Reviews

The challenges for corporate oil Fractious energy developments

Empires of Oil Corporate Oil in Barbarian Worlds By Duncan Clarke £20 Profile ISBN: 978-1-84468-046-5

having taken issue with the ‘peak oil’ proponents in his last book The Battle for Barrels, Dr Duncan Clarke now turns his attention to the great game that is the world’s hydrocarbon industry. He is hardly an uninvolved observer of the industry – for 30 years he has worked in oil exploration, more recently as a world-renowned analyst and as the chairman and CEO of Global Pacific &Partners, a company he formed 20 years ago that acts in a private advisory capacity for many of the world’s top oil companies. Global Pacific & Partners also hosts numerous oil and gas conferences, exhibitions and briefings around the world. Clarke acknowledges the need for “ruthless objectivity” in tackling this analysis of an economic sector pivotal to a world whose dependence on oil and gas is all but total. This ruthless objectivity is allied to a broad experience of world affairs. He is well travelled, having visited more than 100 countries over four decades “[providing] multiple prisms through which to view the divergent societies and diverse views that makes up our contested world”. Following an upbringing in Zimbabwe (then Rhodesia) he spent much of the 1970s and 1980s in all regions of Africa and other parts of the developing world, including a stint with the UN as an economist working on and in Africa. “In the

process,” he writes, “my world became one of protracted civil war, several regime changes and subsequent political dramas that were akin to (and, for many, worse than) ethnic cleansing...” And it is perhaps these personal recollections than give us a clue to what motivates this book. No one would accuse him of wearing his heart on his sleeve, but Clarke likens the current situation confronting today’s oil industry to that faced by the Roman Empire before its fall. Even as oil breaks through the $100/barrel mark, multitudes of Barbarians are at the oil industry’s throat threatening to overthrow the old order. This analogy with the Roman Empire is a theme that emerges in an early chapter of the book and echoes through to the final page. For Clarke foresees a rapidly changing landscape. By 2030, he predicts, “a new set of local heirs to the global political order and its oil reserves will walk upon the world energy stage”. Clarke clearly wants the industry to face up to the risk of an implosion

of social and economic order that unanticipated change could pose. To navigate and understand this new landscape, and the opportunities it might offer, Clarke uses the notions of Niccolo Machiavelli and, “his thoroughgoing realism... the fruits of honest, harsh, forceful, uncomfortable, provoking and acutely perceptive thinking”.

The oil curse One of the first issues the author examines is the so-called ‘oil curse’. He demonstrates little patience with the popular theory that oil, corruption and conflict are somehow inexorably interlinked. This theory has been central to several recent books and Clarke focuses on three in particular; Andy Stern’s Who Won the Oil Wars? Gary Leeches’ Crude Interventions, and Poisoned Wells – The Dirty Politics of African Oil by Nicholas Shaxson (see Reviews African Business August/September 2007 issue). He insists: “In reality, oil is not a curse as such, although its mismanagement (typically in the hands of government) might, but need not, become one.” He then leaps to the defence of the oil industry saying: “Few [of the industry’s critics] take the trouble to acquaint themselves with the deep and complex histories that have shaped under-development in the third world. Nor do many accounts, if any, consider on a cost-benefit basis the enormous impacts of corporate oil portfolio investment, without which many states (notably Nigeria) might be considerably worse off.” That is an interesting line of reasoning and not without merit, although it does smack of the ‘better a half loaf than no loaf at all’

argument. Furthermore, many of the industry’s critics would want to contend that the enormous impacts that Clarke refers to are less relevant to ordinary Africans than they are to a ruling elite – and that is a status quo that the oil industry seems to be quite comfortable with. And it is peculiar that this book’s footnotes, with regard to Shaxson’s Poisoned Wells, state that “the bulk of this otherwise informative book [Poisoned Wells] is a critique of individuals within the political oil elites in selected countries, and the view taken on the oil curse in effect excuses oil companies and states from any casual connection to the oil curse” – a view which, it might be argued, largely echoes Clarke’s own! The author then adds: “While novel as an idea, it is not persuasive, while the notion that governments (including policies that they practise) have no liability or impact on their own backyard is bizarre.” Nonetheless, Clarke is on safer ground when, later in the book, he counters the argument that the oil corporations are just too wealthy and powerful for the governments and civil society of the developing world to be able to negotiate equitable contracts with. One oft cited statistic is that the large oil corporations each has a market capitalisation that is greater than the GDP of many states. That may be true, but, as Clarke argues, this is not comparing like with like. “Market capitalisation is a stock reflecting value,” he explains. “GDP is flow like income. Normal capital/output ratios of, say, 4:1 render these supposed comparisons wildly misleading to say the least ... moreover, it is seldom pointed

64

African Business | February 2008
out that corporate oil has multiple risks to cover, employs millions of people in the developing world and has a cost/benefit impact typically well in excess of the in-country portfolio (often itself substantial). Such technicalities fall on deaf ears. The debate is ideological and intended to be so.”

