The Fight for Blue Gold: Water and Geopolitical Risk

In June 2020 the Egyptian Minister of Foreign Affairs Sameh Shoukry warned the UN that Egypt faced an existential threat. That threat and regional geopolitical risk is the Ethiopian Renaissance Dam. The construction of the dam threatens to dramatically cut the flow of the Nile to Egypt.

Less water reaching Egypt will could ruin the livelihoods of its farmers and people. Cairo claims that the dam will inflict permanent damage to Egyptian society, but for Ethiopia it promises power to provide light and power for one of Africa’s most populous countries.

Egypt urged the UN Security Council to adopt a resolution that would give international backing to reach a compromise agreement. Ethiopia has rejected the resolution and announced the filling of the dam would begin in the next two weeks.

Egypt has hinted that a military solution could be used if an agreement is not reached. The gravity of the situation has been recognised by the USA, which is attempting to broker a deal between the two countries.

Resource Conflict and Geopolitical Risk

The dispute highlights how conflicts over resources can morph into geopolitical risks. Water wars have long been predicted by analysts. Conflict over water and other resources is as old as civilisation itself. Now the world’s freshwater supplies are under huge strain as rising populations and economic growth drink up ever more water.

Climate change will compound this problem. Rising temperatures will melt glaciers reducing the flow of water from many mountains, drying lakes and allowing sea water to salinate rivers. Control over water by itself may not cause conflict but may act as a catalyst. India and Pakistan are already have a frosty relationship. Disputes over water could put relations between the two into a deep freeze.

Melting Glaciers

Disappearing glaciers in the Himalayas will soon reduce the flow of mighty rivers like the Indus, Ganges and Brahmaputra making the Indian sub-continent one of the most exposed to drought.

Control over the remaining water in the Indus will make the battle around Kashmir where the river emerges more acute. Pakistan and India have been gone to war over the divided province three times and tensions remain high between the two nations.

Pakistan is highly dependent on the flow of the Indus for its agriculture and freshwater supplies. Any attempt by India to exert control over the water will face major resistance from its nuclear armed neighbour.

India recently completed the Kishanganga dam. This has led to an on-going dispute with Pakistan around the Indus River Treaty which has been handed to the World Bank to settle.

The Cradle of Civilisation

The Tigris-Euphrates river is called the cradle of civilisation as it is where the Sumerians and Akkians built some of the earliest recorded cities. Since then the river has been the lifeblood of many countries, cities and empires.

In more recent years the Turkish have built dams which control the flow of water to Iraq and Syria. If Turkey continues to take more water or drought reduces the river’s flow it could cut water flow to Iraqi and Syrian farmers and cities. If crops start failing and cities experience water shortages, Turkey could be the scapegoat.

Somalia and Syria

Internal conflict is another source for potential water wars. As the climate changes and regions used to plentiful rainfall find themselves dry and arid. Farmers and pastoralists are forced off the land it can lead to famine and social breakdown.

People forced to move into new areas often sparks new conflicts. Climate change is at least partly behind conflict in Syria. A long lasting drought in the country forced thousands into cities and new regions. This new poverty stricken population helped to spark protests against the government, which in turn transformed (combined with other factors) into a devastating civil war.

In Somalia a long lasting drought in many regions has hampered the recovery the country and pushed many into food insecurity. Economic uncertainty is a fertile breeding ground for the terrorists, pirates and militants that have plagued the country.

Even developed regions will not be immune to water conflict. Last year Cape Town came close to running out of water after years of low rainfall and rising demand for water for agriculture and domestic use.

Where are the Solutions?

As fresh water faces multiple threats, pollution, climate change and overuse, are there any solutions to a growing crisis? Firstly: humans can be pushed to use less water through efficiency measures and improved infrastructure such as fixing leaky pipes.

Secondly: desalination is currently an expensive option for the energy rich. But there is hope that new techniques can make it a viable and economical option in the future.

Thirdly: its hoped that scarcity will force humans to be more careful with water and treat as a valuable commodity. However, billions of people already experience water scarcity in the present day.

So in the future it is likely that the middle classes will continue to ensure good access to water. While those on the margins will continue to suffer from climate change driven water shortages.

