Friday, December 19, 2014

The Curse of Petro-Politics


Stephen Harper has made no secret that it is his intention to transform Canada into a petro-state.  Stanford professor Terry Lynn Karl has devoted her academic career to the study of petro-states. And she has concluded that petro-politics lead to self immolation. In an interview with Andrew Nikiforuk, she predicts that falling oil prices will have catasrophic consequences for several petro-states:

"The effects of falling oil prices will be quickly felt in Venezuela, which is extremely vulnerable. If oil keeps dropping, the country's employment, standard of living and GDP will be affected. This tends to make people not like their government.

"Venezuela, which is already extremely polarized, is in big trouble. In this respect, there is a big difference between how oil prices affect Canada and the U.S. and how they affect countries where the politics have become totally petrolized. Where there is simply no difference at all between wealth and power, where corruption and rent seeking have taken over the whole enterprise or where conflict is already very high, these are the most vulnerable countries.

Russia isn't quite as vulnerable as Venezuela, but because it is a global power its fate is more important. In the face of both sanctions and low prices, the ruble has plummeted, debt is rising, living standards are declining, and food prices are up sharply. With oil prices high, Putin took certain actions in the Ukraine and elsewhere because he felt untouchable; his popularity remains very high.

"But this could change very quickly if prices remain low.

"Most people don't understand that the decline of the former Soviet Union was closely linked to the 1986 collapse in oil prices. Putin later took advantage of high prices to build his own personal power. That could be at stake if prices stay low."

And for all petro-states:

"Debt is the Achilles heel of this picture. If prices remain low for several years, a lot of U.S. shale producers have high debt loads, especially in junk bonds. Today, energy debt currently accounts for a substantial 16 per cent of the U.S. junk bond market. If these producers start going bust, investors in junk bonds will be in for a shock.

 "Dropping oil prices affect international debt as well, creating a high risk of default by countries like Venezuela. Around the world two sets of debt are coming in -- from the high cost bitumen and shale oil producers who borrowed to help create the current supply glut and oil exporting producers who have borrowed heavily. Both affect the entire financial system.

So, just as the financial system almost brought the house down in 2008, oil could be the cause of the next global economic collapse. And Stephen Harper happily assumes oil will lead to national Nirvana.

Who would you believe -- Karl of Harper?


Anonymous said...

Owen Gray said...

Thanks for the link, Anon. The "shale miracle" is not all it's cracked up to be.

Dana said...

Upon coming to office in '06 these 'Conservatives' immediately began attempting to shift the economic centre of Canada toward the west in general, but most especially and specifically to Alberta.

Remember "I don't know why anyone would invest in Ontario" coming out of the mouth of Ontario MP and Minister of Finance wee James, blessedly now in hell.

Remember the thrust to push the dollar higher, ostensibly to fatten oil and gas profits. Didn't do any good for the rest of the country, did it? In fact it all but destroyed Ontario's manufacturing base - the place Canada's finance minister advised international investors to avoid.

Every sector of Canada's economy other than oil and gas is a shambles and getting worse. And now the sparkle dust is being blown off the petro industries.

What Harper and his cabal of mindless, spineless, gutless, bloodless, loveless hillbillies has wrought upon the nation is something even the incompetent junior investment advisors at Joe's Bank in Podunk, Alberta know you and I shouldn't do.

Harper, the "trained economist", has put all Canada's economic eggs in one basket. No significant diversity at all.

Why he still has an approval rating in positive territory is a damning statement about the idiocy of your neighbours and mine.

Owen Gray said...

Apparently, Terry Karl was inspired by the work of Harold Innes, Dana. He was the Canadian scholar who warned of the dangers of the "resource trap."

While Karl is familiar with Innes' work, it's apparent that Stephen Harper has never been introduced to it.

Anonymous said...

Recall reading on some blog someone who claimed that he/she had met one of Harper's M.A. thesis examiner at U. of Calgary. The latter apparently had said that his impression from examining the thesis was that it was written by not so much a blossoming economist than a politician.

Seems to be the story of Harper's life, isn't it? Not really strong in economics .... putting all his oily eggs in a sector of the economy that is no more than 10% of our GDP and that is well known to suffer from wild, unpredictable boom and bust cycles.

Question is whether he is so deeply in the pocket of the oil industry or he genuinely fails to understand the importance of diversifying the country's economy?

Owen Gray said...

That's a good question, Anon. Economics 101 used to hold that a strong economy is a diversified economy.

Seems to me the examiner understood the man whose thesis he was asked to evaluate.