Resource nationalism The next part of the book examines the West’s contemporary oil game. “There are new empires of oil emerging that challenge the old order, with a paradigm shift already in process,” Clarke says, presenting evidence that suggests that what we are currently witnessing is the end of an era during which corporate control of the oil industry has gradually eroded and been replaced by nation states assuming greater power. This phenomenon is usually described as resource nationalism. In short, state players and their national oil companies have radically transformed the oil game with what Clarke describes as the “fractious energy developments” involving Russia, China, Iran, the Middle East and many new oil-rich pretenders across the world – Venezuela being a prime example. Clarke also draws attention to a growing divergence between the interests of the US and Europe. For many years the oil industry was controlled and dominated by the West’s infamous ‘seven sisters’ (Esso, Shell, BP, Gulf, Texaco, Mobil and Socal – later Chevron), their birth being inextricably linked with the latter days of the British Empire before being overtaken by a US corporate ascendance. Control of the global oil industry is now being challenged not only by non-Western players but by the post-Cold War fracturing of the transatlantic accord between US and European oil companies. This dynamic, Clarke suggests, has similarities with what occurred when the interests of Rome and Constantinople began to diverge. The author also draws on the lesson to be drawn from ancient history of the perils of losing resource

of engagement with human rights,” he opines. But Clarke seems sanguine with regard to the challenges faced by multinational oil corporations and the emergence of resource nationalism, the barbarians at the gate so to speak, compared to the struggle that corporate oil needs to wage with the ‘barbarians within’ – the West’s anti-globalisation activists (that he calls the ‘fifth estate’) who generally share a distinct enmity towards the hydrocarbon industry.

Duncan Clarke describes the current global scramble for Africa as being focused on the continent’s hydrocarbon resources.

control – the way that the Roman Empire was fatally weakened when it was no longer able to rely on the granaries of North Africa. That was an early example of how the continent’s resources have, through the centuries, played a key role in the fortunes of global empires.

Africa’s emergence Clarke says that the global scramble for Africa has “returned with a vengeance – this time focused on hydrocarbons”. He further notes that national oil companies from around the world such as those from China, India, Southeast Asia and Africa, like Sonatrach (Algeria) and PetroSA (South Africa), have all expanded their asset base and can now be found in situ across Africa. Yet, even if the continent’s oil and gas production and exports are

set to increase for the foreseeable future, he gives Africa little chance of creating an oil empire. Rather, he notes (does this sound familiar?) Africa will be relegated to a role of providing the theatre where the foreign oil empires compete with each other. While the West’s oil industry players, from the super-majors to the minnows, are all involved in Africa – in part as an alternative to supplies to the Gulf, in part because in represents new frontiers – he sees the challenge posed by Chinese interests as being particularly potent. “Corporate oil cannot compete directly with China’s ancillary infrastructure deals, soft financing, diplomatic muscle, state-to-state transactions, arms provision, sanctioned state entries and lack

Big oil’s critics Clarke asks the big questions: who are the critics of corporate oil, what is their agenda, and how should corporate oil respond to ensure its survival? He despairs of the way that the industry, in general, deals with the tens of thousands of NGOs that are opposed to the oil corporations (a Google search for NGOs & oil, he tells us, produces over 1.3m hits!), describing it as curious that they seem so reluctant to engage with and debate many of the core issues. “Most importantly,” Clarke writes, “[corporate oil] shies away from playing its trump card. That is, it refrains from arguing that, on portfolio cost/benefit terms, the oil industry and oil companies can usually be shown as huge net contributors to global living standards and world development.” He seems only marginally more enamoured with the fourth estate – describing the way that corporate oil now faces opposition from journalists “both inadvertently, sometimes through a lack of understanding of the scientific, technical and industrial issues involved, and sometimes consciously”. Our author might consider taking out a subscription to African Business to obtain a more rounded and balanced view of the media coverage afforded to corporate oil’s activities, at least in Africa. But besides this very obvious oversight, this book’s strength is the author’s willingness to fearlessly present views that run counter to what is currently deemed politically correct.

African Business | February 2008 65