History and Politics of Earth Resources

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• History and Politics of Earth Resources
• Lecture 5
• GLY 120

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The Politics and Conflicts of Resource
Distribution

• Availability of earth resources (possession of,
  or access to cheap sources) is critical to
  development if a country is to
• develop economically and socially,
• have the infrastructure for industry,
• be able to support a high standard of living,
• be a world power, etc.

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• Not all countries possess the same endowment of
  natural resources
• Some have more iron ore
• Some have better soil
• Some have virtually no earth resources
• In general, the larger the land area, the greater
  is the likelihood that a country will have
  significant resources

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• A wealth of earth resources is not necessarily
  indicative of a high standard of living
• Cultural and social differences account for why a
  resource poor country can attain a high standard
  of living
• e.g, Japan after WWII

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• Politically powerful but resource-poor countries
  must maintain free access to cheap supplies of
  resources
• The British Empire before WWI was probably the
  most powerful, influential, and wide ranging
  empire in human history (since the Roman Empire)

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• How did the British Empire remain so powerful?
• It ruled or governed India, Australia, parts of
  Africa (South Africa), the Middle East, etc.,
• It used the resources of those countries to build
  its economy
• Imperialism
• The policy of seeking to extend power, dominions,
  or territories of a nation

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• How was this policy (imperialism) carried out?
• Basically
• Invade or occupy a territory,
• Overpower the indigenous society
• Establish an industrial and political
  infrastructure
• Extract resources
• Make it difficult to be booted out

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Example South Africa

• Originally settled by Dutch and then British
• Colonies established
• Europeans spread out and farm
• Gold and diamonds discovered in latter half of
  1800s

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• A few powerful individuals acquire, through
  various means, most of the mineral rights
• A few companies become dominant in each industry
• The mineral industry becomes reliant on a cheap,
  abundant labor pool (Africans)

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• A sense of cultural superiority is widespread
  among minority of Europeans in power
• Companies control labor pool by restricting
  movement of its workers
• Making them reside in camps
• Making them possess work papers
• Preventing them from investing in companies,
  owning property, etc.

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• This practice becomes official government policy
  apartheid
• Complete separation of all colors to prevent
  inter-racial marriages
• Political and economic pressure from outside of
  South Africa (and pressure from inside)
  eventually drove the white minority government to
  sign over power to the South African majority

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Who controls the market for natural resources
(mainly minerals and oil) and how?

• Corporations
• Governments
• Cartels and Syndicates

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Corporations

• Private companies and corporations have long been
  the traditional means of ownership of the mineral
  industries in capitalist countries
• Small companies merge (history of oil companies)
• Larger companies try to buy out smaller companies
  or production sites
• diamond mines, gold mines, oil wells
• Monopoly?

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• Corporations can gain control over a resource by
• Ownership of production sites
• Ownership of processing facilities (refineries
  and smelters)
• advanced technologies, patents
• limits competition
• Can increase their holdings by expanding into new
  markets and exploration
• search for new deposits (land, sea, new
  technologies)
• ExxonMobil

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• Problems
• Monopolies can form
• Allow the corporation to control the market
• Anti-trust laws
• Govt. may try to break apart a monopoly
• Microsoft
• Standard Oil
• May be ways around the system
• Alcoa/Alcan

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• Nationalization by host countries
• Government may acquire gt50 control of a company
  or mine
• PEMEX
• Mexico nationalized its oil industry in 1938
• 1st major act of nationalization to affect
  American companies
• Iran nationalized its oil industry on 1951
• Britain imposed a worldwide embargo on Iranian
  oil
• Expropriation by host countries
• Government may seize control of their oil wells
  or mines

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Governments

• Control over resources depends on type and
  philosophy of the government.
• Capitalist governments
• impose taxes on earnings or profits
• regulations
• lobbyists

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• corporations processing
• production driven by profit and the market value
• poor market mine closure or cuts in work force
• copper mines in Arizona
• government pays unemployment

