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.

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.