Monitoring Risk from Space: An introduction to Spatial Finance

The global municipal bond market is a worth an amazing US$ 3.8 trillion a year. As one might imagine the owners of these bonds are highly motivated in wanting to protecting their investments.

Growing awareness of climate and geopolitical risks in the form of rising sea levels, floods and wildfires and their impact on the value of bonds is driving new ways to assess these new risks.

Using the information provided by satellites above the earth allows companies to assess risk in real time and react accordingly. The merging of satellite data and finance led to the emergence of a new term – spatial finance.

Constant surveillance by hundreds of satellites and drones allows every part of the globe to be constantly analysed in minute detail for change. This wealth of data combined with powerful computing techniques promises a real time picture of how the world’s environment is changing.

The Rise of Spatial Finance

To help promote this new idea the Spatial Finance Initiative was launched by number of prestigious organisations, namely the Alan Turing Institute, the Green Finance Initiative and the Satellite Applications Catapult.

Its mission is to:

“Mainstream geospatial capabilities enabled by space technology and data science into financial decision-making globally”

Spatial Finance Initiative

The emergence of spatial finance has come at a critical time where the assessment of climate risk has become increasingly important to banks, insurers and major corporations.

The launching of the Task Force on Climate related Financial Disclosures (TCFD) recommendations has meant companies need to understand how their assets will be affected by climate risk. Spatial finance has the potential to pinpoint shifts in the environment and map those a firm’s assets.

Spatial Finance in Action

For instance an agribusiness with farms in across a different regions and countries will be able to see how drought, sea level rise and rainfall has changed over time. Of course, satellites cannot predict the future. But by identifying current patterns of change they can give a glimpse into the future.

Capturing information on the environment is the spatial section. The financial part comes by understanding how the world’s environment is changing in microscopic detail. Putting the two together will allow financial decisions to be made more accurately.

Realising ESG Goals

Farms and agribusinesses can be monitored for their adherence to Environmental Social and Governance (ESG) goals. For example farmers in the Cerrado region of Brazil signed up to a zero deforestation pledge in order to protect forests.

Deforestation has also been linked to lower rainfall in the region which in turn reduces hydropower production capacity. The deforestation pledge is monitored by satellites which can assess whether farmers are encroaching on forests.

Sovereign Debt

Geospatial data techniques are being considered in linking sovereign debt risk with environmental risks. This way both governments and investors can see changes in environmental risk and which can drive sovereign debt risks.

If a country fails to care for its environment it may be considered more likely to default. Early signs of drought in an agriculturally dependent region could be an early warning of poor harvests and financial problems. At the same time crops can be tracked daily to estimate yields and future revenues.

Implementing the TCFD

Implementing the Task Force on Climate Related Financial Disclosures (TCFD) recommendations for example will drive predictions of climate change on physical assets. Measuring the impact of a sea level rise, drought, flood and a variety of other climate related risks can destroy the long term viability of a project.

Geospatial data can be used to track other environmental issues such as illegal fishing. Satellites spotting boats in marine reserves can provide the information required to fight the illegal fishing. Political will and resources are still required to actually stop and catch the perpetrators of environmental crimes.

Tracking Biodiversity

Nature related financial disclosures are the menu for the landmark biodiversity conference in Kumming in China. Companies could be encouraged to disclose their impacts on biodiversity in a similar way many are disclosing their emissions or exposure to climate risk.  

Satellites can track a changing environment in real time and identify where and how companies are making an impact on the environment. 

Satellites and Finance

Hedge funds have been using satellites to get an inside track on changes in demand or the movement of key individuals.

When an Occidental owned private jet was spotted at Omaha airport (home of Warren Buffett). It was a sign that the company were seeking the investor to help on their purchase of Anadarko.

Ten days later Buffett announced he was investing in Occidental. Alternative data companies routinely track private jets as prior knowledge of deals is a powerful source of information.

Monitoring Disasters

The danger to human life from flooding following the catastrophic events of Hurricane Harvey in 2017 was tracked using geospatial satellite imagery. The same data was used to speed up insurance payments requested after the hurricane damage.

The power of satellite imagery and ever larger data sets will increase the ability to spot relationships between geography and financial indicators. Spatial Finance will be an ever more powerful tool for identifying geopolitical risks and improving financial performance.

