Before we get started – have you signed up to our free 2023 Power Play Summit?
Here at Fortune & Freedom we believe that we have entered one of the greatest, transformational periods for one of the world’s largest industrial sectors in at least a generation. That sector is energy – and alongside our energy expert, James Allen, we have been organising an event to deep-dive into it all, where James will reveal what he believes to be the biggest opportunity for investors, like you, to profit (full details of the event are right here).
Need a little more convincing? In this edition of Fortune & Freedom, I’m going to offer some historical perspective on the global energy markets.
As the old adage goes, “Where there is crisis, lies opportunity.” Well, as crises go, few can top a world war.
Although the causes of the Great War are complex, in an important sense, the first truly global energy crisis played a role in the outbreak of hostilities and the subsequent, ephemeral peace that emerged in its aftermath.
The empires of Europe have always clashed over access to resources of various kinds: arable land, key waterways and ports, mineral ores, etc. While the ostensible causes of wars are frequently religious or ethnic disputes of some sort, there is always a degree of underlying resource competition between belligerents.
As the European empires expanded to encompass the globe, they became ever more reliant on their respective navies to maintain freedom of navigation, or perhaps to deny the same to their rivals.
The English and Dutch navies squared off over control of key North Sea and Hanseatic trading routes. The British, Spanish and French did the same over control of the Mediterranean and Caribbean. The British and American navies fought over control of the St Lawrence River and East North American seaboard.
From wind and sail to oil and empire
During the Great War, the British would face the German navy at the battle of Jutland. But consider: unlike in the centuries prior, in which naval battles were fought by wind-powered sailing ships, at Jutland they were all powered by coal, or oil.
Shortly after the turn of the 20th century, future Prime Minister Winston Churchill and First Lord of the Admiralty Jackie Fisher, among others, decided that, in order to retain global naval superiority, the Royal Navy needed to transition away from coal- to oil-powered warships.
The implications of that decision were profound. As oil became the fuel of war, war became a means of acquiring it. With the transition from coal to faster, oil-powered warships, however, this meant that, with the notable exception of Tsarist Russia, which occupied the Caucasus, European empires’ naval energy would need to come from overseas.
And so, a great global oil rush ensued. The Dutch discovered deposits in Indonesia. The Spanish, French and Italians in North Africa. The French and British in the Middle East and Persia. Wherever any of the Europeans met with local resistance, a colonial war of some sort ensued.
The Germans, lacking a sizeable empire, came up relatively short. But following the Crimean War, the Germans and Austrians gradually cozied up to the Ottomans, who just happened to sit atop what geologists were soon discovering to be vast oil deposits.
The problem, however, was one of transport. The potential Ottoman oil fields were far away, in modern day Syria and Iraq.
Transporting oil over long distances by sea was fairly straightforward if one had freedom of navigation. But if one did not? Was there another option?
Indeed there was. The Germans, Austrians and Ottomans hatched a plan: they would construct a railway from Baghdad to Berlin.
John D Rockefeller and Andrew Carnegie had already demonstrated in North America that long-distance oil transport by rail was efficient and potentially highly profitable. In Germany, where manufacturing was rapidly advancing, the industrialists of the day saw the opportunity.
And so did the Imperial German Navy.
Think of this as the Chinese “Belt and Road” initiative of its time: A long-distance, modern railway intended to join three empires together. To bring oil and other raw materials in one direction, and finished goods for export in the other.
The Ottomans also had their eyes on the Suez Canal. To the British, who relied on control of the Gulf to safely transport oil from Persia, via Suez, this was seen as a potentially mortal threat: lose control of the Gulf and possibly even Suez and you lose your secure oil supplies.
Lose your secure oil supplies and you lose your navy. Lose your navy, and you lose your empire. Lose your empire, and you might even lose your island to invasion someday.
There are those who believe that Lord Grey and other members of the so-called “Milner Group” actively worked behind the scenes to manoeuvre Britain into a world war in the early years of the 20th century, before Germany grew too powerful and the B-B railway was completed. There is much circumstantial evidence to that effect, much of which was not declassified until decades later.
This is not to say that the other belligerents, including the central powers, did not also seek war. Indeed, you could argue that, as the wealth and power that empires could derive from oil deposits became ever clearer in the early 20th century, a war over control of those deposits, wherever they might be, became inevitable.
But it is an interesting historical coincidence that, when hostilities on the Western Front commenced, the B-B railway was a mere 400 miles from completion. And one of the first British Middle Eastern theatre operations of the war was the seizing of the port of Basra – the Ottoman port on the Gulf – and marching north, towards Baghdad. (US-led coalition forces did much the same in 2003, toppling the Iraqi government and seizing the oilfields.)
It is also an interesting historical coincidence that the Nord Stream pipelines linking Russia and Germany were blown up late last year. Well, perhaps not.
As another old adage goes, “History may not repeat, but it certainly rhymes.”
The Great (Energy) War
And so the war came. As did a second round in the late 1930s-40s, with Japan entering the fray in its own imperial pursuit of the rich Dutch oil fields of Indonesia, among other Pacific Rim resources.
There was everything to fight for. Fortunes were made, and lost.
Today, there is everything to play for. And new fortunes are to be made, or lost.
Another war, this one being fought in Ukraine, has highlighted the great extent to which the world’s energy resources remain perennial flash points. While few would see the conflict as primarily one over energy, it can’t be lost on the belligerents that the Black Sea basin is rich in shale and oil deposits, both on- and off-shore.
Nor is it lost on anyone that the EU’s growing dependency on cheap Russian gas for its manufacturing on the one hand, and cheap US defence protection on the other, did not make for a permanent, stable geopolitical situation.
Anyone surprised that both Russia and the US have, in their various ways, used their energy power as a “weapon” of sorts in the conflict has not been paying attention. Indeed, that is largely what the conflict is all about.
From geopolitical rivalry to generational power play
What is happening in Ukraine is a tragedy. It is.
But as I have written before, investors must approach the world stoically; that is, to see the world as it is, not as they would want it to be. And when I see the tragedy of Ukraine, and place it in context, I see opportunity in the energy markets.The world’s energy infrastructure, already teetering in many places before the Ukraine conflict began, was already in need of substantial reinvestment, as well as technological advancement.
Today, the pressures are more acute than ever.
Thus James has spent a great deal of time behind the scenes preparing and developing an entirely new project to help you take advantage of what’s going on. One designed to capture sharp, short-term moves across the energy market, both clean and “dirty”.
By James’ estimates, over £1 trillion of fresh investment is going to hit the sector this year, with potentially even larger amounts thereafter. The expansion, rebuilding and modernisation of global energy infrastructure: fossil, nuclear, renewable, low-carbon, you name it – is going to be arguably the single biggest source of economic growth, corporate profit and investor returns over the next five to ten years.
To find out more, be sure not to miss our upcoming summit – you can sign up here, for free.
Until next time,
Investment Director, Southbank Investment Research