Recently, there has been renewed concerns about efforts by China to acquire mineral assets overseas, taking advantage of recent company devaluations and their own abundant capital reserves. This is not a new concern, having arisen when Chinese companies began to look overseas for investment opportunities, particularly in the oil market, about a decade ago.
And this dates from nineteenth-century nations seeking to monopolize the whaling industry, to the English government establishing British Petroleum in an effort to avoid reliance on those undependable Americans. (Even the US, fearful of ‘running out’ of oil in the 1920s, established the Naval Petroleum Reserve, which proved useless.)
But there is some fire for all the smoke. In 1941, the US and UK declared an oil embargo on Japan, an effective tactic because those two countries’ oil companies (the Seven Sisters) controlled nearly all of the world’s internationally traded oil (excluding that produced inside the US and Soviet Union). Presumably, the embargo would have worked except for the Japanese deciding to acquire their own overseas assets.
Since that time, however, the industry has fragmented to an extraordinary extent (especially after 1973), to the point that no single country controls more than about 10% of the oil market, including Saudi Arabia. (Natural gas is different because of the dedicated nature of gas pipelines.) Recent attempts at embargoes—against Israel, Rhodesia and Serbia—have been unmitigated failures because of the widespread availability of supply and suppliers.
The only real success in recent decades has been that against Saddam Hussein’s Iraq for its invasion of Kuwait and (presumed) continued attempts at developing weapons of mass destruction. However, that required a United Nations agreement on sanctions and a military embargo, both rare developments.
What countries like China (and many others before her) ignore is that the primary problems of political disruptions of supply do not involve the nationality of the company transferring the resource from point of production to that of consumption, but the nation where the production is located. Only three types of disruptions are likely in the future, and none of them is addressed by having ownership of foreign resources.
First, in the case of a broad embargo targeted against a resource importer, the exporting nation would either comply or not, and the nationality of resource producers in that nation would be largely irrelevant.
Second, a disruption unrelated to international politics (hurricanes, strikes, civil unrest) would affect all producing companies equally, without regard to national origin.
Third, as the US discovered in Iran in 1979, being on good terms with a government is no guarantee against political risk. Indeed, a new government is ever more likely to act against the friends of the old government, since they are, by nature, opposed to the old government and all most certainly declared it to be corrupt.
Some years ago, at an international energy conference, a French official commented on the fact that French diplomats traveled the world, seeking resources for the French economy. The German economist next me to remarked, “We just buy the stuff.”
Touché. Too many nations think that they must provide foreign aid, military assistance, or above-market prices to have access to either supplies of resources or development projects. While efforts to help undeveloped nations’ economies progress is one thing, governments are foolish to pay for the right to buy resources at above-market prices.
The good news is that to the extent that governments subsidize the development of resources, they are benefiting global consumers by raising global supply (although at the expense of the investor-nation taxpayers). Many do not understand this concept, but, as Dogbert said, it proves that they don’t understand the word fungible.