The Geopolitics of Renewable Energy

The freezing tundra and glaciers of Greenland have become host to a new geopolitical struggle. China has stepped up its interest in the island through Chinese firm Shenghe Resources share in the Kvanefjed mining project in the south of the country.

President Trump reportedly took an interest in buying the island from Denmark (which controls Greenland’s foreign relations) last year but was firmly rebuffed. However the US has made it clear to Denmark that China should be kept out of Greenland.

In 2018 China wanted to invest in an abandoned US naval base called Grønnedal in Greenland. Copenhagen was quickly warned off any such deal by Washington. Now the US is stepping up investment in Greenland in an attempt to build more influence in the region.

Rare Earth Metals

Greenland and the Kvanefjed mine is home to rare earth metals which are used to build mobile phones, tech and batteries. Access to these metals is a key part of modern manufacturing. As a result China has tried to corner the market in rare earth metals to gain leverage over its rivals. This market is what led China to Greenland and the Kvanefjed mine.

For its part US is trying to prevent this by prioritising the supply of rare earth metals through a strategic stockpile. This battle may become more common place as renewables and the batteries that store their energy overnight become more commonplace.

Much of the globe is still addicted to oil but renewable technology has cut into the energy market. Renewables offer the promise of clean energy and a chance to avoid the messy geopolitical risks of the Middle East.

A Changing World

Right now the world stands on the edge of great change. A dramatic fall in cost of renewable energy has made them truly competitive with fossil fuels. This change has been driven by ever more efficient solar and wind technologies, as well as government policies to encourage their use.

At the same time industrial scale electric batteries are becoming a reality. Successful large scale battery use solves the issue of energy storage which is a major constraint on renewables. Despite these advances fossil fuels have retained their grip on world energy output until now.

“Coal consumption will be crushed in 2020”

Benjamin Nelson – Moodys

The Covid crisis crushed demand for energy, pushing down the price of oil and coal as a result.

Covid-19 has sparked many geopolitical risks, but threatening the future of coal was perhaps a surprise. Moody’s predict that coal demand in the US is set to fall 50% in 2020 devastating the industry.

Already under pressure from renewable energy and policy initiatives like the Paris Agreement and the Task Force on Climate Related Financial Disclosures TCFD. These changes have been encouraged by many businesses. The Coal industry will struggle to recover from these double blows. The oil industry could be next.

The Dawn of the Renewable Age?

The rise of renewable technology will also have a major impact on world politics. The oil and geopolitical risk has been a constant theme of the 20th century. Oil drove European Powers to dominate the Middle East and other parts of the world.

Many oil rich states have experienced years of war and conflict thanks to the wealth and influence that oil represents.

The Curse of Oil

Oil wealth has often primarily enriched elites, particularly in poorly governed countries such as Nigeria and Equatorial Guinea. These same nations have often become dependent on oil, unable or unwilling to diversify.

This dependency has stifled their economies and created conflict within and between countries as factions vie for control of a valuable resource.

If you take oil out of the equation then these nations will be forced to adopt new economic models. This could be painful for the elites but may result in more balanced, less corrupt governments.

The Renewable Political Revolution?

But what happens when you take oil out of the equation. The world will look very different as the advent of renewable energy transforms the geopolitical landscape in new and unpredictable ways.

Of course renewable technology does require some resources. Lithium and other rare metals are key components in electric car batteries. If these continue to replace combustion engines as then the supply of these metals will become an important political and economic consideration the same way the supply and production of oil is today.

Metal Super-powers?

While China is currently the world’s biggest producer of lithium and the largest electric vehicle battery maker. Countries like Bolivia and Chile are also major producers of the metal. Could this make Bolivia the future Saudi Arabia’s of electric batteries, the world dependent on their supplies of the metal?

Maybe, but it is also likely that as demand for lithium and other metals rise so will the search for, discovery and mining of these resources. Eventually diversifying the global supply of the metal.

The other wild card is an environmentally friendly one, the potential for recycling these metals is yet largely untapped. Apple has committed to using only recycled lithium in the future.

This trend could continue as demand rises and concerns about the effect of lithium mining and the damage caused by discarded batteries increases. All this could yet ruin Bolivia’s dream of becoming a lithium powerhouse.

