[color="Red"]Resource Nationalism: The Most Important Political Movement of the 21st Century

By Jack Lifton
26 Oct 2006 at 04:54 PM EDT

DETROIT (ResourceInvestor.com) -- Capitalism is not a political system and its adoption as all or part of a nation’s economic system does not insure the growth or stabilization of democracy in government.

The mixture of state socialism and capitalism that has been adopted by autocratic states such as Russia, China and Iran is building vast reserves of capital in those nations that is under the direct control of the rulers of those nations. In a democracy, freely elected governors would be under intense pressure to use their newfound wealth primarily for internal development and the relief of poverty.

The autocratic nations have given capitalism some leeway to do just that, but the bulk of their reserves are being utilized to increase their nations’ influence in the world. All the autocrats know that they are too far behind the United States in conventional military power to ever catch up, so they have decided to build up their economic power instead, so their nation’s economies can become independent of outside control.

Resource nationalism will, I think, be the most important political movement of the 21st century. It started with the Arab oil embargo of 1972; but the Arab countries have no knowledge base, or economic system, from which to build an industrialized society, so we got a respite that has now been shattered by the rapidly growing economy of China, which, even without much petroleum of its own, has become the leader of the new “axis of oil” comprising mainly itself, Russia, Saudi Arabia and Iran.

Led by China, this new political grouping is becoming the world’s pre-eminent economic power, and it has set its eyes on a global resource nationalism to reduce the power and influence of the western democracies over the members of the axis.

China has been developing internally and acquiring, using the money and technology showered on it by the West for “cheap goods,” the strategic resources of Asia and Africa while encouraging Americans to reduce their production of their domestic strategic resources. The plan is working. Every day America becomes more dependent on China and its new political partners for the resources that provide us with our life style and our way of life.

A great deal is being written today about the topic of resource nationalism. This is defined as the control, by the nation state in which they are located, of in-the-ground resources and the means of extracting and refining them into forms normal for use and international trade.

Many, perhaps all, industry mining experts view, and even narrowly define, resource nationalism as a political issue almost exclusively focused on the physical control of the supply (through production control) of oil and natural gas, first and foremost, to maximize its benefit for the development of the producing country. This view is, in my opinion, mistakenly narrow.

I think that resource nationalism is the most important economic issue to arise since the end of the cold war, and I think the political implications of resource nationalism are insidious and already affecting, not just beginning to affect, America’s life style.

The myopia of the gold mining community is legendary, and their ‘take’ on resource nationalism was well stated at the recent Denver Gold Forum 2006 by Alex Gorbansky. He said:

“It is not surprising that the Russian government is seeking greater participation in Sakhalin [A massive oil/gas development project undertaken by a group led by Shell with strategic supply importance, first of all, for the Chinese market] , given the strategic nature of the project and Shell’s cost overruns. We should not extrapolate too much from this, as in Russia, it’s important to distinguish government policies towards projects that are viewed as strategic [such as Sakhalin] and those that are viewed as being significantly less important. Most mining deals, with some exceptions, fall into the latter category.”

Gorbansky is an expert on gold mining, and he is speaking in that context, and, in that context, he is probably right. Gold mining is significantly less important than the production of oil and gas. Which one would you rather live without?

In a politically alarming essay entitled “Can Public Diplomacy Counter Resource Nationalism?,” published last month by the USC Center on Public Diplomacy, a new political “axis of oil” is defined as being composed of political opponents of the U.S., which use oil as an economic weapon. It is a sobering read, and I highly recommend it.

But the point I want to make, again and again, is that while we are all familiar with overt, and illegal if formed by American companies, monopolistic cartels such as OPEC that control the production of oil in member states, we do not let ourselves easily become aware of other virtual cartels in the world that exert production and pricing control on metals and minerals without which our life style would degrade rapidly due to the potentially severe contraction of goods available to ordinary people at prices to which we have become accustomed.

The platinum group metals (PGMs) are an excellent example of one such resource controlled today by a virtual cartel made up of private western companies that will never, on their own, allow the price of these metals to grow to the point where they cannot be used, so that demand collapses. The virtual platinum cartel, however, is nervous of the Russians and the Chinese in Africa, because supplies of new platinum group metals are being developed almost exclusively in Russia and Chinese-dominated Africa. Worse for the virtual cartel is the fact that most of the demand for new platinum group metals for autocatalyst, petroleum reforming catalyst and jewellery is coming from Russia and mainland China.

I think it is not only conceivable but likely that given the option of selling PGMs to nations such as America through the established virtual cartel, of which the Russians are nominal members, or using the metals for internal development and the benefit of their domestic industries will be a decision made by the political leadership of Russia or China not by its economists. The price to outsiders will not be an issue to them if their economies are in surplus.

For the first time politically unfriendly economies are growing so fast that they can consume all or more than all of their domestic production of strategic metals, so they have become demand competitors rather than simply suppliers. China has gone out into the newly defined (without China-developing) world and made extravagant donations of aid to build infrastructure and loans to develop resources in African countries that have absolutely no domestic demand for the quantities involved. Of course the Chinese, having learned from us, take payment for their resource development loans in the resources themselves at prices fixed when the contract was made, so-called “off-take” agreements. I have written about this topic here before specifically in regard to chromium.

Chinese technology, internally developed or “purchased or otherwise acquired” from the west carries much less onerous terms for African and Arab autocrats than such offers from the West. The autocrats don’t need to even pretend to be interested in developing democratic institutions to get Chinese assistance, and Chinese weapons are reasonably good and very cheap also for defence purposes, of course.

I will continue this discussion and to develop the details of this theme in another article but I want to state that any investment at all in an industrially important strategic materials mining or refining in a nation of the axis of oil or one in the orbit of the axis-to drag out a geometric metaphor- is highly risky. Nationalization and reduction of production of oil has been called the “Arab Oil Weapon” for years. More of this type of action is coming and not just in oil.

Copper mines, for example, have been nationalized, in the past, in Africa and South America, but this has hurt mainly the foreign companies that developed the mines. Domestic consumption in the countries doing the nationalizing has always been too small and the need for capital is too great to keep the copper off the market for too long.

The growing economies of the autocratic world, led by China, have changed the dynamic and dramatically increased the risk of resource investment in those economies.

At the same time America has surrendered its domestic resources to either inactivity, to comply with arbitrary environmental rules, or foreign ownership. All this in the name of enlightened and environmentally concerned capitalism.

I don’t know about you, but I’m becoming a resource nationalist. American has enough petroleum (in crude oil, and shale), natural gas and coal along with uranium and (most of the world’s) thorium to be energy independent. We have copper, iron, molybdenum, tungsten, chromium, platinum, palladium and rare earth metals in abundance.

We need to recognize a rational environmentalism and a community of enlightened self-interest with regard to the development and use of our natural resources.

Invest in domestic American resources for domestic needs, or hunker down for a cold century. It’s your choice. End of lesson ... for now.

http://www.resourceinvestor.com/pebble.asp?relid=25132