Center for a New American Security

There are several trends that are worth watching as they develop because they could affect the price of oil. 

Friday’s U.S. jobs report contributed to higher oil prices, in part due to predictions that demand for energy will continue to rise as the U.S. economy recovers. “U.S. benchmark crude increased by $1.48 on Friday to end the week at $97.84 per barrel,” CBS News reported. “It was the first time since Jan. 26 that the price of crude ended the day higher. Brent, used to price international varieties of crude, rose by $2.51 to finish at $114.58 per barrel.” The report added:

Prices rose after the government reported that the U.S. economy added 243,000 jobs in January. That was the biggest increase since April of last year, when 251,000 jobs were created. The unemployment rate fell to 8.3 percent — the lowest in three years. The positive U.S. jobs data added to evidence that the world's largest economy — and biggest user of gasoline — is growing stronger. 

Elsewhere in Nigeria, militants with the Movement for the Emancipation of the Niger Delta claimed responsibility for an attack against an Eni SpA oil pipeline. “A Rome-based spokesman for Eni, speaking on condition of anonymity per company policy, acknowledged that either a fire or attack had happened on the pipeline, cutting about 4,000 barrels of crude oil production a day,” The Wall Street Journal reported on Sunday. Nigeria, it is worth noting, is America’s fifth largest oil supplier.

Yesterday, China’s nationalist newspaper Global Times published a report arguing that Beijing should make the Philippines pay for increased cooperation with the United States, what Chinese officials perceive as a balancing act unfolding in the region. According to the Global Times:

Given the recent active maneuvers of the US military in China's neighboring area, the lack of a response from China would be inappropriate, though it is also impossible to react strongly toward every move by the US. It is thus necessary to single out a few cases and apply due punishment.

The Philippines is a suitable target to impose such a punishment. A reasonable yet powerful enough sanction can be considered. It should show China's neighboring area that balancing China by siding with the US is not a good choice.

The report adds that Beijing should use economic coercion to compel the Philippines into suspending its ongoing activities with the United States: “China may consider cooling down its business ties with the Philippines. One step forward in military collaboration with the US means a step backward in economic cooperation with China. In the long run, China may also use its economic leverage to cut economic activities between ASEAN countries and the Philippines.”

The call from the Chinese national newspaper comes on the heels of increased military cooperation between the United States and the Philippines. In November 2011, the United States agreed to transfer a second Hamilton-class cutter to the Philippines to provide additional resources for the Philippine Navy to conduct maritime security activities, including in the South China Sea where China and the Philippines have ongoing territorial disputes. Earlier this month, the United States announced that its annual exercise with the Philippine marines will be conducted off of Palawan island instead of the main island Luzon. (Increased Chinese oil and natural gas exploration 50 miles off the island of Palawan has exacerbated tensions between the Philippines and China in recent months.) Most recently, the United States and the Philippines agreed last week to closer military cooperation moving forward. According to The Washington Post on Sunday, “The Philippines said it is considering more joint military exercises and a greater presence by American troops.”

As I wrote in last weekend’s roundup, there is a lot of uncertainty looming in Nigeria that could impact the global oil market. A weeklong row between the government and labor unions over the government’s fuel subsidy cost Nigeria about $1.3 billion dollars. Labor unions suspended the strike early last week after Nigerian President Goodluck Johnson agreed to partially reinstate his government’s fuel subsidy.

Despite the brief respite from political turmoil, the country was rocked by a series of bombings throughout the week that reportedly left 256 dead. “The militant Muslim group Boko Haram, which is fighting for rule by Islamic law in the north, said it was responsible for blasts at eight government buildings in Kano on Jan. 20,” according to Businessweek. The same report said that:

The attacks by Boko Haram haven’t affected oil from Nigeria’s Atlantic coast, where companies including Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA pump more than 90 percent of the country’s crude output. Similarly, the financial markets in the southwestern commercial capital, Lagos, haven’t been disrupted by the violence.

Nevertheless, Nigeria’s instability may have long-term implications for the global oil market if violence affects the country’s oil sector. Already, “Brent oil for March settlement advanced as much as 59 cents, or 0.5 percent, to $110.45 a barrel on the London-based ICE Futures Europe exchange,” according to Businessweek.

Energy analysts will need to be watchful of developments in Nigeria as the government continues to grapple with unrest. Moreover, the fuel subsidy issue may again surface as a point of tension if fuel prices rise. According to a report from The Wall Street Journal, “Analysts worry that the [fuel] subsidy cut played into Boko Haram's antigovernment stance, helping it to channel the anger of Nigeria's young disaffected Muslims.” Thus, the issue could continue to affect stability in Nigeria.  

News broke late last night that longtime North Korean leader Kim Jong-il died on Saturday, leaving his son, Kim Jong-un, as the chosen successor. This is a significant event and experts around the world are still reacting to the news in order to try to determine how Kim Jong-il’s death will shape North Korea moving forward. But as experts ask ‘What’s next for North Korea?” they should be sure to incorporate the state’s perennial challenges with natural resources into their assessment, which will likely play a role in shaping the North Korean state in the years ahead.

