In a report, London-based Chatham House said the spectre of resources insecurity was visiting the world again. The observation is particularly worrying for countries heavily dependent on imports of raw materials. The stress, the report says, is caused by rapid demand growth in emerging economies, "a decade of tight commodity markets" and markets being moved by international politics.
There is more than one opinion as to whether the world is running out of resources. Intensive explorations and technology interventions have led to the discovery of new resources, in some instances surprising the world, says Federation of Indian Mineral Industries president H C Daga. Prolific discovery of natural gas and oil in the US in recent years, thanks to breakthroughs in drilling technologies, is an example of large resources lying hidden in the earth. Experts are seeing the possibility of the US attaining energy independence in a decade, thanks largely to prolific shale gas and oil production. This is the goal the US is chasing without fanfare since the 1973 oil crisis. The fact that it conceded the position of the world's largest oil importer to energy-hungry China in December 2012 is seen as a firm step in that direction.
Resource nationalism in major oil-exporting countries took shape in the Organisation of the Petroleum Exporting Countries (OPEC), which held importers to ransom on occasions. This steeled US resolve to pursue energy self-reliance through a combination of pumping more oil and gas from existing fields and unlocking new reserves, improving the economy's energy efficiency and promoting alternative energy sources such as ethanol, a corn derivative. Brazil and several European countries have achieved no less in deriving energy from non-conventional sources. India has a lot of catching up to do. Whatever the world resources bank, the outlook, according to the report, is one of supply disruptions, volatile prices, environment degradation and rising political tensions over access to resources. Besides the poor performance of world economy, impressive US progress on the energy front is keeping oil prices in check.
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Resource nationalism is manifesting itself in the form of governments playing a proactive role in the management of resources, including ownership pattern, exports, degrees of local value addition and levies such as windfall profit tax. This is having a domino effect, with more and more resource-rich countries falling for it. Bernice Lee of Chatham House says, "When countries and governments think they may be running out of cheap resources, they try to keep more for themselves." In resource nationalism is also to be seen a leap of faith for many developing and emerging countries in achieving higher rates of growth, by way of local value addition to minerals and farm produces. For instance, Indonesia and Guinea are asking why shouldn't they require of major exporters (and importers) of bauxite to invest in building alumina refineries.
At the same time, when resource nationalism asserts itself in the form of tight export controls and punitive duties, free global trade becomes a victim, threatening trade wars. Not just minerals, in times of global shortages, even food isn't spared export restrictions and taxes. This was much in evidence in 2008, when responding to a global food prices spurt, some countries exercised export controls. What is worse, resource nationalism in manifestations such as politicians and bureaucrats in resource-rich but poorly governed countries demanding bribes is causing an ethical dilemma for multinational groups, as these seek concessions of mineral deposits and oil fields.
Some global oil companies have made public commitments to stay on the straight and narrow. Shrinking reserves in many of their existing oilfields are, however, the reason why they are desperate in their search for new finds. The Economist says, "Most attractive fields are in unstable or poorly governed places." Underhand dealings and bribery common in such countries will undeniably leave any contracts with tinges of doubts. Shell and ENI continue making efforts to prove they were not part of any wrongdoings in acquiring a rich Nigerian offshore block with reserve of 9 billion barrels of oil in 2011. The dilemma, an energy consultant explains, is "firms that refuse to touch any deal with the slightest whiff of impropriety risk eventually going out of business." In this eerie environment, The Economist says, it becomes increasingly challenging for outside groups to "secure reserves, and with greater competition from state-owned firms in Asia, Latin America and the Middle East, which may not have to operate to the same ethical standards."
In some places, extreme resource nationalism plays out in the form of expropriation of assets owned by foreign entities or forcing them to renegotiate terms of ownership after a regime change. In the process, however, host countries would frighten away many other potential investors. Moreover, in such high-risk countries, the relative cost of capital is always high. But will not China, as it discourages export of coking coal and India iron ore, be seen as falling for resource nationalism? Will beginning of dialogues involving a group of significant producer and consumer countries, proposed in the Chatham report, lead to finding ways to tackle resource nationalism triggering volatility in commodity prices?
