DAVID VICTOR: (In progress) -- especially in the agricultural sector we're dealing with stresses like unavailability of water, like the need to apply new kinds of crops. And then if you want to focus on places for leverage, the place to focus is on the institutions that deal with and process the original stresses, and not so much on the original stresses.
Now, ultimately, if we're going to be making cases around cause and effect leading to resource wars, we have to nail down the exact cause and effect relationships.
I do want to take in the last minute or so of my remarks -- I want to take a moment and talk about policy. There's no question that part of the policy that's needed here is preparedness for some large disruptions in availability of natural resources. The military is starting to do this. There's lots of good ideas about building these kinds of concerns into the Quadrennial Defense Review and other kinds of activities. And my co-panelists, I'm sure, will talk more about these kinds of issues.
In my view, though, the most important lesson from all of this for policy -- especially policy in the West -- is to have some sobriety about where we really have leverage, because we actually don't have a lot of direct leverage over these problems. And so the way we're ultimately going to have leverage is by engaging with ourselves to try and solve the root problems, originally. Many cases are going to be second-best solutions.
So for example, we need to do a much more aggressive -- make a much more aggressive effort to control our emissions that lead to climate change, not because that's the only part of the story. Adaptation's part of the story. There are other parts of the story as well, but this is something that we have much more direct control over.
And the same is true with consumption of oil, because lowering consumption of oil, making the oil markets behave in a more responsive way is going to help -- sucks more of the pernicious rents and resources out of the oil market that right now seem to be causing problems around the world.
Let me stop there, and I'm sure we'll have a chance to talk more about these issues in a bit.
PAUL STARES: Okay. Thank you, David. I'm sure that people here will want to pursue some of these points in greater detail. I want to save time for Q&A, so why don't we turn straight to Paul Kern.
And Paul, in the comments that you and Sherri Goodman made to David's original article, you say that you think that he has seriously underestimated the risks of climate change on national security. I want you to explain why you think that and expand on that general view. And as David mentioned, you used the term that climate change is a sort of threat multiplier. And I want to get a sense of what you mean by that. But if you could also say something more specifically about concern that is rising about water scarcity in particular, as a source of potential conflict, that would also be very helpful.
PAUL KERN: Well, as you may guess, I'm a little bit different than the typical group that you might have out here. I spent 40 years wearing a uniform, so my thinking is clearly colored green from the age of 18 to the age of 60 about how we think about things from a military standpoint of national security.
So it was interesting a year ago when Sherri Goodman, under the sponsorship of CAN, asked a bunch of people like me -- about a dozen of us -- to get together and discuss: Is there a connection between climate change, threats to the environment and national security? You might imagine, amongst a group of admirals and generals, that there was some pretty heated discussion about: Is there truth to that statement?
And so we listened to a lot of people, listened to a lot of debate. And we finally concluded -- you might be surprised to know that we couldn't agree. But we did agree on one thing: Something was happening to the world's climate and the cause and effect there were going to be debated for some time. But regardless of that cause of what was changing it, we needed to think about it or we would be responding to something as opposed to preparing to do something. So that was the bottom line that came out of the study is that this climate change is taking place.
I've been listening to a number of other things -- to include David's Victor's book -- for the past few years and I'm very much appreciative of the thoughts that were put out by both you individually and the Council on Foreign Relations. I was also -- listened to a number of people, Nobel Laureates, et cetera -- that were a whole lot smarter than I am that connected the dots between energy, environment and the water. And that really struck a cord with me and I will relate a couple of things that -- why that was true.
I was telling Leon earlier -- about a little over 10 years ago I was the military assistant to then Bill Furry (sp), the secretary of Defense. And I got a phone call one Friday evening from the ambassador in Rwanda. And he said, I need some help getting out of Kigali -- and that's sort of the way he introduced his question to me. And my first question, as I was sitting there on this phone -- didn't even have a cell phone back then; had to go find a phone to call -- was, where's Kigali? I had known about Rwanda and I knew, generally, the African continent, but I didn't put the two together.
But I very quickly did. And as we got into that, we found that the killing between the Hutus and the Tutsis had been going on at some point. He really did need help in terms of his personal security and that of the embassy staff. But as it had died down and we went into there, we found the next thing that was killing people were not machetes, but it was water and it was the lack of clean water. And so if you went around the refugee camps of Africa at that time, you found all these people who were escaping from the killing and moving into camps and then dying from dysentery. And so the military solution to that was to provide clean water -- not to provide soldiers to go fight, but to take water purification units and bring them to these camps and allow the people to survive medically. If we had not really had those resources, we would have never been able to respond that way.
