Redrawing the Lines — Renewable Energy is Changing Things

On 16 May 1916, Britain and France negotiated a secret agreement.

The Sykes-Picot Agreement, which counted with the nod of approval from Russia, divided the Ottoman Empire into French and British ‘spheres of influence’.

This was, of course, as long as the Triple Entente (France, Britain and Russia) ended up winning the First World War against Germany, Austria-Hungary and the Ottoman Empire.

The Ottoman Empire at the time extended through much of the Middle East.

The deal would give Russia modern-day Istanbul and access to the Mediterranean. France would get most of what is today’s Lebanon and Syria, where they held economic ties. On the other hand, England got what is today’s south Israel, Palestine, Jordan, Southern Iraq and the Port of Haifa.

If you’ve read the agreement, much of it talks about railways, movement of goods and ‘freedom of transit’.

But there was of course, something else on the line not mentioned in the agreement: oil.

Britain was quite interested in having access to the sea, but also on the Mesopotamia, what’s much of modern-day Iraq. At the time gasoline cars were starting to take off. But Britain’s interest in oil came from another form of transport: ships.

While Britain had plenty of coal, Churchill was convinced that for Britain to have naval superiority they needed to power them with oil instead of coal. Oil gave them many advantages: ships were faster, could manoeuvre better and had a longer range.

Oil is a Key To Dominance

Getting a hold of oil was key if Britain wanted naval dominance.

As Churchill told parliament in 1913: ‘We must become the owners or at any rate the controllers at the source of at least a proportion of the supply of natural oil which we require.

It’s why in 1914, the British government bought 51% of the Anglo-Persian Oil Company, which you may know today as British Petroleum Company (BP).

But things didn’t go according to plan for the French or the British with the Sykes-Picot Agreement.

In 1917 when the Russian Revolution overthrew Tsar Nicholas II, the new government published the agreement, exposing the deal.

Still, at the end of the First World War, the winners met in the Italian Riviera to decide the future of the territories of the Ottoman Empire.

The San Remo Resolution set up the area with a French mandate over Syria and Lebanon while Britain mandated over southern Palestine and Iraq.

But in San Remo, the English and the French also signed an oil agreement this time. This gave the Anglo-Persian Oil company a 47.5% share on Turkish Petroleum Company, which had monopoly over oil exploration in Iraq, while it gave France 25% share of Iraqi oil.

The agreement set the basis for the modern Arab world and oil, at a time when oil was becoming the most important commodity in the world.

As the world’s dependence on oil increased, the US got involved in the Middle East too. The US had plenty of oil reserves but they wanted to secure their supply.

In 1928, the US signed the Red Line Agreement with the Iraq Petroleum company. And then in 1933, the US got involved in oil in Saudi Arabia when the kingdom awarded California’s Standard Oil a concession. Standard Oil would end up turning into the Arabian-American Oil company (ARAMCO).

And then came the Cold War.

For over a century now, our dependence on oil for energy has shaped the world as we know it. It’s shaped politics, economics, created spheres of influence, areas of strategic importance and choke points.

In a way, energy has been pretty centralised into a few countries, suppliers and even certain transport routes.

I mean, we all saw what happened a couple weeks ago when a huge container ship blocked the Suez Canal, an area that is vital for oil global trade. The ship put the global oil economy on hold, sending oil prices higher.

Transition into Renewable Energy

But the world’s transition into renewable energy is changing things.

For one, it is starting to decentralise energy. We have consumers starting to produce their own energy. We have wind, sun, batteries and electric vehicles. It can all create more energy independence.

And then the energy transition is already creating new supply chains, products and manufacturing. There will be new winners in those that produce energy to decarbonise the world. It’s not strange then that even Saudi Arabia is looking at building the world’s largest green hydrogen project as part of their Saudi Vision 2030.

Don’t get me wrong, oil is still important for the economy and this is a change that will take decades…although it’s happening faster than what I thought.

But the energy transition is changing and blurring those oil lines traced more than a hundred years ago.

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

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Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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