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• Socialist or Communist governments
• state-operated facilities
• production not necessarily driven by profit
• key is employment, jobs for all workers
• independent of market value
• government can trade the materials produced
  (loss?)
• Cost of unemployment vs. loss in revenue

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• Government Subsidies
• Monetary support or tax breaks
• Better to keep people employed
• Who benefits? Depends
• Govt.-Corporate partnerships
• Governments own the land/mineral rights
• Companies have the technology and experience
• Middle East and oil companies from U.S., Britain
• Jamaica and aluminum

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Cartels and Syndicates

• Groups of companies or individuals
• Agree to work together to control the
  availability of a commodity (diamonds, oil)
• The goals are to
• Limit competition
• Maximize income
• Affect the market price (influence or control)

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• Members leave if not benefiting (OPEC)
• Must be strict rules and punishments, for
  cheating the system, in order to make it work
• punishment gt potential gain by cheating
• Example - Venezuela selling the U.S. oil at 1/2
  price

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OPEC cartel and Oil Organization of Petroleum
Exporting Countries

• Formed in 1960 with the original members from
• Saudi Arabia
• Kuwait
• Iran
• Iraq
• Venezuela

• Current Members are
• Algeria
• Indonesia
• Iran
• Iraq
• Kuwait
• Libya
• Nigeria
• Qatar
• Saudi Arabia
• The United Arab Emirates
• Venezuela

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OPEC, continued

• Collectively raise and lower production rates to
  affect the market price of oil
• Collectively supply about 40 of the world's oil
  output
• Possess more than three-quarters of the world's
  total proven crude oil reserves
• Competition from other producers in England,
  Mexico and Norway

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Oil Crises

• Oil Embargo - 1973
• Iran-Iraq war - 1980-1988
• Persian Gulf war - 1990-1991
• Iraq 2003??

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DeBeers and Diamonds

• Cecil John Rhodes - formed DeBeers Consolidated
  Mines, Ltd. in 1888
• Diamond mines in South Africa - Kimberley Mine
• 495 m deep, produced gt14 million carats
• Control world's supply of diamonds (gem-quality)
  to only meet demand - keep prices high

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• Advertising - promote value in western cultures
• Japan 1967-77
• The percentage of Japanese brides receiving
  diamonds rose from 5 to more that 60
• Anniversary rings
• Has resulted in the sale of more gem diamonds to
  the same individuals
• Competition from mines in Russia, Africa,
  Australia, and Canada reduced DeBeers influence

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Aluminum Cartel

• Process for extracting aluminum on a large scale
  not invented until late 1800's - patents
• Patent owners bought
• significant portions of known aluminum mines
• shares in hydroelectric construction projects
• The number of new competitors is limited by
• High electricity requirement
• High start-up costs

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• Five major aluminum companies formed a cartel in
  1896 -
• 1 Canadian (Alcan - subsidiary of Alcoa, U.S.), 1
  Swiss, 2 French, 1 British
• In 1901, these five produced 90 of world's
  aluminum (Alcoa in the U.S. 90 of all U.S.
  aluminum)

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• Threat of nationalization by host countries of
  bauxite (aluminum ore) mines
• usually fail
• either they cant sell their ore (cartel
  blacklist)
• or cant process it (lack refineries, smelters)
• Free market?

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World War II

• The quest for oil to support war machines
• Germany - supply blitzkrieg tanks, planes, navy
• supply routes cut off, running out
• synfuel from coal
• captured supplies in occupied countries
• occupation of the Netherlands
• alliance with Rumania
• Caspian Sea - Russian campaign
• failed attacks on Moscow and Stalingrad
• winter

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Japan, WWII - supply its navy

• limited synfuels program, import all oil
• invasion of China
• major oil fields in Indonesia
• American oil embargo
• attack on Pearl Harbor, Dec. 7, 1941
• brought U.S. into the war - destroyed much of
  Japanese navy, blocked shipping lanes