ally of the Gazans almost by default. This has been the result of the Syrian Civil War (which alienated Hamas from Assad, leading Hamas’ formal leadership to move from Damascus to Qatar in 2012), the Egyptian coup in 2013 (in which Sisi overthrew and then outlawed Hamas’ Muslim Brotherhood allies), and finally the crash in oil and gas prices in 2015 (which has hurt the economy of Hamas’ newest host and benefactor, the royal family of the tiny state of  Qatar).

The US and Israel want not only that Turkey prevent another incident like the Mavi Marmara, but also that they tie Turkish and regional investment in Gaza to the condition that Hamas work to prevent a resumption of violence in the Strip. An increase in fighting between Israelis and Gazans would, among other things, imperil the tacit Israeli-Arab alliance directed against Iran and ISIS; an alliance Trump’s current visit has intended to solidify.

Israeli-Palestinian violence would also draw a gigantic amount of the world’s media attention, and would inevitably be blamed on Trump, showing his portrayal of himself as an unparalleled dealmaker to be yet another con. Indeed, at the risk of being too cynical or conspiracy-minded, I would like to point out the possibly politicized pattern of the four main Israeli-Gaza battles that have occured since Hamas began to gain control of Gaza in 2006:

The first, Israel’s Operation Autumn Cloud, ended the day before mid-term elections in the US in 2006. The second, Operation Cast Lead, ended two days before Barack Obama’s inauguration. The third, Operation Pillar of Defence, began a week after the US general election in 2012. And the fourth, Operation Protective Edge, ended two months before the 2014 mid-terms.

Whether or not this pattern was a coincidence, Trump and the Republicans obviously do not want to see a new outbreak of Israeli-Palestinian violence before the 2018 or 2020 elections.

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Source: The Economist

While Turkey can perhaps help to keep Gaza peaceful, it can certainly help to do so in Cyprus, where it wields decisive influence over the island’s North. Turkey is the only country to recognize Northern Cyprus, a Turkish-speaking political entity Turkey established almost single-handedly in the 1970s. Moreover, the island as a whole needs Turkish aid in facilitating both gas and water pipelines across the 80 km sea-channel that separates Cyprus from the Turkish mainland.

The Turks may feel that they can now afford to throw their historic Greek and Greek-Cypriot rivals a bone, given that the economic decimation both Greece and Cyprus have suffered in the past decade have rendered them less of a potential threat to Turkish interests. Thus they may not stop peace talks on the island from moving forward.

The US and its allies will also be happy to see reconciliation or even reunification in Cyprus, as it may help prevent another Mediterranean financial crisis or, even, help show off Trump’s deal-making.

Indeed, while a reconciliation or reunification deal in Cyprus would not directly benefit Trump very much, it could perhaps help to provide him with momentum and bona fides he will want in order to make a more exciting and significant “deal of the century”: a deal which — taking a cue from his Celebrity Apprentice co-star Dennis Rodman — will likely be in Korea.

And of course, as Trump said while in Jerusalem, about peace between Israel and Palestine: “I’ve heard it’s one of the toughest deals of all but I have a feeling we’re going to get there eventually…I hope”.

Winners and Losers 

In the end, in this scenario, the losers would be the Kurds in Syria, and perhaps also the Kurds in Turkey. The winners would be the Cypriots, and perhaps also the Israelis and Palestinians.

As for the US-Turkish relationship, more complicated years lie ahead. It may be that the relationship will ebb and flow along with expectations of the future price of oil, which will determine the perceived strength of Turkey relative to both Russia and Middle Eastern states. The US will want to deputize Turkey to contain forces like Russia, Iran, and Sunni jihadism, yet will also worry about Turkish intentions regarding smaller groups like the Kurds.

If oil prices stay low for long enough, it is likely that we will see the United States opt not just for the Trumpian move of bolstering relations between the Saudis and Israelis, but also for the more Obama-esque one of reaching out to Iran in order to win a new powerful ally for America in the region.

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Middle East, South Asia

Robots and the Middle East 

It used to be, roughly speaking, that cheap labour + energy = industrial output = military power.