So there was a connection there between the killing that was taking place and a battle -- pretty hot for those millions of people that died there -- and the lack of resources for people trying to escape from it and the tensions this caused across the borders of many of the African nations. As you've suggested, we've seen the same thing in Darfur.
We had another conference that Secretary Cohen sponsored last year on water and energy. Particularly we called it "Oil and Water: Do They Mix?" And we had a number of different nations coming in. And I was particularly taken by a South African who had spent his career -- his young career in the military fighting the wars in South Africa and his later career trying to solve the water problems of -- and that's quoted in the study, if you want to go back and look at it. And so I kept coming across these intersections.
And finally, we looked at a study that I didn't know that the CNA provided -- Mitzi, thank you for alerting us to a center in the United States at the University of Illinois that was doing water studies. A very good resources, and I would suggest all of you go to it. And a couple of things they said just struck, and if I could just pull out a couple of those things: 1.2 billion people are at risk from lack of clean water; 2.6 billion people lack adequate sanitation and it's only going to get worse.
Water is a scarce resource on this earth -- even though the earth is covered with water. It's useful water that we are looking for -- one that you can drink, one that you can irrigate fields with, one that's in the right place. Now, as the Sahara expands at the rate of about 1 mile a year, it's displacing people. The Europeans worry about it because of migration.
How do you get clean water was one of the interesting aspects that they put out of it.
You get clean water from energy. You basically take dirty water and dilute it with clean water until it's drinkable. And the more you look around the world, you'll see the places where we have lots of arable lands that don't really appear so. It's because they can produce clean water because they have access to energy -- in the Middle East, lots of those that surround the Gulf, and you've all seen that. And so you keep making a circle.
The other one that struck me was the opposite end of that problem: too much water. And we've seen that in lots of the coastal regions where we, again, as the military, need to respond, whether it's the -- flying in people to bring medical supplies, evacuating people, trying to help. And so again, a response is required to do those things.
But the last -- one of the more interesting ones that I've been watching right now is the Northwest Passage, and there is a connection to resources, I believe there, very keenly, in two ways.
One, it's an economically much cheaper way to get from the Pacific to the Atlantic. And last year, in 2007, for the first time unaided, three ships made it through. The U.S., by the way, doesn't have but one old icebreaker. The Canadians, after we did away with the DEW Line, moved all of their camps off the north part of the provinces.
And I was at a conference there where their problem is now how do we re-establish facilities out there. And guess what they need? Energy. How do they get the power to those places to live? So they're looking at it from renewable sources now, and how can we establish that.
But that Northwest Passage, as that ice moves back, is allowing both commerce to take place and, when the Russians planted the flag at the bottom of the Arctic Circle, it wasn't because it was a neat thing to do; it's because there's oil down there.
And so again we come back to a resource problem associated with water and bring the circle together, which the Canadians now look at as a security issue on their northern borders. We look at it as a security problem because we don't have the same capability we did 20 years ago when we confronted the Soviets up there under the ice and over the ice. And so how do we resource those things to make sure that we can respond? So the conclusion that you come to, if you're looking at it from a military perspective, is there is a connection between these changes that are taking place in climate -- access to water or too much water -- and how do we respond to that to ensure the security of our country, both economically and militarily, will be something that (you said ?) said we didn't fail you on but, in fact, we planned ahead for it and we were looking at the kinds of resources that we need. And so those are the cause-and-effect kinds of connections that we are looking at.
So while we argued that perhaps your horizon was a little bit too short in recent terms of hot wars -- and I'm not really sure where the hot war is going to be in the 21st century. There may be lots of small isolated issues where we find activities going on. They may not be a cold war, they may not be a world war like I or II, where you can clearly focus them on resource allocation issues.
But from a military perspective, when you go back and look at history, we start with Sun Tzu and Alexander and we look at the history over the world's time. And we do know that in the world we live in today it's getting more crowded, that the resources are fairly constant, and the more people and the more stress you put on those resources, the more times you're going to have to respond to that, and we ought to be thinking about how we prepare for it.
STARES: Okay. Thank you, Paul. You mentioned the term "time horizon." And I know, Leon, you in a report you did I mentioned at the outset, you looked at a 30-year time horizon and the impact of climate change. And I'd like you to sort of say a little bit more about the quite dire consequences that you painted for, certainly, severe climate change's impact on national security.
I'd also like to get your views on -- given that you've served in the highest levels of the U.S. government for many years, how -- whether the U.S. is institutionally organized to deal with these new security threats, or non-traditional security threats. And if you could elaborate on how we might reconfigure our national security machinery to meet these new challenges, that would be helpful -- (laughs) -- in the two minutes you have left.