The Fall of the Fossil fuel producers

As reality bites the producers of oil, coal and even gas could suffer new crises. Already prone to political instability the authority of the House of Saud, the Gulf monarchies and many African dictators could crumble. If they see their main source of revenue dry up and with it their ability to support key institutions like the military, as well continue the patronage of the political elites that support them.

This time may come sooner than people realise. Even if fossil fuels remain dominant for a long time but renewables look more favourable in the longer term. Companies will realise that the oil and coal reserves have a fast declining long term value and could soon become stranded assets.

Producers may also rationally try to cut production and increase prices to order to gain higher revenues in the short term. However, this would of course make renewables look more attractive. These oil dependent nations benefit from a shift to solar and wind energy.

Many Gulf countries can become solar power giants in their own right. The move away from resource dependency will create more diverse economies and perhaps even transform their political climates for the better.

Technology Rules

Renewables are fundamentally different from fossil fuels in that first and foremost they are technology based. While renewables may depend on the wind and sunlight they do not require the movement of enormous tankers of gas and coal from a mine, or oil from a well.

Instead what matters is which country can manufacture the most efficient and cost effective solar modules and wind turbines. This means that the quality of intellectual property, patents and production centres will determine the winners of the renewable age.

Right now European countries arguably have an edge on solar and turbine technology and the race to build batteries for cars, homes and the grid continues.

Of course that is not the only part of the story, countries can easily buy renewable energy components and set up a network based on overseas technology. But many like Turkey and Brazil feel that this would place them at a long term disadvantage.

Renewable Protectionism

To help overcome this technology gap certain countries have enacted laws which determine that a certain percentage of renewable energy installations have to be built with domestic panels or turbines. The idea being that this will help create local production centres, even if it means increasing the construction costs of renewable installations in the short run.

This has already led to conflicts as countries like the USA seek to restrict cheap Chinese solar module imports to in order to protect its own manufacturers. However, for producers and users of energy, cheap Chinese imports are preferable as they keep capital costs lower.

The Looming Threat of Climate Change

Perhaps the most important geopolitical impact of renewables is if and how quickly they replace fossil fuels. The sooner this happens the more likely catastrophic climate change will be prevented.

Climate change is the most dangerous long term geopolitical risk facing the world. Widely predicted is mass crop failure, water shortages, uninhabitable cities and extreme weather. This new world will certaintly lead to mass migration and widespread conflict and will throw the geo-political framework we know and understand now into chaos.

The Keys to the World: Geopolitical Risk and Maritime Chokepoints

Across the globe there are maritime chokepoints which hold valuable strategic value but also significant geopolitical risk. Below I look at both the history and geopolitics of the Suez Canal, Panama Canal, the Straits of Malacca and Hormuz and the Bosphorus Straits. Historically these places have been important thanks the huge amount of shipping that passes through them, as well as their military and naval value.

The Suez Canal

The Ancient Egyptians were the first to dig a canal from the Red Sea to the Mediterranean. Several different versions of the waterway were dug throughout antiquity but they eventually silted up and were forgotten.

When the modern version first opened in the 1860s the Suez Canal revolutionised international trade. By cutting the travelling distance from India and the Far East to Europe at a stroke. The new route also altered the world’s geopolitical landscape. Suddenly gifting Egypt a new military, geopolitical and economic significance. This was to prove both a blessing and a curse.

“A Key to World”

The Canal was originally conceived and financed by the French. However he British government soon realised its significance and took advantage of the Egyptian government’s weak financial position to buy a stake from them in the 1870s.

Over time shares in the company controlling the canal evolved into direct control over Egypt. The Canal soon became an essential part of British imperial thinking. At once a powerful “key” to control the world’s oceans and trade, but also a weak spot, vulnerable to enemy attack and something to be carefully guarded.

The Canal’s importance was cemented in the early part of the twentieth century as the region’s oil flowed through the narrow channel. Oil supplies became crucial for both industry and eventually the Royal Navy. The Navy switched from coal power to oil in the first decade of the 1900s.

Egypt Takes Control

Now the Canal lies firmly in the hands of the Egyptians thanks to President Nasser’s nationalisation in 1956. A bold move which resulted in a military intervention by the British and French who were set to lose their prize Middle Eastern asset.

