HyperNormalTimes

Written by our Director of Equity Advisory, Jeremy McKeown, the HyperNormalTimes provides in-depth and considered long-term commentary on major macroeconomic and market-shaping themes.

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July 17, 2022

Energy Security & Human Rights

Energy Security & Human Rights

Fist bump confirms that might is still right

Joe Meets Bone-Saw 

 

Joe Biden travelled to Saudi Arabia for the first time as President this week to woo MBS, Mohammed ‘Bone-Saw’ Salman. Joe made the trip because we need more oil, and MBS has a lot of it. The new overarching strategy is energy security. There is a global shortage of oil and gas in the right parts of the world. So much so that Western countries are prepared to buy hydrocarbons from nearly anyone other than Putin.

Not Cricket

 

The inconvenient truth is that MBS is not, how shall we say, a man who has an appreciation of the laws of cricket. The country he and his family run by decree is not precisely an open society where people can say what they please, particularly about their medieval form of autocratic government. But in the words of a soon-to-be former Prime Minister, “them’s the breaks”, they got the oil.

Petro Dollar Principle

 

Since the deal struck between FDR and King Abdulaziz Ibn Saud on board USS Quincy on Bitter Lake in 1945, the US (and the West) have effectively agreed to turn a blind eye to the Saudi regime. In exchange, the Saudis have supplied us with oil and recycled the enormous wealth it generates through the US banking system. US presidents have followed the Quincy Agreement for the past 80 years and seemed to understand the mutual pact and what is involved. That is until Joe Biden was elected, who nobly pledged to make Saudi a pariah state due to their propensity to murder journalists.

Freedom Scores 

 

The US Freedom House organisation, which grades countries for their freedom, rates Saudi at 7/100. By comparison, Russia rates at 19. The only countries that rate lower than Saudi on this measure are: Eritrea, South Sudan, Equatorial Guinea, Turkmenistan, Syria and Western Sahara. The UK rates 93, the US 83 and the Scandi trio of Sweden, Norway and Finland, an incredulous perfect 100 apiece.

Resource Curse

 

But have you ever stopped to consider why hydrocarbons are so often owned by autocrats? OK, perfect Norway is an outlier. But why is there such a strong correlation between low scores on the Freedom House rating and natural resource abundance? Was it by divine design that geological riches were endowed mainly to bad people, or does the causation work the other way? I recently met someone who explained this puzzle in such a blinding flash of the obvious I am still trying to fully comprehend its significance. Leif Wenar refers to the phenomenon as the “resource curse, ” which explains much about our current predicament over energy security with Russian and Saudi Arabia.

Oil Laundering 

 

In 2015 Leif wrote a book called Blood Oil, Tyrants, Violence and the Rules That Run the World. Leif’s thesis is that more than 50% of globally traded oil we buy and sell daily can be defined as “stolen property” under conditions of two UN human rights treaties. Further, some 96% of the world by population live in countries that have signed and agreed to abide by at least one of these treaties. These treaties insist, among other things, that countries pursue popular resource sovereignty, ensuring the people of any country benefit from the revenue generated. Instead of honouring these treaties, we, along with every other major trading nation on earth, simply ignore them.

Might is Right 

 

We follow the “might is right” principle of international trade that has guided us through our historical periods of piracy and slave trading from the earliest days of navigation. By so doing, the West launders the blood money of dictators and tyrants and legitimises the property rights to their nation’s looted resource wealth. The result of the “might is right” policy is the flourishing of rent-addicted countries, with Angola, DRC, Nigeria, Equatorial Guinea, Russia and Saudi Arabia among its cast, funding domestic oppression and external violence unchallenged by any effective popular sovereignty.

Look the Other Way 

 

This week’s fist bump between Biden and MBS was abhorrent to many. However, the greeting was wholly consistent with post-WW2 US policy. Under the Quincy Agreement, the US has always looked the other way regarding Middle Eastern energy security. The damage this policy has inflicted on the people of countries suffering from the resource curse has been devastating. The damage now being done to the people of Ukraine and growing parts of Eastern and Central Europe means the curse is currently visiting countries near us. But our ongoing policy remains, they got the oil, “them’s the breaks”.

Jeremy

Devon

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