FUERTH: Right. Well, first of all, it occurred to me that I should salute David for his courage in coming to Washington, D.C., of all places, to de-bunk bunk. (Laughter.) And bunk, sir, is our great municipal product. (Laughter.) Other cities can be proud of their beer; we are proud of the bunk.
STARES: The new license plate for Washington.
FUERTH: Yes, indeed. Not only do we prepare bunk for domestic consumption, but we export it all over the world. (Laughter.) And although I don't see, you know, an item for bunk in the national accounts, I am pretty sure that it actually earns us a pretty penny. So thank you for -- (chuckles) -- having the courage to remind us that the most salable commodity is not necessarily the true one.
Now, in listening to -- reading your article and listening to your presentation, I don't disagree, except in the sense that very often what you describe depends upon an assessment of how people are going to behave. It's an assessment that rests heavily on the idea that we will, in the end, be reasonable. That we will, in the end, be rational actors driven often by recognition of where the highest profit margin might be. That, in fact, is an important part of your assessment of where the Chinese will go or are in the process of going.
But history does not provide very convincing guarantees that human political behavior is going to be rational. And I think that you would concede that resource shortages have in the past been the subject -- or, the object -- of imperial competitions which led the world into a world war, that a proximate cause or a detonator of World War II was a Japanese concern over access to raw materials and resources. And so there is a good case to be made that short-term fear about access to critical resources can be a cause of war.
And I'd also remind that for the entire period of the Cold War, the United States paid attention the central portions of Africa because of a strategic rivalry -- not for oil, because we had plenty of it at that point -- but for scarce industrial minerals like molybdenum and chromium and vanadium and so on that were to be found in those regions and which were as important to the Soviet aircraft industry as they were to our own.
So I would not minimize the possibility that rivalry or preemptive behavior in an effort to secure vital resources can aggravate and interact with other tensions that make peaceful and rational outcomes more feasible.
Now, the study that you referred to was based on a scenario. In fact, that book is based on three scenarios about climate change, one of them more or less in line with the IPCC's baseline finding. And those of us who worked on it caught ourselves one day discussing it as business as usual and realized that it was anything but. The baseline finding would be disruptive enough.
The other scenario which I dealt with was what happens if some of the -- a possibility that the IPCC had to ignore because they haven't been modeled for, you know, what might occur. For example, a massive dump of carbon dioxide out of solution in seawater as the temperature rises, and so on. Distinctly possible, but not calculable; therefore, left out of the baseline computation. But should such an event occur, then all the curves start jumping up even faster than they are.
The observation that I think is most critical in what I wrote is to say that political systems have environmental niches, not just biological systems. We don't think about the environmental niche of political systems, because we've been living in the same environmental niche worldwide since the last ice age, where we understand what it is, and it's part of the background.
But should that change abruptly, we might discover that all of the political systems, in whatever part of the world, that have been developed standing on this foundation will be threatened and destabilized to one degree or another.
It's really important for us not to take for granted the role of this tremendous continuity in the construction of our civilization, and that continuity is under threat.
Now I wanted to move on to the -- another issue that's been raised, which is very close to the heart of what I've been all about, and that is the definition of national security, and the question of how to manage national security. Fifty years ago it would be appropriate to define national security, essentially, as an analog to national defense -- you place one concept over the other, they're basically the same.
We now come to a time when the concept of national security contains many more primary factors than national defense. We come to a time when our old ideas of linear causes and relationships do not work and are misleading, that one must begin to look at things that are harder to understand -- like complexity theory -- to recognize the real face of the problems that we have.
Small changes can produce unexpected big differences. These problems are not self-stabilizing; they may be unstable. What appears to be the solution to a problem actually will give rise to new problems. The law of unexpected consequences is really supreme over our destiny.
It's a much different way of looking at things, but it is a way which challenges us to ask whether we are taking into account, seriously, the kinds of factors that will determine our fates. The environment is one, but there are others -- in addition to the straight-up military threat.
If we broaden the scope of national security, the question is how do you come up with a working system able to handle that much information, and to deal with it coherently? And there are a lot of people who think that maybe it is right to broaden the concept, but impossible to build the system to handle it.
I don't believe that. I think there are ways inside of a democracy -- in fact, I think democracy is best equipped, of various forms of governance, to do this. There are ways to build network systems that allow the creativity of people to be released, in government and out, to address major threats -- concurrently, and by many different paths, sorting things out as they go.
So when it comes to whether or not the environment is a critical constituent of national security -- at the present or in the near future or in the long-term future -- I'd say it has become so; is becoming more so. It's not the only one. The systems that we'reusing to control our policy and define it are not adapted. We need to be thinking about those too, especially, as we approach a national election.