“We shall defend [the Suez Canal] with our blood and strength, and we shall meet aggression with aggression and evil with evil”

Gamal Nasser 1956

But in turn these fading imperial powers were ruthlessly undermined by a lack of US support (who threatened to pull the plug on British debt). At once ending British illusions about its superpower status and pushing the French into a long term rapprochement with Germany.

 For the Egyptians it was a moment of national triumph. But a short-lived one, for the disastrous 1967 Arab-Israeli war saw the country defeated and Egypt closed the canal for 10 years.

Enter the USA

The Canal was eventually reopened and today ownership over the canal provides a good income from shipping fees and a useful diplomatic tool for Egypt. Cairo can opt to close the canal to traffic to countries (like Israel) it takes issue with. The Canal also helps bolster Egypt’s reputation as the geopolitical lynchpin of the Middle East. This despite a patchy record of political and economic management.

Egypt’s stewardship of the Suez Canal means strong US support in the form of military and diplomatic aid. Despite the uncertainty of recent years, Egypt is considered “to big to fail”. The geopolitical risk of an unstable Egypt is well recognised by the Washington establishment. It will come as no surprise that Egypt is the second largest recipient of US military aid.

China on the Horizon

The Egyptians also maintains strong links with China. Bilateral trade has blossomed between the two countries in recent years, as has Chinese direct investment in the country. Beijing’s increasing economic presence across the Middle East means it will get further drawn into the regions’ messy geopolitics.

While China presently has good relations with all the major economies of the region. It could one day be forced to choose allies and enemies. If that point arrives you can be sure Beijing will take into account the massive volume of Chinese goods passing through Suez to Europe before endangering relations with Cairo.

The Straits of Malacca

This narrow gap separating Indonesia and the tip of the Malay Peninsula was long recognised by the British as the fulcrum of trade and military power in East Asia and one of the “keys” along with Gibraltar and the Suez Canal that “locked up” the world through naval power.

Singapore lies to the north of the Strait and was the centre of Britain’s Far Eastern military command. The City’s position ensured the construction of huge sea facing fortifications (which in the event proved useless when the Japanese managed to attack by land in World War Two), to protect it and its loss was arguably Britain’s worst military defeat of the twentieth century.

Geography rules

Singapore’s strategic position and good governance has made it one of the world’s great hubs for shipping and commerce. It is by some measures the globe’s busiest port (vying with Shanghai for this particular honour). As well as watching over the immense flow of electronic and consumer goods leaving the factories of Asia to the shopping centres and malls of Europe and the Middle East.

In the other direction the Strait sees a hefty proportion of the world’s oil supplies en-route from the Gulf to China and the US. Overall a quarter of the globe’s merchandise pass through the Straits. This represents a huge geopolitical risk.

 Hostile Powers

Therefore the idea that the Strait could be closed or shipping stopped by a hostile power has long occupied the minds and plans of politicians and military chiefs among the world’s great trading powers. While the US does not have a permanent Naval presence in Singapore, it has a number of aircraft carriers in the region and retains strong relations with Singapore as well as its neighbours.

Beijing also retains good relations with the city-state which has a majority ethnically Chinese population. This undoubtedly helps cement business and social ties between the two nations. 

China is currently developing its naval capacity but remains a long way behind the US. Beijing views protecting its overseas trade as a major priority and lack of control over the Malacca Straits is of huge concern.

A String of Pearls starting at the Isthmus of Kra ?

The next decade will see Beijing become more assertive in its “backyard”. This will be particularly felt on issues such as control over islands in the South China Sea and Taiwan.

There has been speculation that this will manifest itself in a “string of pearls” – a series of naval bases in Asia and the Indian Ocean to buttress Chinese power, but so far there is no sign of this materialising.

In the longer term China will want the US to accept it as more of an equal, something Washington may find very hard to accept, how this particular dynamic unfolds over the coming years is crucial for peace in the region.

Interestingly there were once rumours the Thai government would cut a canal through the Isthmus of Kra, (the narrow central section of Thailand) financed by the Chinese, reducing shipping times and the strategic importance of the Straits of Malacca at a stroke. This kind of bold move could strengthen China’s hand, but at the risk of angering the Americans than their allies.

