Global Trends 2025: A transformed world  

Energy Bulletin has excerpts from and links to the latest report from the U.S. National Intelligence Council on global trends - Global Trends 2025: A transformed world. Resource scarcity (a transition away from oil is predicted as a near-certainty) and global warming are major themes, as is the end of the "hyperpower" era and the return to a multi-polar world.

We prepared Global Trends 2025: A Transformed World to stimulate strategic thinking about the future by identifying key trends, the factors that drive them, where they seem to be headed, and how they might interact. It uses scenarios to illustrate some of the many ways in which the drivers examined in the study (e.g., globalization, demography, the rise of new powers, the decay of international institutions, climate change, and the geopolitics of energy) may interact to generate challenges and opportunities for future decisionmakers. The study as a whole is more a description of the factors likely to shape events than a prediction of what will actually happen.

... Among the messages we hope to convey are: “If you like where events seem to be headed, you may want to take timely action to preserve their positive trajectory. If you do not like where they appear to be going, you will have to develop and implement policies to change their trajectory.” ...
Contents

Introduction: A Transformed World

Chapter 1: The Globalizing Economy
Chapter 2: The Demographics of Discord
Chapter 3: The New Players
Chapter 4: Scarcity in the Midst of Plenty?
Chapter 5: Growing Potential for Conflict
Chapter 6: Will the International System Be Up to the Challenges?
Chapter 7: Power-sharing in a Multipolar World

Executive Summary

The international system—as constructed following the Second World War—will be almost unrecognizable by 2025 owing to the rise of emerging powers, a globalizing economy, an historic transfer of relative wealth and economic power from West to East, and the growing influence of nonstate actors. By 2025, the international system will be a global multipolar one with gaps in national power2 continuing to narrow between developed and developing ountries. Concurrent with the shift in power among nation-states, the relative power of various nonstate actors—including businesses, tribes, religious organizations, and criminal networks—is increasing. The players are changing, but so too are the scope and breadth of transnational issues important for continued global prosperity. Aging populations in the developed world; growing energy, food, and water constraints; and worries about climate change will limit and diminish what will still be an historically unprecedented age of prosperity.

Historically, emerging multipolar systems have been more unstable than bipolar or unipolar ones. Despite the recent financial volatility—which could end up accelerating many ongoing trends—we do not believe that we are headed toward a complete breakdown of the international system, as occurred in 1914-1918 when an earlier phase of globalization came to a halt. However, the next 20 years of transition to a new system are fraught with risks. Strategic rivalries are most likely to revolve around trade, investments, and technological innovation and acquisition, but we cannot rule out a 19th century-like scenario of arms races, territorial expansion, and military rivalries.

This is a story with no clear outcome, as illustrated by a series of vignettes we use to map out divergent futures. Although the United States is likely to remain the single most powerful actor, the United States’ relative strength—even in the military realm—will decline and US leverage will become more constrained.

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The Dawning of a Post-Petroleum Age?

By 2025 the world will be in the midst of a fundamental energy transition—in terms of both fuel types and sources. Non-OPEC liquid hydrocarbon production (i.e., crude oil, natural gas liquids, and unconventionals such as tar sands) will not be able to grow commensurate with demand. The production levels of many traditional energy producers— Yemen, Norway, Oman, Colombia, the UK, Indonesia, Argentina, Syria, Egypt, Peru, Tunisia—are already in decline. Others’ production levels—Mexico, Brunei, Malaysia, China, India, Qatar—have flattened. The number of countries capable of meaningfully expanding production will decline. Only six countries—Saudi Arabia, Iran, Kuwait, the UAE, Iraq (potentially), and Russia—are projected to account for 39 percent of total world oil production in 2025. The major producers increasingly will be located in the Middle East, which contains some two-thirds of world reserves. OPEC production in the Persian Gulf countries is projected to grow by 43 percent during 2003- 2025. Saudi Arabia alone will account for almost half of all Gulf production, an amount greater than that expected from Africa and the Caspian area combined.

A partial consequence of this growing concentration has been increased control of oil and gas resources by national oil companies. When the Club of Rome made its famous forecast of looming energy scarcities, the “Seven Sisters” still had a strong influence on global oil markets and production.7 Driven by shareholders, they responded to price signals to explore, invest, and promote technologies necessary to increase production. By contrast, national oil companies have strong economic and political incentives to limit investment in order to prolong the production horizon. Keeping oil in the ground provides resources for future generations in oil states that have limited their economic options.