Last year, Bailey Culp wrote a timely blog post here describing the litany of resource challenges that the country is grappling with. Her assessment is as relevant as ever:

“Natural Insecurity in the Hermit Kingdom”

By Bailey Culp, former CNAS Joseph S. Nye, Jr. Research Intern

Just beyond the tranquil picturesque landscape of the demilitarized zone on the Korean Peninsula lies modern day North Korea, a bizarre and mysterious world unto itself. The country is shrouded in uncertainty and most of what the outside world knows comes through accounts from defectors, rumors printed by the South Korean press and North Korean state-run media announcements. Case in point: at a recent U.S. Senate Hearing examining the current security situation on the Korean Peninsula, Senator John McCain asked Kurt Campbell, Assistant Secretary of State for East Asian and Pacific Affairs (and CNAS co-founder), if Kim Jong-un was the “likely successor” to his father Kim Jong-il, who has ruled since 1994. Secretary Campbell succinctly replied, “Your guess is as good as ours, sir.”

The regime of Kim Jong-Il consistently draws the attention of the international community due to its ominous chemical, biological, and nuclear weapons capabilities and often erratic behavior. Furthermore, the humanitarian situation is extremely dire, with 8.7 million people in need of food assistance, 1 in 3 children under the age of 5 malnourished, and twenty-seven percent of the population at or below the absolute poverty level, living on less than 1 dollar a day.

The New York Times reported late yesterday that the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change in Durban, South Africa ended on Sunday with a promise for countries to work toward a new climate treaty, extending the Kyoto Protocol until countries can reach an agreement. According to The Hill’s Energy and Environment Blog, “The agreement requires countries to develop a new treaty by 2015 that would go into effect by 2020.” According to The New York Times, the agreement also “begins a process for replacing the Kyoto agreement with something that treats all countries — including the economic powerhouses China, India and Brazil — equally,” a perennial sticking point between developed and developing countries, and largely the reason why the United States refused to ratify the Kyoto Protocol in 1997.

Beyond the agreement to work towards a new climate treaty, international delegates did agree to establish a Green Climate Fund, which The New York Times reports will “help mobilize a promised $100 billion a year in public and private financing by 2020 to assist developing countries in adapting to climate change and converting to clean energy sources.”  The fund could play a significant role in helping vulnerable countries adapt to the impacts of climate change and reduce their greenhouse gas emissions by transitioning them away from total reliance on carbon-intensive energy sources.

Opinions appeared to be mixed about the outcome of the Durban climate talks. Observers lamented that “the actions taken at the meeting, while sufficient to keep the negotiating process alive, would not have a significant impact on climate change,” The New York Times reported. Meanwhile, The Hill reports that “Climate advocates were pleased that the Durban deal paves the way for big developing nations including China, now the world’s largest emitter, to face binding commitments.” Others noted that countries now more than ever need to take action back at home, especially given recent warnings from the International Energy Agency and the UN’s World Meteorological Organization that the world could be just a few years away from a dangerous climate tipping point.

As international delegates kickoff the second week of annual climate change negotiations in Durban, South Africa, The New York Times reported on Sunday that global carbon emissions demonstrated the largest jump in recorded history in 2010, despite a still sluggish global economy that contributed to a remarkable drop in emissions in 2009, “upending the notion that the brief decline during the recession might persist through the recovery.”

The analysis found that the majority of global carbon emissions (57 percent) came from developing countries and that “the combustion of coal represented more than half of the growth in emissions.” The analysis suggests that some developing countries increased their share of coal use – long considered one of the cheapest forms of conventional fossil fuel sources – in part as an effort to generate the energy necessary to improve economic growth. China, for example, is the world’s number one consumer of coal, consuming about 16 percent more coal in 2010 than 2009, according to the U.S. Energy Information Agency. 

Special Programming Note: The UN climate negotiations begin today in Durban, South Africa. The Natural Security blog will highlight the main takeaways from this week’s conference, but for a detailed play-by-play, follow former CNAS intern and Natural Security all-stark Alex Stark on her blog where she is reporting from South Africa on the climate talks for the Adopt a Negotiator Project.

On Friday, Moscow announced its plan to grant loans and discounted natural gas prices to Belarus in exchange for selling full control of its Yamal-Europe pipeline to Russia’s state-owned Gazprom, which already owned a 50 percent stake in the pipeline. Russia agreed to purchase the other half of Belarus’ pipeline for $2.5 billion. According to The Wall Street Journal, “Russia also was cutting the price Minsk has to pay for gas to less than half the average paid by other European states, from $244 per thousand cubic meters this year to $164 at the start of 2012. Belarus would then start paying Russia's own domestic price starting in 2014.”