The Panama Canal

In 2016 Panama Canal saw the conclusion of a huge expansion programme costing US$5.2 billion. This work allowed much larger vessels through the canal. This ushered in a new wave of Panamax class supertankers, which in turn will bring about even greater economies of scale in the shipping industry.

Geopolitical Risk

The troubled and lengthy construction of the Panama Canal helped to forge a new Central American nation. The Canal was also crucial in the USA’s journey to becoming a global power. The opening of the Canal helped reduce shipping times dramatically. With the Canal open ships could avoid the long and arduous Cape Horn route at the foot of South America.

It was the French under Ferdinand Lesseps, the same man who had successfully built the Suez Canal that pioneered the construction of a link between the Atlantic and Pacific. At the outset Lesseps was supremely confident thanks to his experience in Egypt. However, he severely underestimated the difficulties of the terrain. Mountains proved difficult to dig around and the tropical climate had thousands dying of disease.

Enter the USA

Eyeing the failing French effort the increasingly confident and out-going US government authorised the purchase of the project. However when negotiations with Colombia the host country at that point failed, it started a chain of events which led to the US supporting Panama’s independence.

Panamanian rebels were assisted by a US naval blockade and overt political support. All of which allowed the new territory to split away from Colombia and then sign over the rights of the canal to Washington in the Hay-Bunau-Varilla Treaty, part in gratitude for helping them win independence, part in ignorance of the treaty’s consequences. 

Complete Control

Once the Canal was finally complete in 1914 it gave the US control over the most important trade route in the Americas, but also helped to confirm Latin American suspicion over Washington’s motives in the region and it is often cited as a classic case of gun boat diplomacy.

The Canal rapidly became an increasingly significant international waterway, now seeing around 16% of US trade pass through it every year and one the country was willing to defend with arms. The US deposed the increasingly anti-American Panamanian President Noriega in 1989 with a swiftly executed military invasion.

While the US finally relinquished control of the Canal in 1999 – on the condition it became a demilitarised zone. As the preeminent military power in the region it is unthinkable that Washington would allow a potentially hostile power to take any kind of control over the route.

The Prospect of a Rival Canal

China is now the major trade partner with much of Latin America and sees a significant chunk of its imports and exports pass through the canal. From Brazilian iron ore destined for the factories and workshops of the world’s foremost manufacturing nation. In the opposite direction tools, toys and all manner of consumer goods bound for North American shops and malls.

Fear of this vital route being compromised or cut off to Chinese shipping has led to outlandish schemes springing up. These include a Chinese backed alternative waterway through Nicaragua. Another idea is a “land” canal – a new rail line for heavy cargo cutting across Colombia to connect Pacific and Atlantic ports.

China’s Plan?

So far these ideas have made no real progress and remain unlikely to be carried out.  But the confidence and ambition of China has been underestimated before, so nothing should be ruled it out.

In this scenario it would be interesting to observe the US reaction. The idea of a major foreign power de facto controlling a trade route which comparable to the Panama Canal in Central America would not be popular in Washington. The US has already seen China take the economic initiative in its backyard. A Chinese controlled canal would I suspect be a step too far.

At its narrowest point it is only 700 meters wide. But the Strait represents a border between Asia and Europe as well as access to global trade for the Black Sea States. The Straits represent a strategic chokepoint and represents a huge geopolitical risk.

The Geopolitics of The Bosphorus

Istanbul was once called Constantinople. Named after its founder the Roman Emperor Constantine it soon became the most powerful and wealthy city in Europe and the pinnacle of the Byzantine Empire. A position it claimed for nearly 1000 years until its decline along with the Byzantines.

The rise of the Ottoman Empire and its invasion of the Byzantine Empire, culminating in the siege and capture of Constantinople in 1453 marked the eclipse of that great power. For many scholars the event signaled end of the medieval era in Europe. The conquest also represented the rise of a new power that would dominate the Middle East and much of Eastern Europe for centuries.

The Rise and Fall of the Ottoman Empire

In particular control of the Bosporus gave the Ottomans control of the key trading routes in the region. It also cemented their ability to control the Silk Road trading routes to the Far East.

Militarily it gave the Ottoman’s leverage over their northern neighbours, bottling up Russian naval ambitions to the Black Sea. However control over the Silk Road gave others the impetus to find new routes East.