Finally, I'd like to say that, as a teacher -- (audio break) -- I have many opportunities to take promising students, put my hand around their shoulder, bring them to my window -- which looks out on a brick wall on the other side -- (laughter) -- ask them to imagine that, instead of that brick wall, there is the thriving threat industry, and tell them some day all this will be yours. (Laughter.)
STARES: All right. Thanks very much, gentlemen.
We're going to open up now for Q&A. I'm going to kick things off and ask David to, sort of, engage with Leon's, sort of, first point that, you know, we shouldn't underestimate the capacity for irrational acts, and that the market may not function as smoothly as you anticipate in certain cases.
FUERTH: You wouldn't want to look at U.S. policy for the last eight years as an example of the ability to act rationally, would you -- in the face of overwhelming evidence to the contrary?
VICTOR: I'm not going to -- take me on directly on that issue --
FUERTH: All right. (Laughter.)
VICTOR: -- but Leon did ask exactly the right -- or pose exactly the right question, which is, the core issue here is how do humans behave, how do they respond?
I think I may be a little more optimistic about our adaptive capacity than Leon is. And, certainly having read the scenario that you've painted -- and the purpose of that scenario was to lay out a worst-worst case --
FUERTH: No, there was another one which was even worse. Didn't it -- ?
VICTOR: Well, I'm glad I didn't read that one, but I'm most happy to read -- to read yours. And there are not guarantees, of course. And, underpinning my argument is not that markets are going to work perfectly, and so on. Although it is, I think, striking that our adaptive capacity, at least as it concerns raw resources, has actually improve enormously over the last century.
And part of the tenor of the article was that these, kind of, big resource wars, like the one that started -- the role that resources played in starting the Second World War, is they're actually becoming much more rare, because society's ability to not be dependent on particular resources that come from particular locations has improved dramatically -- because of the commodities markets, because of innovation, and a bunch of other factors, that it's really striking that there's almost no natural resource for which an individual country has, in effect, the world over a barrel, in the way that we traditionally thought --
STARES: So to speak
VICTOR: -- about supply.
MR. KERN: An expensive barrel.
VICTOR: But there are no guarantees. And I think one of the areas where this shows up most aggressively is in how stresses on resources propagate through failed states, and states that have very poor governing institutions.
And part of my argument in the article was, if that's what you're worried about, then you've got to focus on fixing the core institutions which govern how humans are going to behave. If we think that we're going to help the Darfur crisis by making, what are now more scarce resources a little less scarce, we're kidding ourselves. At the core in Darfur are the institutions that mitigate and drive, in this case, the violence.
The same is true, I think, for the Kigali example where I think the causation is, in fact, running in the opposite direction. There you had a conflict that, at its core, had to do with governance in the country, and the relationship between the Hutus and the Tutsis, and all of those kinds of questions. And then -- as they blew up into a really nasty and horrible conflict, which partly was reflected in who got which resources -- then the response, of course, had to also be attentive to the availability of resources, in the particular example that Paul used wisely, the availability of fresh, of fresh water.
But the question is -- the core cause and effect relationship, and where is the leverage? And the leverage, I think, is on these institutions. And even in that area -- although I think we've learned a lot in development assistance, and how do you help countries abroad -- there we also need to be modest in what do we really know, and how can outsiders influence and intervene.
STARES: Leon, just quickly on this.
FUERTH: Very quickly. If we spent an hour by ourselves, the area of disagreement would probably be rather narrow. But I think -- I do not think causality is to be understood as a linear process, where A leads to B and not anywhere else.
Causality is complex. It is circular. Issues pick up energy from a variety of places; they feed back upon one another. And so what might begin as a problem of governance is compounded and accelerated by a problem of shortage. It's compounded by a problem of governance made worse in the presence of the political effects of those shortages. And so, in order to properly understand how to intervene in these situations, they have to be looked -- almost like hurricane cycles -- as places where energy is being pumped into a system in a variety of ways, and the system itself is being challenged.
MR. KERN: Could I put a footnote on what we meant by threat multipliers in that area? These unstable areas create the opportunity for people who are not nation-states -- (audio break) -- that have refuge, because the governance that you aptly are focused on, it doesn't exist in many of those regions.
And so what you've created is an opportunity then for people to build facilities, and camps trained to work against us in many regions of the world. And we've seen that continuously. So from the standpoint of the nonlinear and the cause-and-effect, perhaps, are not what you're expecting, it's these other pieces of it that cause the instabilities in the national security, which we refer to as these threat multipliers.
STARES: Okay, let me invite Council members to join in the discussion. If you could wait for the microphone and then state your name and affiliation.