The geopolitical implications of the deal are quite apparent. Media reports of the energy agreement suggest that the move is yet another in a series of steps taken by Russia to consolidate its influence in Eastern Europe and control over energy supplies to Western Europe. The deal ties “Belarus, Russia’s small, authoritarian neighbor, into an even tighter union with Moscow,” The New York Times reported. The Wall Street Journal added that “The agreement, signed in Moscow, marks an important victory for the Kremlin, which has successfully used its role as an energy supplier to buttress its clout in the former Soviet Union. Belarus, situated between Russia's eastern border and Poland, has long been a holdout against Russian influence…” Moreover, it is “a move that strengthens Moscow’s control over gas exports to the West,” The Washington Post noted.

President Obama returned stateside on Sunday after a nine-day trip across the Asia Pacific, ending with a stop at the East Asia Summit in Bali over the weekend. The president’s visit to the annual summit was the first time that an American president attended the forum, in what seems like a demonstration of the growing U.S. commit to pivot from the Middle East to Asia.

The South China Sea was perhaps the foremost security concern shared by the leaders attending the summit. Despite China’s preemptive announcement last week that it would not debate the South China Sea at the multilateral East Asia Summit – preferring bilateral negotiations on this issue instead– President Obama and other regional leaders confronted Chinese Premier Wen Jiabo about its controversial territorial claim to nearly the entire South China Sea. According to The New York Times, President Obama said that, “while we are not a claimant in the South China Sea dispute, and while we do not take sides, we have a powerful stake in maritime security in general, and in the resolution of the South China Sea issue specifically — as a resident Pacific power, as a maritime nation, as a trading nation and as a guarantor of security in the Asia Pacific region.”

President Obama and Premier Wen met on Saturday to discuss the issue, according to news reports. The New York Times reported that:

Mr. Wen acknowledged that he did not want to discuss the issue at the summit, but added that it would be “impolite” not to answer the concerns of his country’s neighbors, according to Xinhua [the official Chinese government news service]. He then defended China’s stance on the sea, according to the news service and an Obama administration official who briefed reporters on the condition of anonymity.

CNAS is ramping up a fascinating project on the global swing states. Last week, my colleagues Richard Fontaine and Dan Kliman published an op-ed in World Politics Review about how important these states are likely to be in the future given that they could impede or promote efforts to coordinate international action. But what exactly are these “swing states?” According to Fontaine and Kliman, they are rising democratic powers “that are ambivalent about the prevailing international order and have yet to decided whether to bolster it, replace it or bypass it altogether.” These states include Brazil, India, Indonesia and Turkey. “Without them, efforts to extend the rules-based international order -- and to manage global challenges through groupings like the G-20 -- are likely to falter.”

Given the role and influence these states will have in shaping the geopolitical environment, it is probably important to track some of the trends around these emerging powers, including the policies they choose in order to acquire natural resources that will support their political and economic growth. On Saturday, The New York Times had an interesting report on Brazil, its growing influence across Latin America and the implications for regional stability with respect to its pursuit for natural resources.

Brazil is flexing its political and economic prowess throughout South America. Yet its newfound role is being met with resistance by other states worried about exploitation. “A proposal to build a road through Guyana’s jungles to its coast has stalled because of fears that Brazil could overwhelm its small neighbor with migration and trade,” according to The New York Times. “In Argentina, officials suspended a large project by a Brazilian mining company, accusing it of failing to hire enough locals. Tension in Ecuador over a hydroelectric plant led to bitter legal battle, and protests by Asháninka Indians in Peru’s Amazon have put in doubt a Brazilian dam project.”

Early Friday morning, NASA successfully launched the National Polar-orbiting Operational Environmental Satellite System Preparatory Project – or NPP – from Vandenberg Air Force Base in California. The NPP is a stopgap solution to NASA’s ailing Earth monitoring satellite program. Popular Mechanics reported on the launch and what it means for bridging the U.S. climate science gap: “As NASA’s three current polar orbiters—Terra, Aqua, and Aura—near the end of their operational lifetimes, the experimental NPP satellite is thrust into the role of providing data critical to both short-term weather forecasting and long-term climate science.”

The NPP’s successful launch on Friday is a positive step forward in the still long road to developing a more robust satellite-based Earth and climate monitoring program. Christine Parthemore and I wrote about this issue in a policy brief released in August, Blinded: The Decline of U.S. Earth Monitoring Capabilities and Its Consequences for National Security. In our policy brief, we noted that the NPP’s predecessor program, the National Polar-orbiting Operational Environmental Satellite System (NPOESS), was symbolic of the challenges compounding this gap in Earth and climate monitoring satellites:

One recent interagency effort to close such gaps has fallen short. The National Polar-orbiting Operational Environmental Satellite System (NPOESS) was designed to translate climate and environmental data (including data from extensive existing databases) into products and analysis for DOD, NASA and the National Oceanic and Atmospheric Administration (NOAA). However, after long delays, cost overruns and inadequate coordination among the partners in the interagency working group, the project was split into two components (as an alternative to being cancelled completely)… 

NPP is NASA’s and NOAA’s component project; DOD is currently working on its own.