Over time the opening up of oceanic sea routes by the Spanish, Portuguese, Dutch and English diminished its importance as Western Europe states could ignore the Silk Road to trade with China and India. Instead they could look across the Atlantic and Pacific for trade.

All this time other powers eyed the straits jealously. In particular the rise of the Russian Empire to the north and its desire for free access to the Mediterranean and beyond was a major contributor to the numerous wars between the two great Empires. The Ottomans and Russians went to war

The Great War

On land the capture of the city gave the Ottomans the impetus to move West and seize much of Eastern Europe only being halted at the gates of Vienna. That was probably the high point, over time slow decline took hold of the empire. Its last stand was the First World War where despite its technological disadvantage it successfully threw back the British assault on the Bosporus focused on Gallipoli.

Churchill’s doomed plan was to seize the Ottoman capital and knock a major German ally out of the war, while at the same time provide a supply route to their Russian allies and further encircle the remaining Central Powers.

The Turks bravely repulsed the British Empire forces, famously many of them from Australia and New Zealand and attention in the war shifted elsewhere.

The Ottomans won the battle, but the result of the war eventually dissolved the Ottoman Empire and led to the birth of the new Turkish Republic. The new republic brought a desire to move away from what was seen as a capital soaked in the old fashioned corrupt ways of the Sultans and their court and instead make a fresh start in a new capital in centrally located Ankara.

Istanbul and Reinvention

For other cities this might have might have resulted in decline and obscurity. Istanbul’s geography ensured its continuing relevance and since losing its capital status it has grown into a powerhouse. The most populous city in Europe, the commercial hub of Turkey and indeed the Eastern Mediterranean.

The Geopolitics of the Straits

Now with many predicting a global shift of world trade and investment away from the Atlantic and towards Eurasia and one dominated by China rather than Western powers. Istanbul looks set to profit. The Bosphorus holds a pivotal position on the Eurasian landmass. 2.9 million barrels of oil pass through Istanbul every day.

A huge volume of trade also pass through Istanbul, grain and the rich agricultural produce of Ukraine. While in the other direction goods from the rest of world flow to the Black Sea states such as Romania, Bulgaria, Ukraine and Russia. All of this can be cut off in a stroke by the Turkish Government.

The option to block the Strait on one level provides Turkey a great deal of leverage over its northern neighbours. But cutting off access to the Bosphorus would provoke a massive international reaction and represent a huge geopolitical risk. Even the threat of military intervention. But the fact that Ankara is able to take this measure ensures that any move against them will have be weighed up against this possibility.

Russia’s Watchful Eye

The Russian invasion of Crimea gave it a new platform to project power in the Black Sea. This along side military engagement in Syria and the growth of Tartus naval facility in the country enhanced its role in the Middle East.

It has also made Russia naval traffic through the Bosporus route ever more important. But any expansion of Russian naval power is ultimately frustrated by the narrow strait, as its fleet and exports and imports can be bottled up.

Beyond the Bosphorus Turkey is a significant regional power player. Its long standing President Erdogan is keen to extend its influence further into Africa, the Balkans and Middle East. This “neo-Ottomanism” is perhaps the inevitable result of Turkey’s power and economic success. Others see a power with Imperial designs which needs to be checked. Whatever its current stance, the Bosphorus gives Turkey a permanent geopolitical trump card.

The Straits of Hormuz

The narrow Straits of Hormuz connects the Persian Gulf and Indian Ocean. To the North lies Iran, while to the South the United Arab Emirates and Oman. A quarter of the world’s oil and a third of all gas supplies pass through the narrow waterway. Cutting off the Strait or interfering with tankers can send oil prices through the roof in an instant.

The Strait has been the scene of frequent stand offs between US and Iranian Naval vessels. Iran has threaten to cut off the Strait in the past. This power gives it a certain amount of leverage. But actually cutting off the route would incur a US military response as well as heavy criticism from many other states.

A world faced by oil and gas supplies disruptions would not look kindly on Iran. So far Iran has not carried out any of its threats. If however conflict arose between Iran and its neighbour Saudi Arabia or the US, closing off the Strait could be an unconventional and vital tool.

