Introduction

Over the next fifty years the price of petroleum products is expected to increase dramatically. Currently, oil prices have been relatively stable, however most producing fields in the world are at, or very near capacity. Furthermore, the rate of discovery is not replacing depleted fields; this is an event known as Peak Oil. As the century progresses, energy demands will only continue to increase.

For a variety of reasons, a stable, steady and inexpensive supply of energy (read petroleum) is vital to every major economy in the world, particularly those economies heavily dependent on manufacturing and exports. Petroleum security is considered an inextricable aspect of national security and military strategy. Therefore, it is of little surprise that most nations do not leave their energy supply chain entirely open to the free market. A broad spectrum of nationalization exists in the world today, ranging for a relatively free-market system most often seen in developed Western nations, to a very strong state influenced model as seen in countries such as China, to a completely nationalized state model as seen in countries like Venezuela and Iran.

Resource Nationalism

As petroleum becomes scarcer, it is more and more important to utilize the reaming energy assets as efficiently as possible. No mechanism is as fair or as efficient at distributing resources as the free market. A vertically integrated state sponsored oil company (National Oil Company) does not have to react to the same market forces as a private oil company, therefore they follow a very different investment model. A state sponsored company may develop and produce petroleum product even when it is unprofitable to do so, this in artificially lowers the price of oil worldwide. While an inexpensive supply of oil may be a short-term benefit to many economies, the long-term costs are enormous. The natural investment and development cycle is altered in the non-renewable as well as the renewable (alternative) energy sectors.

There are strong parallels between energy and resource nationalism and the very destructive nationalism of the previous century. Countries that had their major industrialization in the last century had the advantage of a cheap, seemingly unlimited supply of energy. Nations who will undergo the bulk of their industrialization in the current century will face some very critical energy challenges. NOCs do not do a very good job of selling their oil on a free market, rather they tend to offer cheap oil to friends and political allies, while withholding oil from perceived adversaries. This model is both destructive and unfair.  Furthermore, NOCs tend to use extremely long-term, exclusive and non-competitive contracts rather then shorter-term competitive contracts. This has the effect of locking up future supplies of oil and preventing developing nations from gaining a level energy playing field.