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New world order of gas and finance


There has been considerable speculation that the rise of China and the developing world spells the end of US global hegemony. It can certainly be seen in the aggregate economic statistics.

King Abdul Aziz and President RooseveltIn the early 1990s, America, Europe and Japan accounted for about 90 per cent of world GDP. Now, they account for less than half.

The BRICs (Brazil, Russia, India, China and South Africa) and other developing nations have grown steadily (in China's case spectacularly) while Europe has stagnated for at least a decade, America has only sputtered at best, and Japan has been in, or close to, recession for a quarter of a century.

But the fading hegemons, especially America, are not about to cede power easily. The decline in economic dominance has led to what could be described as — in a metaphorical rather than geographical sense — a growing split between the East and the West (the West being America, Europe and, in this metaphorical sense, Japan; the East being the BRICs).

The contest between East and West can be detected in many aspects of geo-strategy, especially the military aggression in Central Asia. But let us look at two economic developments.

The geopolitics of gas and oil

As Forbes commented: 'The real headline here is that there is an organised effort to squeeze Russian energy firms out of Europe.'

In the summer of 2011, just weeks after civil war broke out in Syria, the Tehran Times released a report outlining Iranian plans to export natural gas to Europe through a pipeline that would traverse Iraq and Syria. It would have been the largest gas pipeline in the Middle East, going from Iran's gas-rich South Pars field to the Mediterranean coastline in Lebanon, then to an underwater pipeline into Europe.

Earlier, there had been a proposed Qatar-Turkey pipeline, with one proposed route going through Syria. This was rejected by Syria's leader Bashar al-Assad because, according to an Agence France-Presse report, he wanted to 'protect the interests of his Russian ally'. 

Russia's gas supplies to Europe through the Ukraine, linking the East to the West, have been problematic for years, and supplies were interrupted entirely after the upheavals in the Ukraine.

The Russian response was to propose an alternative gas pipeline across the Black Sea directly into Europe, called the South Stream, but this was cancelled when Bulgaria did not cooperate, allegedly under US pressure, according to Russian president Vladimir Putin. A replacement pipeline, called the Blue Stream, was proposed to go through Turkey. 

This deal, too, has to be considered off. Relations between Turkey and Russia have deteriorated badly, and Turkey is claiming that it will get its gas in LPG form from America. A divide is being created.

Just how much this explains what is happening militarily in the Middle East can only be speculated upon, but it is certainly a factor. It is having the effect of pushing Russia away from Europe and closer to China, which is keen to have supplies that are not dependent on vulnerable sea lanes.

It also underlines a point made by former General Wesley Clark, that hydrocarbons have been the principle reason military force has been used so heavily in the Middle East. A high stakes game of who will provide Europe with gas is being played out.

There may be an even higher stakes game with oil. As F. William Engdahl points out, the Saudi involvement in Syria and Iraq, with the aggressive support of Turkey, seems to be suspiciously focused on those countries' oil reserves. Engdahl believes the 'Saudi monarchy is determined to control the oil fields of Iraq and of Syria using ISIS to do it'.

As the documentarian Adam Curtis points out, President Roosevelt's alliance after the Second World War with King Abdul Aziz of Saudi Arabia — oil in return for money and security — continues to this present day. He shows how this deal, struck during a meeting on Bitter Lake in the Suez Canal (pictured), created the conditions that led to the spread of violent Islamic extremism now plaguing the world.

One consequence is that it has made the narrative of the West increasingly incoherent: just how incoherent has been underlined by Russia's attack on ISIS, which left the Western alliance unsure whether to support or condemn. By contrast, the Eastern narrative, at least as expressed by Russia, seems to actually involve a degree of truth telling.

The new financial order

Another, more long-term split between West and East can be seen in outline in finance. The West still dominates this sphere. The recent decision by the International Monetary Fund (IMF) to 'forgive' Ukraine's debt against its own rules is the latest demonstration of just how much the US-dollar institutions, such as the IMF and World Bank, are politicised.

The US dollar continues to rule the world. According to the Bank for International Settlements (BIS), daily turnover in the foreign exchange markets is over $US5 trillion a day, 87 per cent of which involves the US dollar. To give this some context, the entire American debt is $US17 trillion; annual global GDP is about $US80 trillion.

When there is such demand for a nation's currency it is not difficult for it to get buyers for its federal debt. Unlike almost all other nations, the US can borrow with impunity.

But there are signs of a new, more Eastern-focused set of institutions and systems emerging. One hint is the China International Payment System (CIPS), which will be an alternative to Society for Worldwide International Financial Telecommunication (SWIFT). Another is the China-initiated Asian Infrastructure Investment Bank (AIIB), which will be an alternative to the World Bank, and is well funded.

The New Development Bank, based in Shanghai, has been set up as an alternative to the IMF for the BRICS countries. And although it is only of symbolic importance, the US dollar is no longer the primary oil currency because China is buying its oil in yuan (the yuan is fixed against the US dollar and oil trade is only in the hundreds of billions, not trillions).

These are just two of many areas where an emerging East-West divide in the global economy can be detected. At the moment the tensions are especially focused on the Middle East and Central Asia. But it will shape the future of the global economy.


David JamesDavid James is a business journalist with a PhD in English literature. He edits Personal Super Investor.

Topic tags: David James, East, West, America, China, Syria, Russia, BRICS, gas, oil, finance, economics



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Existing comments

O Dear! I don't need to know all this but Thank You.

Mahdi | 15 December 2015  

I wonder what the US's growing energy self-reliance, independent of Middle East Oil, will do to future US engagement in the policeman's role in disputes in the region? A lot I would suspect.

Michael Kelly | 15 December 2015  

great photo. how do you reckon the joke FDR is telling goes?

Jill | 15 December 2015