GEOPOLITICAL PANORAMA
OF 2014
From:
THE NEW NEW GREAT
GAME Geography, Energy, the Dollar
and Gold
December 2013
Tweaking Mackinder’s
“Heartland Theory”
Oil & Gas: forgotten sector, strategic (and absolute?)
value
By Janet Yellen and Bang-Bang Control
GEOGRAPHY, ENERGY,
THE DOLLAR AND GOLD
Sir Halford Mackinder’s 1904 speach in which he outlined his
“Heartland Theory” was a founding moment for geo-politics. He argued that control of
the Eurasian landmass (Europe, Asia and the Middle East), which contained the
bulk of the world’s population and natural resources, was the major
geo-political prize.
As time passed, energy (first crude oil then natural gas),
became increasingly integral to this concept and its strategic significance
cannot be overstated.
Remarkably, Mackinder’s theory has remained equally valid,
if not more so, in the modern era - although key “pivot areas” for exercising
control have evolved. In addition to Central Asia and Trans-Caucasus in Mackinder’s
day, the oil producing nations of the Middle East took on increasing importance
in the “New Great Game”.
The geo-political confrontation between the US on one hand
and China (in increasingly close cooperation with Russia) on the other, is
evolving rapidly. We see a “New New Great Game” (NNGG) emerging and have “tweaked”
the Heartland Theory to include.
• An additional geographic “pivot”, the South and East China
Seas, due to their importance in terms of world trade, oil and gas reserves and
numerous territorial claims.
• A monetary “pivot”, the dollar-based system of world trade
and its reserve status. China is taking the lead role in pushing ahead with its
strategy of dismantling the dollar’s supremacy.
Geo-political tension in each of the pivot areas is
escalating. For example Central Asia and Trans-Caucasus (Ukraine), Middle East
(Iran) and South and East China Seas (Senkaku Islands). The rising powers,
China and Russia, are adopting more aggressive geo-political tactics towards
US/EU/NATO/Japanese interests. The more “dovish” US policy towards Iran,
following the recent nuclear deal, is threatening to destabilize the decades-long
status quo in diplomatic relations with Israel and Saudi Arabia.
Just about every aspect of the escalating geo-political
tension has an energy element, either directly or indirectly. Viewed from a
“Mackinderian” perspective, the strategic value of the energy sector is immense.
It begs the question whether, after five years of underperformance, the equity
market is under-pricing energy assets, including those deeply out-of-favour
integrated oil and gas stocks? Probably, in our view.
We believe that the significance of the monetary pivot in
the NNGG is under-estimated as China accelerates preparations to undermine the
dollar’s role in world trade. The other aspect of China’s strategy is its diversification
into “hard assets” and, as far as we can tell, China is attempting to “corner”
the market for physical gold. Its strategic significance is lost on most
Western investors. We present some insights into today’s gold market which
might shock Western investors - similarities with the run-up to the major lows
in the gold price more than a decade ago - and China’s understanding of modern
gold market mechanics.
The threats to the existing US-centric order are substantial
and the geo-political sands are shifting. The US will respond and has the
largest economy and military (with vast ocean-going naval advantage), most powerful
investment banks and deepest financial markets and significant (albeit
declining) political/diplomatic influence.
In terms of boxing metaphors, we wonder whether the Ali versus Foreman fight in
Kinshasa in 1974 (knockout in the eighth) or the Leonard versus Hagler fight at
Caesar’s Palace in 1987 (points victory where the argument as to who actually
won continues) will be the parallel.
THOUGHT FOR THE
REPORT THE FOOTSTEPS OF GIANTS
From an anonymous
source prior to the major lows in the gold price more than a decade ago.
“Someone once said,
‘no one wants gold, that’s why the US$ price keeps falling.’ Many thinking ones
laugh at such foolish chatter. They know that the price of gold is dropping
precisely because ‘too many people are buying it’! Think now, if you are a
person of ‘great worth’ is it not better for you to acquire gold over years, at
better prices? If you are one of ‘small worth’, can you not follow in the
footsteps of giants? The real money is selling ALL FORMS of paper gold and
buying physical!
Why? Because any form
of paper gold is losing value much, much faster than metal. Some paper will
disappear all together in a fire of epic proportions! The massive trading
continues at LBMA, but something is now missing...We have reached production
costs...The great mistake by the BIS was in underestimating the Asians. Some
big traders said they would buy it all below $365+/- and they did. That’s what
forced LBMA to go on a spree of paper selling! Now, it’s a mess.”
Interesting?
The gold price is approaching production cost again.
We have the physical versus paper demarcation again (most
commentators are clueless on this - the paper market is still determining the
screen price, but it will probably die once and for all this time around – the question
is at what level?).
The Asians are being underestimated again when the price is
declining (although not by the BIS - China is buying physical gold in
unprecedented volumes – at least 70-75% of world mining production this year).
See graphic: GOLD: CHINA'S CUMULATIVE NET IMPORTS
THROUGH HONG KONG (tonnes)
But accelerating developments in the monetary sphere is only
one element of...
