CIB

Reflections on the Contraction Enigma

Date: 11/08/2021

Author: Kent Moors, Ph.D.


Recently an invitation has arrived for a meeting in Paris, a city that I have always found fascinating.  Given the ongoing wave of COVID renewals on the Continent, we have not yet set a date. But the prospect has prompted memories of a visit late last year, especially since the reason for that trip turns out to be the same as the one prompting this one.

At this time of year, Paris signals that winter is coming. While it has been sunny there for the past week, the air is also getting nippy with that coolness telegraphing a more extended decline is coming. There, it usually begins in early December and lasts through early March.

Still Paris, even when it turns cold, is endearing.

One of my more difficult choices years ago was to turn down a posting to the International Energy Agency (IEA). The agency was established in 1973, following an oil boycott by Arab OPEC countries during hostilities in the Middle East.

The boycott led to long lines at US pumps and a decision by the Organization for Economic Cooperation and Development (OECD). OECD represents the interests of developed nations worldwide and set up the IEA in response. It is located here:

IEA Headquarters, 9 Rue de la Fédération, Paris

The IEA analyzes, and issues reports on, all elements of the energy sector. It has come to represent as objective a global commentator on the sector as there is available anywhere. IEA has no vested interests. That sometimes places the agency at loggerheads with nationalistic agendas, but it is about as free of politics as one can get on these matters.

Which is why my conversations with IEA colleagues on my last trip entered some unexpected territory.

This surrounds the phrase “contraction enigma” I advanced during our conversations and has blossomed to be a main matter in the suggested upcoming sessions. It was occasioned by, and issued from, social consequences following from two reports released by IEA. The first involved the rise of renewables in the global energy mix. The second had the agency commenting on the staccato rise in worldwide oil demand.

 


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Of course, some of this latter development is an inevitable result of what COVID has done to global economic activity. That has been reversed somewhat. Until the recent resurgence, European economies had been recovering nicely. Curiously, however, that has not translated into an across-the-board recovery in crude oil usage.

Overall, the movement (especially among Western OECD members) to non-fossil fuel energy sources like solar and wind has been underway for a while. In several regions it had been translating into a more expansive access to energy pre-COVID.  With the corresponding plateauing of oil demand, this seems to indicate a major transition underway.

Yet the discussion must recognize an important caveat. Even with the projected slowdown in the rise, oil demand will still be going up year-on-year. The world had ended 2019 using more oil than at any point in history, while 2020 was an outlier given the COVID impact. Nevertheless, 2021 will end just about surpassing the 2019 figures.

We are not yet dealing with the emergence of a positive game change. Even with such directions developing, hydrocarbons (oil, natural gas, coal) will remain the primary global energy sources for at least the next two or three decades, primarily because of the focus of international energy demand moving to Asia.

Rather, when I used the term “contraction enigma” I referred to something else, a matter I have declared as both quite disturbing and even dangerous in previous briefings I have given to policy makers and market participants in Europe and Asia. One of these in particular became a factor in my meetings in Paris.

As veteran readers of Classified Intelligence Brief know, I have had the privilege of presenting briefings at the Windsor Energy Consultation held annually under a charter from Queen Elizabeth II at Windsor Castle outside London. Each year for more than a decade, interrupted last year by the pandemic, I have addressed that elite assembly of ambassadors, officials, and energy sector leaders.

One of those briefings a few years ago advanced the idea of the contraction enigma, centered about a concern that worldwide energy infrastructure development would not be enough to meet even replacement needs over the next twenty years. I argued that the prospect is looming for broader areas of the world and an increasing aggregate population falling off the grid, having no access to energy, and literally being forced to live “in the dark.”

My further argument was a chilling one for all recognizing the relationship between energy demand and security considerations. This lack of access primes widening portions of those living in least developed regions to all manner of terrorist movements.

This becomes much more than a question of equity or fairness. It morphs into a concern over the recurrent rise of an ISIS, Al Qaeda, or similar threat. Cutting off entire populations from energy has far more than merely economic consequences.

This attracted the interest of some colleagues in broader circles, including those at the IEA dealing with similar projections. Occasionally when I would have meetings subsequent to that  address, the matter would arise.

As it will again this time.

 


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What was added to the mix was a disconcerting addendum – what the IEA itself is starting to call the contraction enigma (sorry, I do not have any copyright protections for such phases). It refers to the paradox of increased availability of new energy types not translating into improving the living standards of the least advantaged. As more energy is apparently provided, its usefulness to the most disadvantaged contracts.

Put simply, the ability of energy advances to address the most acute of human needs has become questionable. For example, throughout the least advantaged areas of the world the single biggest problem is polluted water. That cannot be cleaned up without a regular provision of energy. And that is not happening.

With such rising misery, domestic security problems intensify. Hence, the enigma. Increased energy has been of reduced value to those who need it most.

This is not simply a matter of whether individuals participate in consumer economies. We need to look at this as a matter of human survival.

Even advanced nations in the world are experiencing problems with energy access. Forget about industrial locations in India having sporadic power on any given day; widening numbers of end users in California are now daily cut off from electricity.

Those problems become more immediate and acute elsewhere. The lack of energy access folds into an extended list of shortcomings the “have nots” see as their lot in life. Increasingly, they hold the “haves” responsible.

The backlash has also hit the developed world. Recall the “Occupy Wall Street” movement in New York City or what has been happening in Paris with “yellow vests.”

On our last visit, we used our usual hotel close by the Arc de Triomphe and the head of the fabled Champs-Élysées. Word at the time was that the protestors would be returning during our stay at the anniversary of disrupting one of the most famous shopping locations in the world.

They are no longer interested in market participation. Their objectives have become to disrupt and destroy. Unless the contraction enigma is addressed elsewhere, targets there will be of a far more sinister type.

Maurice Duverger died in 2014. He remains one of the most important European political scientists, credited with a “law” on elections and political parties that still bears his name. His pathbreaking work was all the more notable because he was both a communist and an admirer of Stalinist politics. His mid-60s work The Idea of Politics became a staple for university class use. He had a number of seminal observations in the book, but one stands out today as we face the contraction enigma.

Duverger distinguishes between “conflict within the regime” and “conflict about the regime.” The former usually is found in elections and party politics. There is disagreement, but participants accept the limits imposed by the political system.

On the other hand, the latter conflict attacks the very principles upon which the system is based. It is revolutionary, often the result of popular unrest and desperation, and violent.

As we experienced the summer of unrest in the US, the Capitol attack on January 6, the rancor in American politics, and the rising number in opinion polls supporting a rejection of the system, the “yellow jackets” of Paris reflect broader movements.

The contraction enigma is reminiscent of Duverger’s distinction. The more desperate and angry populations become, the more likely their isolation from the progress around them  (and the energy necessary to bring that about). That is a recipe for some genuinely nasty and ugly results in the streets.

Dr. Kent Moors


This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it. Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations).

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