Wealth of nations

Throughout the ages, empires have been built on trade. That is to say, wealthier states have sought to secure access to the goods that they can afford, and which make their citizens’ lives more comfortable, by means of some measure of control over other states that are the sources of those goods – whether those goods are cultivated, manufactured or dug out of the ground.

While there has of course often been a strategic element to empire-building – and one only has to look at the length of time that the British Empire kept a foothold in places like Aden, Malta and (to this day) Gibraltar to see that – even the British Empire at its greatest extent was quite often explicitly commercial. Its interests were secured through self-governing corporations, such as the East India Company, the Hudson Bay Company or, in the 20th century, the Anglo-Persian Oil Company.

As in all matters of business, so long as both parties to the deal are getting a decent return on the venture, such an arrangement can work well. The imperial power gets access to the goods it wants, and the client nation gets an inflow of cash – possibly also a degree of protection within its own region.

But politics and economics are rarely stable for long. And when things change, the balance of power in any business relationship also changes. Over the past 40 years there have been major shifts in the way that the oil industry is run, for instance. No longer are the major consumer nations able to dictate their terms – the nationalisations by producer nations saw to that. Oil is so important to the advanced economies that its availability, and the vital importance to secure supplies, has and continues to have a major influence on the foreign policies of countries in North America and Europe.

Over that period too, there has been a general trend for the oil producing nations not just to take a greater share of the value of the oil under their territories, but for them to take a larger share in the end price of the finished product. The Middle East in particular has seen a huge amount of investment in downstream processing, firstly in oil refining and later in base petrochemicals. Some states are going further downstream, into intermediates and polymers, and are investing heavily in chemical production and sales in the end-user countries.

We probably have to be a bit careful here. In the oil and gas sector, the growing power of the major exporting nations ended up increasing the delivered price of oil to a point where it became economic to explore for and exploit oil and gas reserves in more out-of-the-way places, until a new balance was established. Nevertheless, foreign policy in various parts of the world is still dominated by energy security concerns, not least the relationship between the US and the Middle East and that between Europe and Russia.

In the chemical industry, things are getting hard for producers in the developed economies. Ever-increasing regulation is undoubtedly raising costs for manufacturers and suppliers, at a time when new production capacity is coming onstream in the Middle East, India and China. These new plants benefit not only from lower input costs (feedstocks and/or labour) but also from the fact that, being new, they are generally more efficient to operate.

The trouble we could easily get into is that, as with the oil industry, we will become reliant on imports to supply our chemical needs. That may mean being reliant on Middle East manufacturers, with all the political baggage that attends. And it will not be possible to look for alternative sources, as domestic production will by then be priced out of the market or have become environmentally unacceptable.

One inkling that this process is already on the march comes from the US, where a number of executions have had to be postponed because of a shortage of the chemical used in lethal injections. There is, apparently, only one US supplier of sodium thiopental, a heavy-duty anaesthetic that is the drug of choice for states with the death penalty. Hospira Inc, the supplier, says that there have been problems with its raw material suppliers overseas since early 2010 and that there will be no more available until the new year. Maybe death by stoning – the obvious product substitution – will make a comeback.   

Peter Mackay