Oil and Silk Road

Oil and the Silk Road

The global supply of oil is depleting at unprecedented levels despite the efforts of many developed nations to deal effectively with the problem. National dependencies on oil have created ripple effects in the global economy that are manifested primarily by restructured world oil markets and the political aspirations of producer and consumer nations with regard to oil exploration, refinement, transportation, and pricing ("Annual Energy Review," 2012).

Just as the historic Silk Roads were the hubs of economic exchange across Eurasia, so too is oil in the Central Asian oil pipelines is core to economic trade (Waugh, 2009). For centuries, silk was a major currency that fueled long-distance trade (Waugh, 2009). Today, oil has eclipsed silk in long-distance international trade (Waugh, 2009). From 400 BC to 1600 CE, the goods traded on the Silk Roads could not be had through any other methods than trade with the diaspora of merchants who traveled the trade routes (Waugh, 2009). The same dynamics are at play in the world today as the systems that enable oil to be transported and traded over long-distances are exacting and do not offer alternative modes of delivery. The countries of Asia and the states of the Persian Gulf region have a long and productive history of trade relations. Today, Asia supplies most of the consumer products for the Gulf countries; the Gulf countries trade crude oil, liquid natural gas, and refined oil products (Waugh, 2009). The new Silk Road links the two regions through a network of hydrocarbons traders and investors that includes unprecedented emerging Islamic finance (Waugh, 2009).

Across the globe, people have come to rely on oil to supply high energy mobile fuels and bulk quantities of stationary fuels ("Annual Energy Review," 2012). No alternative fuel on the horizon comes close to matching the high energy content per gallon, low cost per unit of energy, ease of storage and handling, or transport mobility characteristics of gasoline and diesel fuels ("Annual Energy Review," 2012). Oil is a major raw material component in the manufacture of thousands of products consumed in domestic and international markets ("Annual Energy Review," 2012). Moreover, oil and natural gas are the building blocks for a wide array of products that enable mass production of foodstuffs for people across the globe ("Annual Energy Review," 2012). Importantly, the availability of oil -- and, in concert, the price of oil, impacts the global food supply ("Annual Energy Review," 2012).

For decades, Saudi Arabia has been able to control the supply -- and the price of oil -- functioning as a high level governor over demand for oil. As the enormous Arabian oil supply buffer shrinks, the unpredictability and vulnerability of the oil market supply and demand equation increases ("Annual Energy Review," 2012). Global population is a key driver of demand for oil. Global consumption of oil is currently at about 85 million barrels of oil each day, or 40,000 gallons per second ("Annual Energy Review," 2012). If the current rate of global oil consumption were to be maintained, 55 Mbl of accessible oil would need to be added to the world's supply every day ("Annual Energy Review," 2012). Oil consumption now exceeds new oil discoveries by 4 to 1 ("Annual Energy Review," 2012).