Access to water, energy, rare minerals and also knowledge determines the geopolitical resilience of regions of the world. A look at this makes some power-political actions appear in a new light.
Ukraine, the Middle East, the South China Sea or Sudan: conflicts are increasing. Firstly, this has to do with more multipolar power centers again. In local wars, different geopolitical interests of the great powers USA and China, the would-be great powers Russia, France, Great Britain and, increasingly, regional interests collide. Secondly, these conflicts are often (also) about raw materials and their scarcity.
Anyone who wants to recognize and assess future lines of conflict in good time would do well to deal with geopolitics and scarcity of resources. Vontobel’s chief economist, Reto Cueni, recently wrote an interesting analysis on this. It is the basis for the following discussion and distinguishes between the dimensions of water, food, energy, minerals and metals, and knowledge.
Existential scarcity
Since ancient times, water and food have repeatedly been the cause of conflicts and wars: states on the lower reaches of large rivers against those on the upper reaches, shepherds against farmers.
Today, for example, the Kyrgyz people still control water, on which Uzbek and Tajik farmers also depend. If they overuse their water supplies, it can cause existential hardship for the Uzbeks and Tajiks. To prevent this, cross-border cooperation and appropriate international agreements are needed.
In the larger geopolitical context, it becomes apparent that water resources are very unevenly distributed. Brazil, Russia, but also the USA and Canada have significantly larger shares of the world’s renewable water resources than of the world’s population.
In the USA, however, water is plentiful, especially in the north, but it is already scarce in the south. Latin America is generally rich in water.
Water is a very valuable commodity in the Middle East, in large parts of Africa, but also in China and India. While per capita renewable water supplies are estimated at 32 million cubic meters in Russia and 9 million in the USA, Egypt has to make do with 0.5 million and China with 2 million. The potential for conflicts over water is particularly great in South Asia, but also in North Africa and Central Asia, with climate change likely to exacerbate the shortage.
There is generally enough water in Europe, but there are major differences within the continent. While the per capita reserves in Norway amount to no less than 78 million cubic meters and the more densely populated Switzerland has at least 6 million thanks to the Alps, Germany has to be content with 1.8 million.
Similar imbalances can be seen in basic foodstuffs. Large parts of Africa, the Middle East and Asia (including Japan, South Korea, China and India) rely heavily on food imports, while Russia, the US and Canada, and Latin America are net exporters. When it comes to fertilizer, which is important for food production, Europe (including Switzerland), India, Canada and Mexico are also heavily dependent on imports.
African countries and parts of South Asia are particularly affected by malnutrition.
Without energy, little works
Industrialization and the associated multiplication of wealth is a story of increasing energy consumption. Global consumption of primary energy has increased by over 40 percent since the beginning of this century; it has increased almost sixfold since 1950.
As a result, numerous industrialized and emerging countries have become heavily dependent on energy imports. This applies first and foremost to China: its great interest in good relations with Russia and the Middle East obviously has something to do with this. China’s claim to secure trade routes with its Silk Road project must also be seen against the background of its dependence on imports of food, energy and also ores and minerals. This also applies to India to a lesser extent.
Russia and the (otherwise vulnerable) Middle East have an abundance of energy resources. The US has become a net energy exporter thanks to the shale oil revolution. In Asia, fossil fuels give Indonesia, Kazakhstan and Azerbaijan a special position, while Turkey and Europe are dependent on imports.
However, if decarbonization were to succeed and actually radically reduce the consumption of fossil fuels in favor of renewable energies, this would fundamentally change geopolitical dependencies.
Decarbonization requires metals and earths
The production of industrial goods requires metals and the production of smartphones, PCs, batteries or hydrogen requires specific minerals such as copper, lithium or iridium. Without this, an energy transition is hardly conceivable.
If you look at net import dependency across all metals and minerals, Europe appears to be the most vulnerable. But China and the USA also need significantly more than they are producing themselves. Russia processes almost as much as it develops itself. The major regions of origin are Latin America, Australia and Africa.
The mining of minerals and so-called rare earths that are important for decarbonization is concentrated in a few countries. Chile, Peru, South Africa and especially China occupy a special position here. The Middle Kingdom also because, for many critical metals, it has become almost the only processor of the ores mined elsewhere.
Development requires human capital
However, resource wealth is often more of a curse than a blessing for widespread prosperity. The most central resource for becoming rich and developed is knowledge and skills. We need well-trained minds who research and develop and continually produce new innovations. Economists call this scarce resource human capital.
A look at the geographical spread of the World Intellectual Property Organization’s Global Innovation Index shows clear patterns that can also be found in university rankings. The economic success of countries and regions of the world is clearly linked to their innovative strength and their knowledge base.
Human capital is the competitive advantage of North America and Europe. Its top universities have global appeal. China is catching up and appears to be becoming a new hub of human capital in Asia. However, the innovation index used is likely to exaggerate China’s strength somewhat, since although the number of patents registered by the Chinese has increased enormously, these currently lead to commercial breakthroughs less often than in the West.
Fragile regions of the world, ongoing dependencies
The report “The Quest for Resources” rates the described relative availability of the five resources from 0 (very high scarcity) to 4 (abundant). This provides an interesting overview of geopolitical strengths and vulnerabilities.
The Middle East appears to be the most fragile. Its prosperity is based one-sidedly on its abundance of fossil fuels. Seen from this point of view, the diversification efforts that the sheikhs in the Gulf are pushing forward with a lot of money are an imperative. However, Russia shows that money alone cannot overcome a one-sided dependence on raw materials and that the insecurity and inequality associated with autocratic regimes usually stand in the way of broader development – instead, repression and conflicts arise.
China is an emerging world power, but the densely populated Middle Kingdom, with its prosperity, remains dependent on access to resources from other regions of the world, just like India.
Although Africa as a continent has enough energy, minerals and young workers, it lacks water, human capital and stable economic conditions. Africa’s potential is great, but for now it remains the continent most affected by malnutrition.
Latin America would actually be in a resilient and good position in many ways, but the region lacks human capital and most countries still lack a stable, attractive investment climate.
Although Europe appears comparatively strong overall, it is dependent on access to metals and energy from other regions of the world. North America appears to be the most geopolitically resilient of all. This could explain the trend towards retreating into itself, which is problematic for the rest of the world.
More interconnected than you think
With its focus on regions of the world, the analysis aggregates too much to show the vulnerability and dependency of individual states. But at least three general conclusions emerge:
- With the rivalry between China and the USA and Russia’s aggressive ambitions, the formation of geopolitical blocs may increase again, the world may become more unstable and the global supply of some raw materials may become more crisis-prone and therefore more volatile. But the mutual dependencies are far too great for a general economic collapse. China in particular remains heavily dependent on reliable and secure trade routes.
- Digitalization and decarbonization are changing geopolitical balances. While fossil fuels are at least potentially losing value, some metals and earths are becoming increasingly important.
- Changing shortages are expressed in relative prices. As technologies change and resources become more sought after globally, their value increases. If conflicts or wars (potentially) result in certain raw materials only being available on the market in reduced quantities, their price will rise. Investors would therefore do well to keep an eye on geopolitical developments.