Melting Ice, Freezing Politics: Arctic Geopolitics

Icelandic President Ólafur Ragnar Grímsson made it clear: “The security of Shanghai in the future will be determined in the Arctic.” Shanghai is the world’s major city most vulnerable to flooding in a warmer planet. As more Arctic ice melts sea levels will rise, which in turn will sink China’s financial capital.

Melting Ice, Freezing Politics

China accepts the dangers of climate change and is a leader in environmental technologies that mitigate greenhouse gas emissions. But at the same time it appears more than willing to lend billions to projects like Yamal in the Russian Arctic. Yamal will provide 5 percent of the world’s natural gas supply and raising greenhouse gas emissions. But projects like this also place environmental pressures on the pristine Arctic environment.

Drill, Baby Drill

In contrast the US in the form of State Secretary Pompeo refuses to acknowledge climate change. Instead of seeing climate change as a geopolitical risk. He sees the disappearing ice as an opportunity for US firms to benefit from new mining and drilling opportunities.

The unpredecented melting of Arctic ice is a powerful reminder that reality of climate change has arrived. The rapid rise in average temperatures in recent years has shocked even seasoned climate scientists. Climate change is considered by many the biggest global risk.

The melting ice has allowed ships to traverse through Arctic Russia and even Canada’s Northwest passage. Vessels taking these routes will save time and fuel by avoiding traditional routes.

Russia’s Geopolitical Advantage

The opening up of this sea route transforms Russia’s geopolitical dynamic. As an ice free Arctic gives Russia influence over a new northern trade route. The lack of ice also opens up the possibility of more mining and drilling in the region. A prospect the US and Russians have openly welcomed.

Others like the Norwegians see the damage this would cause to a fragile region relatively untouched by humans until the recent ice melt. The Oslo government have ruled out oil drilling in the region and appear prepared to defend the Arctic’s environment.

Ownership of the region is also disputed. Russia put in a claim to the UN to extend its exclusive economic zone across the region. If applied this would extend the other Arctic state’s zones. The success of this claim would open up similar ones for the US, Denmark (via Greenland), Norway and Canada.

But this extension of territory could also stoke geopolitical conflict between the states, particularly if new mineral or hydrocarbon deposits are uncovered.

Other countries have also taken a keen interest in Arctic affairs through close proximity, Finland and Iceland are fairly obvious members. Others like the self styled “near-Arctic state” China demonstrate its new global role. China is a global power on the lookout for new markets, sea routes and avenues of power to explore.

Polar Silk Road

China has called for a Polar or Ice Silk Road and has sent an exploratory ice breaker Xue Long (Snow Dragon) to the region. China has also been investing in the Arctic such as the Yamal project and the hunt for rare earth minerals in Greenland.  

Every move by China will be carefully monitored by its neighbour Russia who remains friendly with China. Russia has watched painfully as China supplants it economically and diplomatically across much of the world. Russia will not be happy to see this happen in a region it views as its backyard.

Economic Potential

The Arctic region is reckoned to contain massive oil and gas reserves. It is reckoned that there are 44 billion barrels of natural gas and 90 billion barrels of oil. The Arctic is home to many different metal deposits and around 10% of global fish stocks, all of this makes it a hugely tempting target for a resource hungry world.

But the harsh conditions even with global warming make exploiting any of it rather expensive. Some analysts put estimate that the price of a barrel of oil would have to hit over US$ 100 to make it worthwhile drilling in the Arctic.

Currently oil prices are far from supporting that kind of investment. The geopolitical risks involved are significant and the reputational and operational risks are high. An oil spill or mining accident spoiling white ice bergs, killing seals and whales would be an environmental disaster but also a public relations one. The cost, difficulties and risk of operating in a polar region is also high. Most people do enjoy working and living in the freezing cold.

Arctic Risk and Global Risk

The irony is clear, the more climate change melts Arctic ice, the easier it is to exploit the Arctic through mining and drilling, which in turn will accelerate climate breakdown stoking massive geopolitical risk. So while China may well make significant short term investments and geopolitical point scoring. Ultimately it will also be contributing to the long term demise of its populous coastal cities such as Shanghai.

Instead China and the Arctic Council should focus on developing a more resilient region, better able to withstand the coming ravages of climate breakdown.