Yes, sir -- over there. If you could also stand, please, I think it would help.
QUESTIONER: Rob Cortell (sp) -- (inaudible).
And I actually have three things here that I want to throw at you and see if you can divine something from them.
The first one, modern technology. I Googled "ice age," and 1974 Time Magazine article in which -- if I could quote just a quick thing here -- anyway, the bottom line of it is "Trend shows no indication of reversing. Climatological Cassandras are becoming increasingly apprehensive, for the weather aberrations they are studying may be the harbinger of another ice age."
A big article cover story in 1974 about how the climate changes relating to years and years of ice age. So that's one set of predictions about where we're going to be. The second would be -- I, years ago, was involved in the oil embargo in 1974. I was a staffer then. And of course, the prediction at that time was we'd run out of oil in 20 years. And then of course, the price changed what the reserves were and now we have a spike of yet another 50 percent on a doubling of the price of oil to a hundred and -- $100-plus. So I would hazard a guess that the unproven reserve numbers on oil have just gone up by 60 (percent), 70 percent as certain kinds of activities become more able to be done.
And then the third that I want to throw at you is history. And I'm not a historian -- just an amateur historian, but if you think back to World War II, many historians think of the Japanese entry is partly a response to a resource problem -- you know, oil and rubber. So among all that, is there anything you can divine which is -- talks to being tactical in the short term versus being strategic in the long term given that in fact, it's not clear the long term is really predictable?
STARES: Any takers there?
Either David or --
VICTOR: If I understand the last question that -- let me just say briefly, shocking as it may seem, Time was wrong -- (laughter) -- and -- so I'm not going to engage in that further. The evidence right now in terms of the direction of the threat to the climate is incontrovertible.
I think the issue, though, about oil resources, is a really, really important question. And we have not seen an increase of 60 (percent) or 70 percent in booked reserves partly because it takes a while. But partly as it takes a while and partly that, in fact, that is now the prospect, there's an enormous quantity of oil that's going to become available. I know it'll be in Canada and Venezuela in theory.
What I think is most interesting about the oil business, though, is that roughly four-fifths of the oil reserves -- depending on how you count -- are managed by companies and enterprises that don't think about that -- the -- this industry that way. So when prices go up, they don't think about automatically bringing more supplies online, either because they don't know what to do with all the cash they're making already or because they're in environments like we see in West Africa, where because of instability in property rights and changes in tax laws -- that's certainly going to be the case in Venezuela -- why would somebody go off and invest still more in an environment where you don't know what the underlying rules are going to be?
So I think that's actually the key issue in the oil and market and why, despite this theoretical increase in resources -- and while that will come on, as we see in the Tar sands in Canada, why their market is still not as fully responsive as you might expect. But the long-term direction, I think, is quite extraordinary and becoming more commoditized.
On the front page of the Financial Times -- there's an article noting a growing critical shortage of rice associated with an immense spike in its cost. If you just keep on reading the Financial Times, you will have been through another article on the skyrocketing cost of cooking oil and diminished availability, or of wheat or of corn. And if you look through those articles, usually the connecting link is, in part, the operation of speculative markets which purchase the rights to the sale of these things in the anticipation of more bad news, when they then help to create. Okay? There is also the factor of changes in growing cycles, which are now almost universally attributed to climate change. In the past, it would have been just this -- you know, a patch of bad weather. Now it is linked to climate change ongoing.
And then there is the interesting internal link of the impact of ethanol on food supplies, okay? And here, one reaches a nexus between global warming, energy, energy security and the kinds of availability and price stresses that traditionally leads large, angry crowds into the streets of capitals, which is what we're going to be seeing. When these things do link, they are in feedback loops and one must look for the way in which the loops take energy out of one place of the problem, dump it into another, amplify it and send it on around back.
STARES: Paul, did you want to add --
MR. KERN: Just a quick comment on the oil issue -- and there's lots of studies that can point to you the fact that we'll never run out of oil -- the economic point of where we run out of useable oil is not top controversial. And it also shifts, as Leon has suggested. Then what will be the second and third-order consequences of that when oil becomes too expensive? Right now, the price point of it makes coal very economically viable for coal liquification and work. But have we done the clean coal work studies? No, we haven't. And so we have another environmental issue. The Tar sands are clearly economical right now in terms of what they are, but you have another problem dealing with Tar sands on the environmental side and with water, and with the great leftovers once you've processed all of it.
