Stranded Wealth: Rethinking the Politics of Oil in an Age of Abundance
International Affairs, Volume 94, Issue 6, 1 November 2018, pp. 1309–1328
26 Pages Posted: 17 Dec 2018
Date Written: November 1, 2018
Even if oil prices have recovered from their plunge in 2014, this article argues that the oil industry is unlikely to return to the status quo ex ante. Two profound shifts in technology and markets are dramatically changing the longer-term outlook for the oil industry. In the short term, traditional producers will feel persistent pressure from the shale revolution, a disruptive technology that has altered the cost curve and elasticity of oil supply. In the medium term, the industry must confront a structural slowdown and eventual peak in demand owing to innovation and evolving consumer preferences, related in part to concerns over climate change. Together, these shifts reflect a new energy order in which oil is no longer an exhaustible resource, new trading patterns emerge, and oil prices exhibit greater short-term volatility amid a long-term declining trend. These new rules of the game force us to reconsider some of the theories and concepts of the international political economy of oil. We flag three key political effects from these market shifts: (1) key oil-producing states face economic and political turmoil; (2) the Organization of the Petroleum-Exporting Countries (OPEC) cannot influence the price of oil in the long term by cutting output; and (3) power is redistributed in the international system.
Keywords: oil politics, shale revolution, climate policy, stranded assets
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