This made Iran the natural power in the Middle East. Iran had far more energy than countries like Turkey, Egypt, Israel or Pakistan, and far more labour than the Gulf Arab countries or Libya.

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X-axis is population size, Y-axis is the value of energy reserves as estimated by Business Insider in 2014

 

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X-axis is population size, Y-axis is energy production in 2014 as estimated by Shift Data Portal. Saudi Arabia leads Iran in energy production, but the Saudis have had the benefit of having an alliance rather than a rivalry  with the United States

The Gulf Arab monarchies have tried to overcome their relative deficit in labour by importing workers from Asia. However there are limits to such immigration, not only because of the fear that the immigrants could cause political  instability (they are mostly men, and tend to be poorly treated), but also because it is not cheap to provide food and water in the desert.

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The US has often worked to influence or contain this Iranian potential. It pressured the Soviets and British to withdraw from Iran following World War Two, helped to overthrow Iran’s Prime Minister in the 1950s, helped to unleash the Arabs on Iran in the Iran-Iraq War of the 1980s, and in recent years has opposed the Iranian-allied regime in Syria and played Good Cop-Bad Cop along with the Israelis in threatening to carry out airstrikes on Iran’s nuclear and military infrastructure.

Going forward, however, the traditional relationships between labour, industry, and military power may be breaking down.

Labour may no longer be so important to industry, as industrial labour will in many cases be replaced by machines or, in the case of skilled labourers like engineers and computer programmers, may sometimes be outsourced using high-quality digital communications. Having a large labour force may perhaps even limit the ability to industrialize, since countries with large populations could have to deal with robot-caused unemployment, competition for energy between the residential, commercial, and industrial sectors of the economy, and protests against local industrial pollution. This could put the Gulf Arab states at less of an industrial disadvantage when compared to countries with larger labour forces, like Iran.

Meanwhile, industrial output and labour are both less likely to translate into military power than they once were. In past wars, like the Iran-Iraq War or the Israeli-Arab Wars, wars were fought by giving lots of soldiers lots of weapons. This is, for example, one reason why the Israeli-Arab wars never lasted long. Israel did not have a large enough population to run its military and factories at full capacity simultaneously, so it had to end wars quickly in order to avoid running short on supplies. Otherwise it would risk becoming too dependent on US supply lines, as occured when it was attacked by Egypt and Syria during the 1973 Yom Kippur War.

In the future, though, human soldiers may be replaced by machines in some cases, rendering population size less important in war. In addition, the quantity of weapons produced could continue to become less significant than their quality, given that weapons can now be destroyed by precise satellite-guided missiles. As a result, if the Gulf Arab states and Iran were to use their oil and natural gas reserves to become industrial powers, it would not have to translate into their becoming military powers. This could make existing Middle Eastern military powers like the US, Turkey, or Israel more likely to tolerate the industrialization of the Gulf.

The machine-driven industrialization of the Gulf Arab states and Iran could make sense for a number of other reasons as well:

— The Gulf region is even less populous than it may seem at first glance. This is because the vast majority of the populations of Iran, Saudi Arabia, and to a lesser extent Iraq live hundreds of kilometers away from the Gulf, and separated from the Gulf by mountains and desert. If you count only the provinces of Iran, Saudi Arabia, and Iraq that border the Gulf, the entire population of the Gulf region (including the smaller Gulf Arab states) is only around 30-35 million. It is also very hot there during the day, making physical labour difficult.

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(Population Density of Saudi Arabia and Iran)

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Topography of the Gulf (Iran is on the right-hand side); many of these mountains are as high as the Alps

— The Gulf region is rich not only in oil, but also in natural gas. Iran in particular is the world’s third largest producer of natural gas, and is thought to have the second largest reserves (the largest by far if you do not count Siberia). Iran also directly borders landlocked Turkmenistan, which is thought by some to have the world’s fourth largest gas reserves.