The number and geographic distribution of oil producers will decrease concurrent with another energy transition: the move to cleaner fuels. The prized fuel in the shorter term likely will be natural gas. By 2025, consumption of natural gas is expected to grow by about 60 percent, according to DoE/Energy Information Agency projections. Although natural gas deposits are not necessarily co-located with oil, they are highly concentrated. Three countries— Russia, Iran, and Qatar—hold over 57 percent of the world’s natural gas reserves. Considering oil and natural gas together, two countries—Russia and Iran—emerge as energy kingpins. Nevertheless, North America (the US, Canada, and Mexico) is expected to produce an appreciable proportion—18 percent—of total world production by 2025.

The Geopolitics of Energy

Both high and low energy price levels would have major geopolitical implications and, over the course of 20 years, periods of both could occur. DoE’s Energy Information Administration and several leading energy consultants believe higher price levels are likely, at least to 2015, because of plateauing supply and growing demand. These causes are unlike the case in 1970s and early 1980s when high oil prices were caused by an intentional restriction in supply. Even with the overall secular rise in energy costs, prices well below $100 a barrel are periodically likely with the expected increased volatility and need not come about as a result of technological breakthroughs and rapid commercialization of a substitute fuel. Plausible scenarios for a downward shift and change in market psychology include slowing global growth; increased production in Iraq, Angola, Central Asia, and elsewhere; and greater energy efficiencies with currently available technology.

Even at prices below $100 a barrel, financial transfers connected with the energy trade produce clear winners and losers. Most of the 32 states that import 80 percent or more of their energy needs are likely to experience significantly slower economic growth than they might have achieved with lower oil prices. A number of these states have been identified by outside experts as at risk of state failure—the Central African Republic, DROC, Nepal, and Laos, for example. States characterized by high import dependence, low GDP per capita, high current account deficits, and heavy international indebtedness form a particularly perilous state profile. Such a profile includes most of East Africa and the Horn. Pivotal yet problem-beset countries, such as Pakistan, will be at risk of state failure.

With higher prices, more stable countries fare better but their prospects for economic growth would drop somewhat and political turbulence could occur. Efficient, service-sector oriented OECD economies are not immune but are harmed the least. China, though cushioned by its massive financial reserves, would be hit by higher oil prices, which would make lifting millions more out of poverty more difficult. China also would need to mine and transport more domestic coal, build more nuclear power plants, and seek to improve energy end-use efficiencies to offset the higher priced imports.

With high prices, major exporters such as Russia and Iran would have the financial resources to increase their national power. The extent and modalities of steps to increase their power and influence would depend on how they used their profits to invest in human capital, financial stabilization, and economic infrastructure. Judicious application of Russia’s increased revenues to the economy, social needs, and foreign policy instruments would likely more than double Russia’s standing as measured by an academic national power index.

A sustained plunge in oil prices would have significant implications for countries relying on robust oil revenues to balance the budget or build up domestic investment. For Iran, a drop in oil prices to the $55-60 range or below would put significant pressure on the regime to make painful choices between subsidizing populist economic programs and sustaining funding for intelligence and security operations and other programs designed to extend its regional power. The notion that state-dominated economies, apparently able to achieve economic growth absent political freedoms or a fully free market, are a credible alternative to Western notions of free markets and liberal democracy could be badly dented, particularly since history suggests the US and other Western states adapt more quickly and effectively to unexpected changes in energy markets. Under any scenario energy dynamics could produce a number of new alignments or groupings with geopolitical significance:

* Russia, needing Caspian area natural gas in order to satisfy European and other contracts, is likely to be forceful in keeping Central Asian countries within Moscow’s sphere, and, absent a non-Russia-controlled outlet, has a good chance of succeeding.
* China will continue to seek to buttress its market power by cultivating political relationships designed to safeguard its access to oil and gas. Beijing’s ties with Saudi Arabia will strengthen, as the Kingdom is the only supplier capable of responding in a big way to China’s petroleum thirst.
* Beijing will want to offset its growing reliance on Riyadh by strengthening ties to other producers. Iran will see this as an opportunity to solidify China’s support for Tehran, which probably would strain Beijing’s ties to Riyadh. Tehran may also be able to forge even closer ties with Russia.
* We believe India will scramble to ensure access to energy by making overtures to Burma, Iran, and Central Asia. Pipelines to India transiting restive regions may connect New Delhi to local instabilities.