We’re all addicts, now.

Anyway, no drug, not even alcohol, causes the fundamental ills of society.  If we’re looking for the source of our troubles, we shouldn’t test people for drugs, we should test them for stupidity, ignorance, greed and love of power.
P.J. O’Rourke

George W. Bush has himself, in his 2006 State of the Union address, declared America’s addiction to oil:  “Our name is America and, guys, we’re addicted to oil!” It is an addiction, by his own admission, that threatens America’s peace and prosperity and, by definition the peace and prosperity of the world entire.

Just as a junkie is beholden to his or her despotic dealer, so too America and Europe (and India and China for that matter) are dependent on a small number of undemocratic and unstable regimes for the supply of our most precious, most valuable asset:  energy, particularly oil.

Just as that despotic drug dealer is unlikely to exhibit much in the way of compassion for his or her junkie client, so too these undemocratic and unstable regimes are unlikely to be driven by anything other than their own self-interest.

If we look at who those emerging regimes are we can begin to gauge where this addiction could be taking us. The value of Russia’s total energy reserves equates to the same as the value of America’s equity markets, around $17 TRILLION.  Iraq’s energy reserves are valued at about the same as the American Government’s national debt, $9 TRILLION.  Saudi Arabia, controlling about a quarter of the world’s proved oil reserves, has an energy balance equivalent to the annual turnover of all the Fortune 500 companies put together, or roughly half the world’s GDP, at nearly $23 TRILLION.

These are staggering figures.  The extraordinary wealth created by the world’s free markets and it still struggles to compete with the wealth that still sits below the surface of the Arabian deserts and the Russian tundra.

What might happen, should these regimes decide to utilise that immense economic, political and strategic power to maximise their own wealth and strategic power?

If the USA really has experienced a humiliating defeat in Iraq then we stand at an inflexion point in time.  It’s an inflexion point where, for the first time since the 1930s, the world’s rising political and economic powers are undemocratic regimes less troubled by the efficient operation of markets and more exercised by the need to satisfy the emerging demands of their own middle classes.

Risks that we in the West, in the midst of efficient financial markets and stable political systems, have long regarded as having been consigned to history could be about to impose themselves on us once again.

It’s these risks this commentary aims to identify, address and quantify.  Oil markets are destined to remain volatile.  Politics and economies will ebb and flow with that volatility and in the midst of that volatility there will be those who never saw it coming and those who saw a path that ultimately led to new opportunity.