Natural gas, however, is very difficult to transport long distances or to store up in large quantities. Qatar has managed to become rich from exporting its gas in liquified (LNG) form, but this only works because Qatar has a tiny population (2.3 million people) and as LNG prices in Asia and Europe have been high. For the rest of the Gulf’s gas, it would be difficult to replicate Qatar’s success. It might make more sense, then, for the gas to be kept within the Gulf, used there to produce energy for industrialization.

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shift data oil

Gas-fired power plants tend to be the cheapest types of power plants to build, and have efficiencies considerably higher than coal plants. Gas is also a feedstock in petrochemical industries like plastics. The Middle East already accounts for an estimated seven percent of global petrochemicals production.

Saudi Arabia

— The Gulf region is located at the centre of Eurasian and African trade routes, both by land and by sea. While all of the Gulf’s trade routes are politically fragile, this may actually make industrialization sensible, because it is easier to stockpile large amounts of manufactured goods or industrial raw materials for use during a crisis than it is to stockpile oil or especially gas. Industrialization would also give the region more economic autarky, which would be useful if its trade routes to the outside world were ever imperilled or cut. And the Gulf already possesses large industrial port areas as a result of its energy exports.

— Industrial areas which use machines can be clustered in ways that traditional, labour-based industrial areas cannot. Machines, after all, do not need lodgings, and are not bothered by pollution. Moreover, the Gulf itself could be a mega-industrial cluster, given that it has the world’s largest concentration  of cheap-to-produce oil and gas by far. In other words, you might be able to have a bunch of local industrial clusters forming a huge, region-wide industrial cluster.

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Industrial clustering could have a number of advantages. First, it could be easier to defend militarily, which, given the enormous expense and difficulty of missile defence systems,
could be significant. In the Gulf, the energy fields, power plants, factories, and ports could all be concentrated in a fairly small, defended area. If you ignore coal, there is nowhere else in the world that comes even close to being able to have this. (Texas is probably the closest…).

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Second, clustering could perhaps help to allow for carbon capture and storage. Carbon capture and storage has thus far proven to be far from economical in most cases, and yet it is also necessary if the world wants to limit carbon emissions without ending consumption of fossil fuels. It could be that the way to make it economical is to cluster many power plants together in order to allow for economies of scale to form. Moreover, the only type of carbon capture and storage that has proven economical thus far is when carbon is used in Enhanced Oil Recovery (EOR), being sent down oil and gas wells in order to increase oil and gas productivity. The Gulf already uses EOR in some cases, and has huge EOR potential as a result of the size of its oil and gas fields.

US Oil Demand

One factor that could help spur the industrialization of the Gulf would be if people in the rich world, particularly in North America, would stop driving alone in their cars so much. By switching to alternative forms of transport — whether carpooling, taking public transport, UberPool-ing, e-commuting, shopping online, taking a self-driving bus or self-driving electric car, etc. etc. — it may leave Gulf oil available for industrial use within the Gulf.

Regional Political Triangle

This article has been a bit of a theoretical ramble, I know. But if we assume for a moment that the Gulf does manage to use its energy resources and robots to become a industrial powerhouse, what would happen to the politics of the wider region? India and Pakistan, after all, are located very close to the Gulf, putting a billion and a half people within its reach.

I think you might see something like a US-Gulf-South Asia political triangle emerge. The US has already been allies with the Gulf Arab states and Pakistan for many decades now (though of course, it is often a tortured alliance), so this would require only bringing Iran and India into the fold as well. India is already well on its way in this regard; Iran may perhaps be following behind it, given the recent warming of relations between the US and Iran during Obama’s second term.

In such a scenario, the Gulf would provide goods and oil to South Asia, South Asia would provide skilled outsourced labour to the Gulf, the US would provide food and military protection to both the Gulf and South Asia, and the Gulf and South Asia would help the US to put a lid on regional chaos and contain any European, East Asian, or Eurasian powers that may emerge over time.

Then again, maybe none of this will end up happening. The Gulf may be ludicrously rich in easy-flowing oil and gas, but translating that energy wealth into industrial success will be no easy feat, with or without robots.

 

 

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