THE “NEW NEW GREAT
GAME”
Mackinder’s “Heartland Theory”
The traditional “Great Game” obviously dates back to the
geo-political rivalry between Great Britain and Russia for supremacy in the
central Asian region during the nineteenth and early part of the last century. In
his famous speech, “The Geographical Pivot of History”, to the Royal
Geographical Society in 1904, Sir Halford Mackinder outlined his “Heartland
Theory. ” According to Wikipedia.
“This is often
considered a, if not the, founding moment of geo-politics...”
Briefly, this posited that the major geo-political prize is
Eurasia (the “World Island”), i.e. the European, Asian and Middle Eastern land
mass, which contained the bulk of the world’s population and its natural
resources. Mackinder argued that control of the “pivot area“ of central Asia
was the key to controlling Eurasia.
This is taken from his paper published in the April 1904
edition of the “The Geographical Journal.”
See Map: The
Natural seats of Power
He also emphasized the important difference between sea
power and land power. From Zurich-based ISN’s 2009 “Geopolitics and US Middle
Eastern Policy: Mackinder and Brzezinski.”
“Mackinder’s theory
was a counter-argument to notions that maritime supremacy was sufficient for a
power such as Great Britain to safeguard its hegemony. He claimed that, with
the emergence of new transportation routes [e.g. Trans-Siberian railway] and
technology, a power that could control the centre (and the abundant resources)
of the Eurasian landmass...would ultimately be able to attack the colonies of a
sea power everywhere on the continent. “
See Map: The
Trans-Siberian Railway
In the wake of World War One, Mackinder argued the case for
preventing a convergence of interests between Russia and new “pivot” states of
Eastern Europe (Austria, Hungary, Czechoslovakia and Poland). This led to his
famous dictum.
“Who rules East Europe commands the Heartland;
Who rules the Heartland commands the World Island;
Who rules the World Island commands the World.”
It’s important to emphasise that the pivot area does
evolve/fluctuate with changes in geo-political reality. Indeed, Mackinder included the Baltic states
in one of his revisions.
As the world industrialised and became increasingly
dependent on crude oil (and later, natural gas), energy resources became ever
more integral to the Great Game. With such a large proportion of the world’s
oil and gas reserves found on the Eurasian land mass, this was easily
accommodated within Mackinder’s theory.
The period just before World War One, with the British
Navy’s switch from coal to oil and the adoption of the automobile, set the
stage for this. Indeed, in 1913, the British government acquired a 51%
controlling interest in the Anglo-Persian Oil Company, the forerunner of BP.
Remarkably, the validity of Mackinder’s theory has stood the
test of time, even though most people are unfamiliar with it. The following
quote is from the Reagan Administration’s “National Security Strategy of the United
States” published in January 1988.
“The first historical
dimension of our strategy is relatively simple, clear-cut, and immensely sensible.
It is the conviction that the United States’ most basic national security
interests would be endangered if a hostile state or group of states were to
dominate the Eurasian land mass – that area of the globe often referred to as
the world’s heartland.”
Right now, it’s obvious that US national security interests
are threatened by a combination of China and Russia.
This was the influential globalist (and former National
Security Advisor), Zbigniew Brzezinski, writing in his famous 1997 book, “The
Grand Chessboard.”
“Ever since the
continents started interacting politically some 500 years ago, Eurasia has been
the centre of world power… For America, the chief geopolitical prize is Eurasia
– and America’s global primacy is directly dependent on how long and how
effectively its preponderance on the Eurasian continent is sustained.”
In the “New Great
Game”, (NGG) of the modern era, the major rivalry is between US/NATO on one
side and China, Russia, other members of the Shanghai Cooperation Organization
and the likes of Iran, on the other.
SHANGHAI COOPERATION ORGANIZATION See MAP
The “pivot states” in the NGG are
• The key nations in Central Asia and the
Trans-Caucasus: especially those with
substantial energy resources and/or pipelines (e.g. Azerbaijan, Ukraine,
Turkmenistan, Uzbekistan etc). Here is a chart showing the major gas pipelines. See MAP
And the major oil
pipelines: See MAP
• The major OPEC
nations of the Middle East: here we borrow part of US geo-strategist,
Nicholas Spykman’s, “Rimland” theory. Spykman, the “godfather of containment”
was both a disciple and critic of Mackinder. He believed that the “Rimland”,
European coast, Arabian-Middle Eastern desert and Asiatic Monsoon region was
more important for controlling the Heartland.
See MAP
This was Brzezinksi on the Central Asian Republics, or
“Eurasian Balkans” as he terms them in his book. This was in 1997, when China’s
economic and military might was still a distant prospect.
“They are of
importance from the standpoint of security and historical ambitions to at least
three of their most important and more powerful neighbours, namely Russia,
Turkey and Iran, with China also signalling an increasing political interest in
the region. But the Eurasian Balkans are infinitely more important as a
potential economic prize; an enormous concentration of natural gas and oil
reserves is located in the region, in addition to important minerals including
gold.”
It’s a reminder of the strategic importance of energy and
gold and puts the US-supported “Color revolutions” into sharper focus - Ukraine
(Orange, 2004), Georgia (Rose, 2003) and Kyrgyzstan (Tulip, 2005).
It continues: Tweaking
the Heartland Theory and on… Go to :
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