For Lenin, the state had to control the economy’s commanding heights – in his day, iron, coal, land and railways. Today’s mercantilists, state capitalists, populists and socialists see energy in the same terms: a tool to dominate at home and abroad.
For the first decade-and-a-half of this century, it has been the state capitalists seeking to seize control. The three largest Chinese state oil firms went out to build empires spanning from Kazakhstan to Calgary.
In Venezuela, Hugo Chávez’s Bolivarian socialism drove away most foreign investors and brought national oil corporation Petróleos de Venezuela to heel.
From 2003, Vladimir Putin has dragged Russia’s oligarchic oil industry back under central direction. Two state behemoths, Rosneft and Gazprom, along with private but Kremlin-friendly Lukoil and Surgutneftegaz, produce more than 80 per cent of its oil and gas.
Now populism and protectionism threaten a new approach in the world’s biggest energy producer and consumer. The US has had a largely free-market approach to oil and gas since the 1980s.
Despite outward impressions, the Obama administration moved further from control of the industry by approving a number of liquefied natural gas export terminals and repealing outdated regulations preventing the export of crude oil. Where greater regulation did occur, as in not approving the Keystone XL pipeline from Canada, it was motivated by environmental concerns, albeit poorly directed.
President Donald Trump’s energy policy is, to put it charitably, still taking shape. But recent announcements move sharply towards protectionism. Approval of Keystone XL has been linked to its use of US-produced steel.
On a larger scale, the recent idea of a 20 per cent tax on imports from Mexico to fund the proposed border wall has major implications for US oil. In 2016, almost 7 per cent of US oil imports, about 700,000 barrels per day, came from Mexico. Most of this was crude oil, primarily of heavy grades suitable for mixing with American light oil for refining. In return, the US sent on average 830,000 bpd to Mexico, entirely refined products.
A tariff would upend this mutually profitable trade, especially if Mexico imposed retaliatory duties. A broader tax on imports into the US would raise end prices for consumers, being a petrol tax by the back door, always considered to be political suicide. Of course exemptions could be introduced. When Dwight Eisenhower, as president, introduced oil import quotas in 1959, they morphed over time into a bewildering and distorting thicket of loopholes and price controls, which the Reagan administration eventually dismantled.
Import duties could also affect other energy sources. More than three-quarters of US solar panels are imported, a third of them from China, and these have already been targeted by “anti-dumping” measures. Meanwhile the American coal industry, in long-term decline and hammered by competition from cheap gas, could get a short-term boost from effective subsidies for exports. But because of automation, the mining jobs are not coming back.
In contrast, the heavily state-dominated Middle East energy sectors may be moving tentatively the other way: Saudi Arabia is moving towards a sale of a small part of national champion Aramco and privatising the Saudi Electricity Company; Iran is opening to international investment in its fields; and Oman is considering selling a number of state oil companies. In Latin America, too, Brazil’s Petrobras is divesting assets to reduce debt and Mexico seeks foreign investment to turn around ailing oil output.
Some countries, such as Russia, have a clear idea of retaining the commanding heights, but do not realise that these vantage points are outdated in the modern energy economy. Others, such as China and some Middle Eastern countries, realise that relaxing a little control opens up new vistas. Meanwhile the US is in danger of blundering into fog, not even knowing where the landmarks are and leading world energy markets with it.