But all of those solutions have second and third-order consequences. When we looked at it from the study -- that the Air Force is the biggest consumer of petroleum products in the Department of Defense -- about 80 percent. Most of it goes into the tankers and the big airlifters that are re-supplying the other aircraft. A great study was done on doing exactly what the German did during World War II -- going back to Fischer-Tropsch to convert coal to jet fuel, which we know how to do and it's economically in the right case right now. But we stopped doing it again because it was a -- the coal and the carbon issue has not been addressed.
So all of these keep coming back to different consequences, some of them directly related to economics, some of them shifting economics to other countries, other capabilities. And some of them with dire consequences to the environment, which only exacerbates the problems that we've been talking about that are inevitable, but we haven't taken the management structure with it.
STARES: Yes, sir.
QUESTIONER: David Goldwyn, Goldwyn International Strategies.
I wonder if we could move from the abstract to the concrete. I mean, it's hard to disagree with the proposition that things are always much more complicated than they seem. But when we look at a problem like Sudan -- not so much Darfur, but north-south -- you've got oil in the north, which certainly finances the ability to conduct war. You've got water in the south -- makes Egypt and everybody else nervous about which way the Nile is going to go. You have areas where it's divided like Abyei, where -- you know, who wants the oil -- you know, is a problem in the conflict. But it's not the source of any of the conflicts. So if you've got -- it's an intensifier.
So in all of your analyses, what do you do about Sudan as a policy prescription given the various perspectives where you come from?
VICTOR: Let me start by saying that we're extremely limited in what any group of outsiders can do, especially if you're trying to intervene in a country where important parts of the country don't want you to intervene, you'd have -- (inaudible) -- about that. Parts of the energy resources that help fund this war here -- and I think we need to continue, as we've already started, we need to continue by holding the governments that are encouraging -- certainly allowing their state enterprises to invest in those oil resources and be accountable for that. That, I think, helps explain for certain a large fraction of change in the Chinese behavior. I'm not saying the Chinese have been enormously helpful now, but they certainly have changed their behavior and are giving the government much less of a free pass. Similar kinds of standards need to be applied in the Indian case. I think you're going to see -- and that doesn't -- the response of all that is not overnight, just like the response if somebody were to lean on the United States government about its behavior in some part of the world would not be an overnight or immediate response. But the direction already is -- in terms of holding China and India accountable or more accountable -- the direction that's already pointing in the right way -- I think you're going to start to see as this drags on both firms in both of those countries becoming much less interested and able and willing to invest in additional resources, and you may even see a pullout.
But it's going to take a while, and we should be extremely sober in our expectations of our ability as outsiders to intervene directly.
STARES: David, what role can international financial institutions play? I know the World Bank tried to institute a system in nearby Chad to manage its resources or revenues from the oil industry, but that collapsed. And is that of --
VICTOR: Right, and it collapsed party because -- it collapsed for a bunch of reasons, and at the end of the day the Chadian government -- it was hard to make credible the threats and promises that were being made, organized by the World Bank again the government of Chad, to ensure that the money that was going into the special fund would actually be spent on things other than weapons, because it turns out it was being spent mainly on weapons.
And it points ultimately to the limited leverage. One of the outcomes of all this, of course, is that you're going to see a lot less real development of additional oil resources in Chad.
Part of this also is -- part of the response in the case of Chad was due to the assumption that the Chinese government would be willing and able to come in and invest in new projects that ExxonMobil wasn't going to engage in because the World Bank deal then blew up.
I think as we and the Western world hold China more accountable for this kind of behavior, you will see fewer of those credible expectations, because I think the Chinese will really think -- increasingly will think twice about whether to make promises like the promise that seemed to be on the table in the case of Chad, that if you blow up the World Bank deal, we're going to come in and finance an alternative.
MR. KERN: From a military aspect, you may or may not know there's a CENTCOM headquarters in Djibouti that tries to keep an eye on what goes on in the Horn of Africa.
The creation of AFRICOM is sort of a new approach to -- whether it's right or wrong or whether it'll work or not still remains to be seen, but it is much more focused on how the State Department can work with the Defense Department more closely to establish solutions that are not military.
And I guess the third point I would make, most people look at our special operations forces as a bunch of cold-blooded killers. They do pretty good at that, but a great deal of what they do is training people how to take and live in the environment that they're dealing with and how to establish military rule within a democracy, something which is very difficult to get across to a lot of people who've been living under tribal law and other types of governments.
And so the attempt right now is to reach out in different ways to try to bring stability to regions like Sudan, to deal with it not on a kinetic way, but to deal with it much more on a human aspect of medical schooling, clean water, what we can do to help train them to help themselves, as opposed to having to bring in large numbers of outsiders.
STARES: Back there, the lady at the back.
QUESTIONER: Lydia Chan (sp), Washington Observer. I've got two questions. One is I agree with you, Professor Victor, that China finds the risky regions risky to make investments in. However, my observation is China began to look into merger and acquisition of Western energy companies. However, it hit the wall again. There are so many obstacles, political and others, in the Western countries. So how do you -- what's the advice for the Chinese government?
Second question, your article touched a lot about the resource wars. But you didn't touch on the resource-related wars, which I see is transportation, which I think is -- which is identified by many Chinese analysts as one flashpoint with other countries, especially the United States, which basically holds the transportation routes from the Gulf to Pacific. So what's your comments on that? Thank you.
VICTOR: Well, very quickly, I'm not going to advise -- I'm not advising the Chinese government, just to answer your question directly, though.
And the second point, about transportation routes, this is, I think, part of the core argument, which is that I think we see in China, in the operation of the main state-owned enterprises in the oil sector and in the government in Beijing, we see the middle of a huge shift away from a more mercantile way of thinking about the delivery of oil supplies and in the direction of something much more anchored in the commodity markets.
And that shift is terrific news for other big oil consumers, because it means that China will think about its security interests in this way that aligns almost perfectly with the way the other major oil consumers think about that. And so that's good news, and sometimes we're pushing on an open door.
It also requires, like in any security problem, we understand the interests of other countries that are worried about their security. So in the case of China, we have to understand that, in particular, concerns about the Straits of Malacca are really serious concerns. I mean, we have a huge blue water Navy, and they don't have any, that that's going to be a concern.
And so there may be some projects -- there's been some -- the economics are kind of disastrous, but there's been some discussion about projects that would bypass the Straits. There's been growing interest in some actual building in more strategic stockpiles on this -- on the Chinese side of the Straits of Malacca, and we should view all of that with tremendous enthusiasm, because it makes China feel more secure about this.
You asked briefly about the issue of alternatives to buying equity oil, in effect, like doing mergers and acquisition activity. And there, I think we are in for a rough ride, because the increased invocation of CFIUS -- of the U.S. process for reviewing investments that might affect U.S. security -- the invocation or the threat of invocation, I think, sends a signal to folks all around the world that it's actually very difficult to operate in the investment market and treat the investment market like a normal market. That's backfired already in the United States in the way some Chinese interests have looked at the possibility of M&A activity.
Let me just suggest the other area where this is going to backfire soon relates to the sovereign wealth funds, because if more of the sovereign wealth funds, especially the ones in the Gulf, start to think that the money that they're generating from their oil production isn't usable money, then they're going to engage in a different investment strategy, which is to invest by keeping the oil underground, in effect. And that is going to have an effect on oil prices and supply and so on -- in ways that are very difficult to predict exactly, but I think the effects are going to be pernicious. I'm deeply worried about that.
STARES: Leon, quickly.
FUERTH: I've always felt it necessary to be fully aware of the way the world looks to others, but that is ancillary to understanding how the world needs to look to us. Okay? And my first question in any serious policy discussion is where is the American interest.
And I do not necessarily begin from the premise that the American interest is invariably served by understanding and capitulating to the views of others.
So we have a problem here, in that I do not think that the world is automatically heading towards a series of grand resolutions in which commercial logic dominates, and that somehow also solves the intense supply-and-demand problems that are being faced in places like China and India and elsewhere.
I do think that the United States could do itself a multifold favor if it embarked upon a long-range set of policies designed to sharply diminish its requirement for carbon-based energy. The advent of such a policy would deliver a signal to every speculative market on the planet that we are about to change our basic relationship to the resource base of the Earth, and would help get us some relief from the manifold debts that these speculative markets place on continued American dependence on a cheap energy which no longer exists.
I think even in some cases the wars that are raging in these microclimates are based even on an unconscious assumption that the rules of the game will not change, because the big player -- the biggest player -- will not change.
STARES: We're starting to run out of time. I'm going to try and bundle the last three questions.
Sir, you first, then Peter -- (inaudible) -- actually, right behind. Yeah. You can ask your questions and then --
QUESTIONER: Sure. I'm Bill Sweeney with EDS. A quick question. You spent a lot of time on carbon. Spend some time on water, particularly Chinese and Indian dependence on new sources of clean water or cleaning up the water they've currently got, because they're short and they're polluting it.
QUESTIONER: Peter Zimmerman, King's College, London.
I'd like to make three brief assertions and then have the panelists respond.
STARES: Very brief, please.
QUESTIONER: First, these all go to the article we've been handed.
I think you've assumed that the shortfalls in the market are small enough to mediated -- the short falls in the supply are small enough to be mediated by market-based mechanisms. In effect, you're saying that the rate of change of the supply is small, and that they may not be true, because some people, some countries may be priced out of the market.
I think you've considered too much the behavior of a single country or a single country acting against the market, where we know that many times when things are short, when there is great competition, a very small player in the middle may exert tremendous leverage.
And finally, I think to go back to Leon's way of phrasing this, which I like, you all have linearized the problem by assuming that the price in country A is determined by country X working against the market. But it can very well wind up being a conflict between fairly large, two comparably large states -- country X and country Y -- working for supplies in the first country where, in fact, one of more of those competing countries is willing to pay a price that cannot be denominated in money.
QUESTIONER: Sunny Efrain (sp) with The L.A. Times.
I have a related question: In an era of limited resources, could you tell us -- given your differing assumptions about climate change and the rationality of human behavior -- where would you invest in order to get the preparedness? You just mentioned carbon reduction. If you had, you know, X billion -- tens of billion to invest, do you put it in carbon reduction; do you put it in water purification; do you put it in good governance? What would your ideal budget look like? Thank you.
STARES: Okay. We need the rest of the afternoon to answer those questions. But just quickly, the three of you go through, answer whichever ones you feel best on.
VICTOR: Well, the question from Peter Zimmerman was a little abstract for me. But I think actually in these cases where you have single players completely controlling the market and paying non-market prices are actually extraordinarily rare -- even in the case that everybody's been attentive to, which is the Russian supply of gas across Ukraine into Europe. I think what's really striking to that is how limited the interruption was and how very quickly the relationship went back to essentially a market-based -- essentially a market-based relationship.
Where would you invest? If you are a country that is facing almost certain climate change, the smart investment strategy is to focus on in effect mainstreaming adaptation -- the ability to adapt to climate change -- into a broader development policy. That might require some special monies focused on adaptation. For example, money on doing a better job with weather prediction, in particular a better job with crop extension programs and so on.
But the key is to mainstream. I think one of the things we're learning is that that's actually not going to be very expensive overall, because you're building adaptation into larger development strategy. That's if you're a country that is worried about the effects of climate change on the country. For a large country that's a big emitter, like the United States, the dominant part of our response strategy I think needs to be to lead with credible controls on emissions, because that effort will then be magnified by other countries controlling their emissions.
But the impact of all that on countries that are exposed to climate change will be several decades down the road, just because the whole climate system and the energy system takes a long time to catch up.
MR. KERN: The India and China water problem is one which is very significant. You can speak to any of the Indian and Chinese science and engineering experts themselves and they will put that right at the top of lists of things that they have to solve. So I do believe that it's an area where we could invest in some cooperative technologies, which we haven't done terribly well in the past.
And there are opportunities to clean up water, but they do require energy. And so the challenge then -- it goes full circle back to where do you make the biggest investment.
I have to believe the one area that we just keep kicking the can down the road in that we ought to do is in clean coal. Fifty-two percent of the electric power in this country is it -- people don't like that answer. You're going to cringe and that's fine. But the Chinese are building coal-fired power plants at an extreme rate -- about one every 10 days. And if you haven't figured it out, the winds blow from the west. So if don't help in this area, we suffer from it.
And so there's a problem, because the demand out there is needed and we keep ducking it. There are some very creative ideas that I've heard in the area that people haven't broached that are clean solutions that actually don't pollute, that could help us. But in my view, you cannot get to clean water without solving the energy problem. You cannot get to the energy problem without solving the coal problem. It sits there and we haven't addressed it.
FUERTH: I don't know what the Chinese are going to do about their water problem. And it is their water problem. There's no way of importing water, unless you decide to redirect rivers from other countries.
The critical problem is damage to water sheds, the growth of urban populations, the heavy growth of the industrial sector, which itself consumes water as an input and so on. It's a huge problem.
The only good news that I can see when I look at this mess is that I believe that many of the most important leverage points for addressing the global problems are still in the United States and in its conduct over the longer term. We can, by making certain strategic changes in our own approach to the energy market, alter a great deal about some of the gloomy prospects ahead. And it's in our power to do it.
In our power, for example, to have proceeded with a demonstration industrial-scale plant for capturing carbon. And instead, we canceled it, okay? That was a discretionary act. And if that, by any chance, would have been good technology we have either sat it back by years and/or given it to somebody else to develop and to exploit -- assuredly to our disadvantage.
I think that we need to approach energy and the environment as a system. We need to have policies which are able to understand how the parts of the system interact and we need to have policies which are capable, in turn, of interacting with those sub systems.
To anyone who would say that's impossibly complex, I would say we had better do it. It's existential. It's not optional.
STARES: All right.
Well, thank you very much, gentlemen. We think with -- (applause) -- we'll be back here again -- (applause).
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